As filed with the Securities and Exchange Commission on September 17, 2018

 

Registration No. 333-              

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM S-1

REGISTRATION STATEMENT

under the Securities Act of 1933

 

IMAC Holdings, Inc.

(Exact Name of Registrant as specified in its charter)

 

Delaware   8093   83-0784691
 (State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Number)
  (I.R.S. Employer
Identification No.)

 

IMAC Holdings, Inc.

1605 Westgate Circle

Brentwood, Tennessee 37027

(844) 266-4622

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

Jeffrey S. Ervin

Chief Executive Officer

IMAC Holdings, Inc.

1605 Westgate Circle

Brentwood, Tennessee 37027

(844) 266-4622

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Spencer G. Feldman, Esq.
Olshan Frome Wolosky LLP
1325 Avenue of the Americas, 15 th Floor
New York, New York 10019
(212) 451-2300

Ralph V. DeMartino, Esq.

F. Alec Orudjev, Esq.

Cavas Pavri, Esq.

Schiff Hardin LLP
901 K Street NW, Suite 700
Washington, D.C. 20001
(202) 778-6400

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this Registration Statement.

 

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. [X]

 

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. [  ]

 

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. [  ]

 

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. [  ]

 

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 [  ] Accelerated Filer [  ] Non-Accelerated Filer [  ] Smaller Reporting Company [X]
    (Do not check if a
smaller reporting company)
Emerging Growth Company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [  ]

 

 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities
to be Registered
 

Amount to be

Registered

   

Proposed

Maximum

Offering

Price Per

Share

   

Proposed

Maximum
Aggregate

Offering

Price(1)(2)

   

Amount of
Registration

Fee

 
Shares of Common Stock, par value $0.001 per share               -                 -     $ 17,250,000     $         2,147.63  
Underwriter Warrants (3) (5)     -       -       -           -  
Common Stock underlying Underwriter Warrants (3) (4)     -       -       828,000     $ 103.09  
Total     -       -       18,078,000     $ 2,250.72  

 

 

(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes shares the underwriter has the option to purchase to cover over-allotments, if any.
(3) We have agreed to issue to the underwriter, upon closing of this offering, warrants exercisable for a period of five years from the effective date of this registration statement entitling the representative to purchase 4% of the number of common shares sold in this offering. Resales of shares of common stock issuable upon exercise of the underwriter warrants are being similarly registered on a delayed or continuous basis. See “Underwriting.”
(4) Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(g) under the Securities Act. We have calculated the proposed maximum aggregate offering price of the common stock underlying the underwriter’s warrants by assuming that such warrants are exercisable at a price per share equal to 120% of the price per share sold in this offering.
(5) No separate registration fee required pursuant to Rule 457(g) under the Securities Act.

 

 

 

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.

 

 

 

 

 

 

The information in this preliminary 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 preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion—Dated September 17, 2018

 

PRELIMINARY PROSPECTUS

 

[●] Shares of Common Stock

 

 

IMAC Holdings, Inc.

 

This is the initial public offering of shares of common stock of IMAC Holdings, Inc. We are offering [●] shares. We currently estimate that the initial public offering price will be $[●] per share.

 

Prior to this offering, no public market has existed for our common stock.

 

We intend to list our shares of common stock for trading on The NASDAQ Capital Market under the symbol “IMAC.” We believe that upon the completion of the offering contemplated by this prospectus, we will meet the standards for listing on The NASDAQ Capital Market.

 

An investment in our securities is highly speculative, involves a high degree of risk and should be considered only by persons who can afford the loss of their entire investment. See “Risk Factors” beginning on page 18.

 

    Per Share     Total  
Initial public offering price   $       $    
Underwriting discounts and commissions (1)   $                 $    
Proceeds to us, before expenses   $          $            

 

 

  (1) Represents underwriting discounts and commissions equal to 6.25% per share (or $[●] per share), which is the underwriting discount we have agreed to pay to the underwriter in this offering.
  (2) Does not include a non-accountable expense allowance equal to 0.75% of the gross proceeds of this offering, payable to the underwriters, or for the reimbursement of certain expenses of the underwriters.

 

In addition to the underwriting discounts listed above and the non-accountable expense allowance described in the footnote, we have agreed to issue upon the closing of this offering warrants to Cuttone & Co., LLC, as representative of the underwriters, entitling it to purchase 4% of the number of shares of common stock sold in this offering at 120% of the public offering price per share expiring five years from the effective date of the registration statement of which this prospectus forms a part. The registration statement of which this prospectus forms a part also covers these warrants and the shares of common stock issuable upon their exercise. For additional information regarding our arrangements with the underwriters, please see “Underwriting” beginning on page 82. We have granted the underwriter the right to purchase up to [●] additional shares of common stock from us at the initial public offering price less underwriting discounts and commissions to cover over-allotments, if any. The underwriter can exercise this option within 45 days after the date of this prospectus.

 

We are an “emerging growth company” as defined under U.S. federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements after this offering.

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The underwriter expects to deliver the shares of our common stock to purchasers on or about [●], 2018.

 

 

 

CUTTONE & CO., LLC

 

 

 

The date of this prospectus is [●], 2018

 

 

 

 

 

 

     
 

 

TABLE OF CONTENTS

 

  Page
Prospectus Summary 2
Risk Factors 18
Cautionary Note Regarding Forward-Looking Statements 31
Corporate Conversion 32
Use of Proceeds 33
Dividend Policy 34
Capitalization 35
Dilution 35
Management’s Discussion and Analysis of Financial Condition and Results of Operations 36
Business 53
Management 68
Executive Compensation 72
Certain Relationships and Related Transactions 73
Principal Stockholders 75
Description of Capital Stock 76
Shares Eligible for Future Sale 80
Underwriting 82
Indemnification for Securities Act Liabilities 89
Legal Matters 89
Experts 89
Where You Can Find Additional Information 89

 

  i  

 

 

About this Prospectus

 

Neither we nor the underwriter has authorized anyone to provide you with information that is different from that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriter are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

 

For investors outside the United States: Neither we nor the underwriter has 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 United States. Persons outside the United States 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 of the United States. See “Underwriting.”

 

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 third-party industry analysts and publications and our own estimates and research. Some of the industry and market data contained in this prospectus are based on third-party industry publications. This information involves a number of assumptions, estimates and limitations. The sources of the third-party industry publications referred to in this prospectus are:

 

  Orbis Research, an independent market research firm; and
     
  IBIS World, an independent industry research company.

 

The industry publications, surveys and forecasts and other public information generally indicate or suggest that their information has been obtained from sources believed to be reliable. None of the third-party industry publications used in this prospectus were prepared on our behalf. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause results to differ materially from those expressed in these publications.

 

  1  
 

 

PROSPECTUS SUMMARY

 

This summary highlights information contained in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes thereto and the information set forth under the sections “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto, in each case included in this prospectus. Some of the statements in this prospectus constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”

 

References in this prospectus to “IMAC Group” represent IMAC Holdings, Inc. on a pro forma basis after consummation of business transactions involving companies owning or managing IMAC Regeneration Centers and the related issuance of shares of common stock, debt and/or cash payments in such transactions, which were completed in June 2018. The business transactions refer to the following three transactions with entities for which IMAC Holdings currently has either no ownership or control, or varying degrees of ownership or control: “Integrated Medicine and Chiropractic Regeneration Center PSC,” “IMAC of St. Louis, LLC” and “IMAC Regeneration Management of Nashville, LLC.”

 

References in this prospectus to “we,” “us,” “our,” “our company,” “our business” or “IMAC Holdings” are to IMAC Holdings, Inc., a Delaware corporation, and prior to the Corporate Conversion discussed in this prospectus, IMAC Holdings, LLC, a Kentucky limited liability company, and in each case, their consolidated subsidiaries.

 

OUR COMPANY

 

We are a growing chain of Integrated Medicine and Chiropractic (IMAC) Regeneration Centers, combining life science advancements with traditional medical care for movement restricting diseases and conditions. Our mix of medical and physical procedures is designed to improve patient experiences and outcomes, and reduce healthcare costs as compared to other available treatment options. We own six and manage five outpatient clinics that provide regenerative, orthopedic and minimally invasive procedures and therapies. Our treatments are performed by licensed medical practitioners through our regenerative rehabilitation protocols designed to improve the physical health, to advance the quality of life and to lessen pain of our patients. We do not prescribe opioids, but instead offer an alternative to conventional surgery or joint replacement surgery by delivering minimally invasive medical treatments to help patients with sports injuries, back pain, knee pain, joint pain, ligament and tendon damage, and other related soft tissue conditions. Our employees focus on providing exceptional customer service to give our patients a memorable and caring experience. We believe that we have priced our treatments to be affordable by 95% of the population.

 

Our licensed healthcare professionals provide each patient a custom treatment plan that integrates innovative regenerative medicine protocols (representing 31% of our revenue) with traditional, minimally invasive (minimizing incisions and skin punctures) medical procedures (representing 33% of our revenue) in combination with physical therapies (representing 31% of our revenue from physical therapy, and remaining 5% of our revenue from chiropractic). We do not use or offer opioid-based prescriptions as part of our treatment options in order to help our patients avoid the dangers of opioid abuse and addiction. We have successfully treated patients that were previously addicted to opioids because of joint or soft tissue related pain. Further, our procedures comply with all professional athletic league drug restriction policies, including the National Football League (NFL), National Basketball League (NBA), National Hockey League (NHL), and Major League Baseball (MLB).

 

Dr. Matthew Wallis, DC, our Chief Operating Officer, opened the first IMAC Regeneration Center in Paducah, Kentucky in August 2000, which remains the flagship location of our current business. Dr. Jason Brame, DC joined Dr. Wallis in 2008. In 2015, Drs. Wallis and Brame hired Jeffrey S. Ervin as our Chief Executive Officer to collectively create and implement their growth strategy. The result was the formal creation of IMAC Holdings, LLC to expand IMAC clinics outside of western Kentucky, with such facilities to remain owned or operated under the group using the IMAC Regeneration Center name and services. In June 2018, we completed a corporate conversion in which IMAC Holding, LLC was converted to IMAC Holdings, Inc. to consolidate ownership of existing clinics and implement our growth strategy.

 

Since May 2016 to the date of this prospectus, IMAC has opened six outpatient medical clinics and acquired four physical therapy practices for a total of 11 clinics in Kentucky, Missouri and Tennessee. We plan to use the net proceeds of this offering to further expand the reach of our facilities to other strategic locations throughout the United States. In order to enhance our brand, we have partnered with several active and former professional athletes, opening two Ozzie Smith IMAC Regeneration Centers, two David Price IMAC Regeneration Centers, and one Tony Delk IMAC Regeneration Center. We have also signed former NBA player George Gervin to be a brand ambassador for future clinics in Texas.

 

  2  
 

 

 

Our brand ambassadors help deliver awareness to our non-opioid services, emphasizing our ability to treat sports and orthopedic injuries as an alternative to traditional surgeries for joint repair or replacement. For the eight months ended August 31, 2018, IMAC Group had 62,916 patient visits, which was 18% higher than the 53,287 visits for the comparable period in 2017.

 

Over the past few years we have seen a rapid growth in demand for our services as measured by patient visits. The demand for our services continues at a rapid rate fueled by growth for organic healthcare solutions over traditionally invasive orthopedic practices. We believe that our regenerative rehabilitation treatments are provided to patients at a much lower price than our primary competitors such as orthopedic surgeons, pain management clinics and hospital systems targeting invasive joint reconstruction. The average cost of inpatient care alone for a knee replacement was $16,300 in 2014 (excluding therapy). The average cost of a knee treatment for a patient that qualified for a knee replacement was $4,200 in 2017 (excluding therapy).

 

Most Costly Inpatient Stays by First-Listed Operating Room Procedure in 2014
 
Rank   First-Listed Operating Room Procedure Type  

Aggregate

costs for

inpatient

stays in

billions of

$

   

Percent of

aggregate

costs for all

stays for

such

procedure

   

Mean cost

per stay in

thousands

of $

 
1   Spinal fusion     12.0       7.3       28.9  
2   Arthroplasty of knee     11.8       7.2       16.3  
3   Hip replacement, total and partial     8.3       5.1       17.1  
4   Percutaneous coronary angioplasty (PTCA)     8.1       4.9       21.5  
5   Cesarean section     7.0       4.3       6.1  

 

  3  
 

 

Source: Healthcare Cost and Utilization Project, Agency for Healthcare Research and Quality, December 2017

 

We own our medical clinics directly or have entered into long-term management services agreements to operate and control medical clinics by contract. Our preference is to own the clinics; however, some state laws restrict the corporate practice of medicine and require a licensed medical practitioner to own the clinic. Accordingly, our managed clinics are owned exclusively by a medical professional within a professional service corporation (formed as a limited liability company or corporation) under common control with us or eligible members of our company in order to comply with state laws regulating the ownership of medical practices. We are compensated under management services agreements through service fees based on the cost of the services provided, plus a specified markup percentage, and a discretionary annual bonus determined in the sole discretion of each professional service corporation.

 

Orbis Research, an independent market research firm, reported that the regenerative healthcare industry in the United States is estimated to be $67.6 billion by 2019, and independent industry research company IBIS World estimated that outpatient rehabilitation in the U.S. is an approximately $30 billion industry, with approximately 90% of that revenue generated from physical rehabilitation services, including orthopedic, sports, geriatric and other forms of physical medicine. Outpatient rehabilitation is anticipated to grow at a rate of 2% to 7% in the coming years, according to these industry research companies, due to the aging baby boomer generation, sustained high rates of obesity and healthcare reform. We believe that as healthcare insurance providers seek to reduce medical costs and government regulation restricts access to opioid pain prescriptions, our outpatient medical clinics are poised to capture a larger share of healthcare spending.

 

Outpatient Rehabilitation Spending by Segment

 

 

 

We believe that we have positioned ourselves to take advantage of current trends in healthcare spending. According to the Centers for Medicare & Medicaid Services’ National Health Expenditure Projections 2017-2026, national healthcare expenditures continue to rise and are projected to grow from an estimated $3.5 trillion in 2017 to $5.7 trillion by 2026, representing an average annual rate of growth of 5.5%, reaching a projected 19.7% of U.S. gross domestic product in 2026, as shown below.

 

 

  4  
 

 

Demand for minimally invasive movement corrections and non-opioid pain management has surged with the growth of the baby boomer generation. The U.S. Census estimates that the U.S. population over 65 years of age is projected to more than double from 47.8 million to nearly 98.2 million persons and the 85 and older population is expected to more than triple, from 6.3 million to 19.7 million persons, between 2015 and 2060. Additionally, according to the U.S. Census Bureau, the number of older Americans is increasing as a percentage of the total U.S. population with the number of persons older than 65 estimated to comprise 14.9% of the total U.S. population in 2015 and projected to grow to 23.6% by 2060.

 

 

Source: U.S. Census Bureau

 

This significant demographic shift is changing healthcare consumption patterns. At the same time, individuals who are not eligible for Medicare have faced a significant rise in health insurance premiums. As consumers assume the burden of greater healthcare costs, they are price shopping and considering second opinions from conservative treatment providers like our company.

 

Our Operations

 

We currently operate 11 outpatient medical clinics in three states. Our original clinic opened in August 2000 and remains the flagship location of our current business, which was formally organized in March 2015 with the mission of expanding the reach of our facilities to other strategic locations throughout the United States. Our flagship medical clinic has been operated during the last 18 years by Matthew C. Wallis, DC and Jason Brame, DC, two of our co-founders, and, since March 2015, together with Jeffrey S. Ervin, our third co-founder and the current Chief Executive Officer of the company. This management team continues today throughout the organization incorporating the same strategies used to build and operate the company’s flagship location. During 2016 and 2017, we opened five medical clinics and expanded into two new states, Missouri and Tennessee. This year, to date, we opened one medical clinic and acquired four physical therapy clinics.

 

Below is a list of our outpatient medical clinics and information about how we own or control these medical clinics:

 

Clinic Name   Location of Clinic  

Date Opened or

Acquired

 

Form and Date of

Control

 

Operations

Included in 2017

Consolidated
Pro Forma Results

 

Operations

Included in

June 30, 2018

Consolidated Pro

Forma Results

                     
IMAC Regeneration Center   Paducah, Kentucky   August 2000   Managed since June 28, 2018   12 months   6 months
                     
Ozzie Smith Center   Chesterfield, Missouri   May 2016   Full ownership effective June 1, 2018, when remaining 64% interest was acquired   12 months   6 months
                     
IMAC Regeneration Center   Murray, Kentucky   February 2017   Managed since June 28, 2018   11 months   6 months
                     
David Price Center   Brentwood, Tennessee   May 2017   Managed since November 1, 2016   8 months   6 months
                     
Ozzie Smith Center   St. Peters, Missouri   August 2017   Full ownership effective June 1, 2018, when remaining 64% interest was acquired   5 months   6 months
                     
David Price Center   Murfreesboro, Tennessee   November 2017   Managed since November 2017   2 months   6 months
                     
Tony Delk Center   Lexington, Kentucky   July 2018   Managed since July 2, 2018   None   None
                     
Advantage Therapy   South Springfield, Missouri  

August 2018

(originally opened August 2004)

  Full ownership effective August 1, 2018, when 100% interest was acquired   None   None
                     
Advantage Therapy   North Springfield, Missouri  

August 2018

(originally opened March 2013)

  Full ownership effective August 1, 2018, when 100% interest was acquired   None   None
                     
Advantage Therapy   Monett, Missouri  

August 2018

(originally opened May 2015)

  Full ownership effective August 1, 2018, when 100% interest was acquired   None   None
                     
Advantage Therapy   Ozark, Missouri  

August 2018

(originally opened February 2017)

  Full ownership effective August 1, 2018, when 100% interest was acquired   None   None

 

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Given the number of acquisitions that we have completed in the last several years, as illustrated above, it is important to note that prior to January 1, 2017, we managed only the IMAC Regeneration Center in Paducah, Kentucky and the Ozzie Smith Center in Chesterfield, Missouri. Beginning in 2017, our financial information includes the results of operations of these two clinics as well as our IMAC Regeneration Center in Murray, Kentucky, David Price Center in Brentwood, Tennessee, Ozzie Smith Center in St. Peters, Missouri and David Price Center in Murfreesboro, Tennessee. The results of operations for the remaining medical clinics listed above are reflected in our 2018 financial statements.

 

 

All employees who provide direct medical services to patients are employed by the professional service corporation. We employ the non-medical provider staff for the clinics and provide comprehensive management and administrative services to help the professional service corporation operate the clinics. We are compensated under management services agreements through service fees based on the cost of the services provided, plus a specified markup percentage, and a discretionary annual bonus determined in the sole discretion of each professional service corporation. Under our management services agreements, all obligations owed to us by the professional service corporations are secured by all accounts receivable, contract rights, revenues and general intangibles of the applicable professional service corporation. The management services agreements may be terminated by mutual agreement of the parties, by a non-breaching party after 30 days following an uncured breach by the other party, upon a bankruptcy of either party or by us upon 90 days’ prior written notice to the other party.

 

Our Services

 

The licensed healthcare professionals at our clinics work with each patient to create a protocol customized for each patient by utilizing a combination of the following traditional and innovative treatments:

 

Medical Treatments. Our specialized team of doctors work together to provide the latest minimally invasive, prescription-free treatments for movement challenges or pain related to orthopedic conditions. The treatments are customized to treat the underlying condition instead of addressing the challenge with prescriptions or surgeries.

 

Regenerative Medicine. Regenerative therapy at IMAC Regeneration Centers utilizes cellular tissue harvested from a patient’s own body to regenerate damaged tissue. The majority of our procedures utilize cells from the patient, harvested under minimal manipulation, and applied during the same visit to the clinic. These autologous cells help to heal degenerative soft tissue conditions, which cause pain or compromise the patient’s quality of life. Clinical trials have demonstrated that autologous cell treatments using stromal vascular fraction (adipose) and bone marrow lead to improved function and decreased pain within joints, muscles and connective tissue and can help alleviate osteoarthritis and degenerative disease.

 

Physical Medicine. Our team of sports medicine practitioners start by collaboratively building a personalized physical medicine treatment plan designed to help patients get back to living the life they deserve.

 

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● Physical Therapy. With a combination of biomechanical loading and tissue mobilization, our licensed physical rehabilitation therapists work with each patient to help the body restore skill within the joint or soft tissue.

 

● Spinal Decompression. During this treatment, the spine is stretched and relaxed intermittently in a controlled manner, creating a negative pressure in the disc area that can pull herniated or bulging tissue back into the disc. Whether caused by trauma or degeneration, we realize the impact a spinal injury can have on the quality of one’s life and seek to provide innovative, minimally invasive medical technology and care to relieve back pain and restore function.

 

● Chiropractic Manipulation. Common for spine conditions, manual manipulation is used to increase range of motion, reduce nerve irritability and improve function.

 

Our Growth and Expansion Strategy

 

We have plans to open additional IMAC Regeneration Centers in the states in which we currently operate, as well as in other strategic locations throughout the United States, building on our familiarity with the demographic market and our reputation in the area to attract new patients and endorsements. Our strategic partnerships with regional and national sports celebrities have enabled us to increase our visibility in our markets and become known for providing innovative regenerative-based therapies. We continue to seek opportunities to work with more athletes to draw awareness to our services. In addition, we have enlisted a wide range of medical and alternative medicine professionals to continue providing innovative outpatient treatments to our patients without major surgery or prescription pain medication. The key elements of our growth and expansion strategy are:

 

Open New Outpatient Locations and Facilities. We are in the process of identifying strategic new locations at which to lease and develop new IMAC Regeneration Centers. We anticipate initial expansion in the Midwest and southern United States, including in Illinois, Kansas, Oklahoma and Texas within the first 12 months following this offering. By branching into states adjacent to existing centers, we will expand our regional market familiarity, with our outpatient clinics and focus our marketing efforts. We believe our strong regional operations will provide brand awareness and allow us to leverage our established administrative infrastructure and will provide a foundation to support our expansion.

 

Expand Our Service Offerings to Employers and Self-Insured Health Plans . We have received inquiries from employers researching conservative treatment options for their employees. The inquiries primarily focus on minimizing employee time away from work related to injuries or occupational hazards and the cost of aggressive orthopedic treatments and threat of opioid abuse for employees enrolled in an employer health plan. We intend to use a portion of the net proceeds from this offering for the purpose of creating simple conservative treatment protocols for employers seeking to reduce employee downtime, prescription narcotic usage and surgical expenditures within their health plan.

 

Continue to Obtain Endorsements from Well-Known Sports Celebrities. We continue to attract celebrity sports endorsers for each market in which we operate and plan to expand. By collaborating and co-branding with well-known sports figures, patients become more familiar with our brand and associate our company with physical fitness and well-being. Working with sports celebrities that are well-known in our markets and personally recommend our treatments helps establish credibility with patients in those markets.

 

Accelerate Research and Development of New Regenerative Products. Our recent investment in BioFirma, LLC was executed in order to research and develop regenerative medicine products and supplies. We intend to use a portion of the net proceeds from the offering to fund this research with the goal of identifying innovative treatments to deliver within IMAC Regeneration Centers, as well as producing approved products for distribution into the broader medical community.

 

Expand Our Advertising and Marketing. We intend to increase our advertising and marketing efforts and reach throughout our primary service areas in order to grow patient volume at our existing facilities and spur interest in newer locations. Our current marketing efforts include a combination of local television, internet and event advertising. We will introduce employer marketing initiatives with help from our celebrity endorsers. While we welcome patients that are referred to us by other healthcare providers, we believe that direct marketing will generate more new patients for our outpatient clinics than relying solely on antiquated medical referral practices.

 

Offer State-of-the-Art Orthopedic Treatments. Our regenerative medicine techniques are used to prevent arthritis, treat meniscus tears, defeat muscle deterioration and address other damaged tissue conditions. We will continue offering innovative therapies and recently approved medical technologies, including alternative medicine treatments, and will adapt our treatment offerings as new treatments are developed and come to market. By bringing together a diverse array of medical specialists, we are able to treat more health conditions and attract a larger base of patients.

 

  7  
 

 

Our Revenue Model

 

Our revenue mix is diversified between medical treatments and physiological treatments. Our medical treatments are further segmented into traditional medical and regenerative medicine procedures. For the last two full fiscal years and the first quarter of this year, traditional medical treatments comprised approximately 33% of IMAC Group’s total net patient revenues, while regenerative medicine accounted for approximately 31% of total net patient revenues. Physiological treatments generated the remainder of the total net patient revenues as physical therapy amounted to 31% and chiropractic care amounted to 5% of such revenues. We are an in-network provider for traditional physical medical treatments, such as physical therapy, chiropractic services and medical evaluations, with most private health insurance carriers. Regenerative medical treatments are typically not covered by insurance, but paid by the patient. Approximately 26% of IMAC Group’s total net patient revenues are attributable to insurance payments, 23% to payments from the Centers for Medicare & Medicaid Services (“CMS”) and 51% to cash payments from patients.

 

References in the following paragraph are to “IMAC Holdings, Inc.” and prior to June 1, 2018, “IMAC Holdings LLC.” IMAC Holdings, Inc. represents our consolidated financial statements prior to the consummation of certain business transactions. The business transactions refer to the following three transactions with entities for which IMAC Holdings had either no ownership or control, or varying degrees of ownership or control prior to June 30, 2018: “Integrated Medicine and Chiropractic Regeneration Center PSC,” “IMAC of St. Louis, LLC” and “IMAC Regeneration Management of Nashville, LLC.”

 

IMAC Holdings recorded consolidated patient billings of $1,947,331 (unaudited) and $1,378,313 and realized total net patient revenues, less allowances for contractual adjustments with third-party payers, of $838,556 (unaudited) and $654,625 for the six months ended June 30, 2018 and the year ended December 31, 2017, respectively, and had no revenues in 2016. No revenues were recorded in 2016 because IMAC Holdings did not own or manage any clinics in its name in 2016 and the clinics with which it had entered into management service agreements in 2016 did not open until early 2017. IMAC Holdings’ net (loss) for the six months ended June 30, 2018 and year ended December 31, 2017 were $(1,639,816) (unaudited) and $(916,532), respectively. The net loss for the six months ended June 30, 2018 included one-time costs of approximately $100,000 related to this offering.

 

References in the following paragraph to “IMAC Group” represent IMAC Holdings, Inc. on a pro forma basis after consummation of certain business transactions. The business transactions refer to the following three transactions with entities for which IMAC Holdings had either no ownership or control, or varying degrees of ownership or control prior to June 30, 2018: “Integrated Medicine and Chiropractic Regeneration Center PSC,” “IMAC of St. Louis, LLC” and “IMAC Regeneration Management of Nashville, LLC.”

 

IMAC Group, which includes the unaudited pro forma results from the acquisitions of Integrated Medicine and Chiropractic Regeneration Center PSC and IMAC of St. Louis, LLC in June 2018, as if they each occurred on January 1, 2017, had patient billings of $11,189,124 and $22,710,675 and total net patient revenues were $3,962,435 and $8,324,685 for the six months ended June 30, 2018 and the year ended December 31, 2017, respectively. IMAC Group’s pro forma net (loss) for the six months ended June 30, 2018 and year ended December 31, 2017 were $(2,438,263) and $(2,062,652), respectively. The net loss for IMAC Group for the six months ended June 30, 2018 included one-time costs of approximately $100,000 related to this offering.

 

Our Competitive Advantages

 

While some of our competitors offer regenerative medical treatments, we believe that few companies have the multi-disciplinary approach of combining physical therapy and medical professionals working together to generate optimal regenerative health outcomes.

 

Competitive factors affecting our business include quality of care, cost, treatment outcomes, convenience of location, and relationships with, and ability to meet the needs of, referral and payor sources. Our clinics compete, directly or indirectly, with many types of healthcare providers including the physical therapy departments of hospitals, private therapy clinics, physician-owned therapy clinics, and chiropractors. We may face more intense competition if consolidation of the therapy industry continues.

 

We believe that we differentiate ourselves from our competition and have been able to grow our business as a result of the following competitive strengths:

 

Our Minimally Invasive Approach to Traditional Orthopedic Care. We pay particular attention to rehabilitating our patients’ musculoskeletal system to reduce pain and enhance mobility without major surgery or anesthesia. By combining physical therapy and regenerative medicine, we are able to treat a variety of physical conditions by using a patient’s own body to help heal itself.

 

We Do Not Prescribe Addictive Opioids. We do not use or offer opioid-based prescriptions as part of our treatment options in order to help our patients avoid the dangers of opioid abuse and addiction. We focus on preventing the potential for addiction through our regenerative-based therapies that help alleviate chronic pain.

 

We Employ a Regenerative Medicine Scientist. Few medical providers employ scientists. Our regenerative medicine scientist works at our BioFirma office in Miami, Florida and provides direction to our medical professionals as to the availability of regenerative medicine advancements in the marketplace. Collaborative work among our medical professionals and our regenerative medicine scientist through regular meetings, in person visits and telephonic communication yields broad discussions on the potential to develop proprietary techniques or services using such advancements.

 

We Utilize Diverse Medical Specialists for Customized Care. Our treatment protocols are customized by a team of medical doctors, nurse practitioners, chiropractors and physical therapists and are designed to heal damaged tissue without major surgery or prescription pain medication. This team approach delivers comprehensive service while avoiding the higher costs of major reconstructive surgery by medical specialists.

 

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Our Leadership Team

 

We are led by senior executive officers who together have more than 70 years of combined experience in the healthcare service industry. Jeffrey S. Ervin, our Chief Executive Officer, co-founded our company in March 2015. Mr. Ervin has a history of managing private equity operations in the healthcare and other growth-oriented industries. Before co-founding our company, Mr. Ervin was the senior financial officer at Medx Publishing, an online healthcare marketing and technology firm and parent company of Medicare.com, where he was responsible for the successful sale and disposition of Medicare.com. Mr. Ervin earned an M.B.A. degree from Vanderbilt University.

 

Another co-founder of our company, Matthew C. Wallis, DC, a licensed chiropractor, is our Chief Operating Officer. Dr. Wallis has implemented strategies in the company to create consistent operating efficiencies for our sales, marketing and service delivery across all of our IMAC Regeneration Centers.

 

D. Anthony Bond, CPA joined us as our Chief Financial Officer in October 2017. Prior to joining our company, Mr. Bond held CFO and other senior finance positions with healthcare organizations managing multi-state operations.

 

Ian A. White, Ph.D. joined us as our Chief Scientific Officer in August 2018. He is the President of BioFirma, LLC, a stem cell regenerative medicine research firm, and Chairman of the Scientific Committee for the American Association of Stem Cell Physicians. Dr. White received his Ph.D. in Physiology, Biophysics and Systems Biology from Cornell University at its Ansary Stem Cell Institute.

 

Business Transactions

 

In June 2018, we completed the following transactions with Clinic Management Associates, LLC (which merged into IMAC Management Services, LLC), IMAC of St. Louis, LLC and IMAC Regeneration Management of Nashville, LLC (the “June Transactions”). In August 2018, we completed transactions with Advantage Therapy, LLC and BioFirma, LLC (the “August Transactions” and, with the June Transactions, the “Transactions”). We intend to make additional acquisitions following this offering and, in the ordinary course of business, we frequently engage in discussions with potential acquisition candidates and/or their representatives. We have no current commitments or agreements for any acquisitions. Information concerning our recent transactions is set forth below.

 

Integrated Medicine and Chiropractic Regeneration Center PSC. Our wholly-owned subsidiary, IMAC Management Services, LLC, holds a long-term Management Services Agreement with Integrated Medicine and Chiropractic Regeneration Center PSC, a professional service corporation controlled by our co-founders Matthew C. Wallis, DC and Jason Brame, DC, which operates two IMAC Regeneration Centers in Kentucky. The Management Services Agreement is exclusive, extends through June 2048 and will automatically renew annually each year thereafter unless written notice is given within 180 days prior to the completion of the extended term. On June 29, 2018, Clinic Management Associates, LLC, controlled by Drs. Wallis and Brame, merged with and into our subsidiary IMAC Management Services, LLC. IMAC Management Services, LLC provides exclusive comprehensive management and related administrative services to the IMAC Regeneration Centers under the Management Services Agreement. Pursuant to the merger agreement with Clinic Management Associates, LLC, we agreed to pay cash or issue shares of our common stock having a value of $4,598,576 to its former owners. Under the Management Services Agreement, we will receive service fees based on the cost of the services we provide, plus a specified markup percentage, and a discretionary annual bonus.

 

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  IMAC of St. Louis, LLC. We entered into a Unit Purchase Agreement with the equity owners of IMAC of St. Louis, LLC to acquire the remaining 64% of the outstanding units of the limited liability company membership interests we did not already own. This entity, doing business as the Ozzie Smith Center, operates two locations in Missouri. Pursuant to the terms of the Unit Purchase Agreement, we agreed to pay IMAC of St. Louis, LLC’s former owners upon the closing of this offering $1,000,000 in cash and the remainder in shares of common stock for aggregate consideration of $1,490,632. The effective date of the transaction was June 1, 2018.

 

IMAC Regeneration Management of Nashville, LLC. We entered into a Unit Purchase Agreement with the equity owners of IMAC Regeneration Management of Nashville, LLC to acquire the remaining 24% of the outstanding units of the limited liability company membership interests we did not already own for an amount equal to $110,000 in cash and $190,000 principal amount of 4% convertible notes (on the same terms as in our 2018 private placement described below). The effective date of this transaction was June 1, 2018. IMAC Regeneration Management of Nashville, LLC, now our 100%-owned subsidiary, and IMAC Regeneration Center of Nashville, P.C. previously agreed to a long-term, exclusive management services agreement on November 1, 2016.

 

Integrated Medicine and Chiropractic Regeneration Center PSC, IMAC Management Services, LLC, IMAC of St. Louis, LLC and IMAC Regeneration Management of Nashville, LLC are related companies having common ownership with us and our controlling stockholders and have been operating together with us as a single group since 2015. See “Unaudited Pro Forma Condensed Consolidated Financial Information” to show the impact of these transactions on our financial statements.

 

Advantage Hand Therapy and Orthopedic Rehabilitation, LLC. In August 2018, we purchased 100% of the outstanding units of Advantage Hand Therapy and Orthopedic Rehabilitation, LLC, a physical and occupational therapy business with four clinics serving the Springfield, Missouri metropolitan area. The purchase price was $22,930 in cash and $870,000 payable in common stock upon the closing of this offering. The acquisition of this entity was not considered significant as measured under specific financial tests of the SEC.

 

BioFirma, LLC. On August 20, 2018, we acquired a 70% ownership position in BioFirma, LLC (“BioFirma”) for $1,000 in cash. The acquisition of this entity was not considered significant as measured under specific financial tests of the SEC. BioFirma owns a trademark on NeoCyte, an umbilical cord-derived mononuclear cell product following the FDA’s current Good Clinical Practices (or cGCPs) regulations. We intend to use approximately $1,500,000 of the net proceeds of this offering for further research and product development of NeoCyte and other regenerative medicine products, including obtaining approvals, certifications or designations from the FDA. A portion of the funds for BioFirma will be used for the employment of Ian A. White, Ph.D., Chief Scientific Officer, for a three-year period, as well as for equipment and manufacturing of the product. When it is market-ready, we intend to sell the NeoCyte product at our IMAC Regeneration Centers and other medical clinics.

 

2018 Private Placement

 

In the first six months of 2018, we received gross proceeds of $1,530,000 from a private placement of our 4% convertible promissory notes. The $1,530,000 and an additional $200,000 in existing equity and payments to investors is convertible into 270,313 shares of our common stock, pursuant to the terms of a Securities Purchase Agreement with 23 accredited investors. The principal amount of the promissory notes is convertible into shares of common stock automatically upon the closing of this offering. The conversion price of the promissory notes is $[●] per share, representing a 20% discount to the initial public offering price per share in this offering.

 

On June 1, 2018, we entered into a note payable to The Edward S. Bredniak Trust in the amount of up to $2,000,000. An existing note payable with this entity with an outstanding balance of $379,675.60 will be combined into the new note payable. The note carries an interest rate of 10% per annum and all outstanding balances are due and payable at the closing of this offering. The proceeds of this note are being used to satisfy ongoing working capital needs, expenses related to the preparation for this offering, equipment and construction costs related to new clinic locations and potential business combination and transaction expenses.

 

Selected Risks Associated with Our Business

 

Despite our growth and expansion strategy and the competitive advantages we describe above, our business and prospects may be limited by a number of risks and uncertainties that we currently face, including:

 

  We operate in an intensely competitive market for healthcare solutions against a number of large, well-known hospital systems and outpatient medical clinics.
     
  We have a limited operating history and we cannot ensure the long-term successful operation of our business.
     
  IMAC Group had net losses of $(2,438,263) (unaudited) and $(2,062,652) (unaudited) for the six months ended June 30, 2018 and the year ended December 31, 2017, respectively. There can be no assurance we will have net income in future periods.

 

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  As part of our growth strategy following this offering, we intend to develop or acquire other outpatient medical clinics; however, there is no assurance that we will be able to identify appropriate acquisition targets, successfully acquire identified targets or successfully develop and integrate the businesses to realize their full benefits.
     
  Our business depends on the availability to us of Jeffrey S. Ervin, our Chief Executive Officer, who has unique knowledge regarding our roll-out of IMAC Regeneration Centers, and Matthew C. Wallis, DC, our Chief Operating Officer, who has business contacts that would be extremely difficult to replace, and our business would be materially and adversely affected if either of their services were to become unavailable to us.

 

Implications of Being an “Emerging Growth Company”

 

As a public reporting company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company, we:

 

  are not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act (the “Sarbanes-Oxley Act”);
     
  are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis”);
     
 

are not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes);

 

  are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure;
     
  may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A; and
     
  are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act.

 

We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act. Please see “Risk Factors,” page 27 (“ We are an ‘emerging growth company’. . . .” ).

 

Certain of these reduced reporting requirements and exemptions were already available to us due to the fact that we also qualify as a “smaller reporting company” under the SEC’s rules. For instance, smaller reporting companies are not required to obtain an auditor attestation and report regarding internal control over financial reporting, are not required to provide a compensation discussion and analysis, are not required to provide a pay-for-performance graph or CEO pay ratio disclosure, and may present only two years of audited financial statements and related MD&A disclosure.

 

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Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act, or such earlier time that we no longer meet the definition of an emerging growth company. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1 billion in principal amount of non-convertible debt over a three-year period. Under current SEC rules, however, we will continue to qualify as a “smaller reporting company” for so long as we have a public float (i.e., the market value of common equity held by non-affiliates) of less than $250 million as of the last business day of our most recently completed second fiscal quarter.

 

Corporate Information and Incorporation

 

The first IMAC Regeneration Center was organized in August 2000 as a Kentucky professional service corporation. That center was the forerunner to our current business and remains our flagship location. Matthew C. Wallis, DC and Jason Brame, DC, together with Jeffrey S. Ervin, became the founding members of IMAC Holdings, LLC, a Kentucky limited liability company organized in March 2015, to expand our management team to support our clinical expansion while meeting the requirements of state healthcare practice guidelines and ownership laws.

 

The following chart reflects the corporate structure of our key operating units:

 

 

 

Percentages above refer to our ownership of subsidiaries’ limited liability company membership interests as of August 31, 2018.

 

(1) As required by applicable state law, our medical clinics in Kentucky and Tennessee are held in professional service corporations owned entirely by licensed medical practitioners because the clinics are engaged in the practice of medicine through physicians and nurse practitioners. We are able to manage these medical clinics through limited liability companies that enter into management services agreements with the professional service corporations that own the clinics. Under these agreements, we provide exclusive comprehensive management and related administrative services to the professional service corporation and receive management fees. Due to this financial and operational control by contract, our financial statements consolidate the financial results of the professional service corporations. See “Prospectus Summary – Our Company; Our Operations.”

 

(2) Our medical clinics in Kentucky are held in Integrated Medicine and Chiropractic Regeneration Center PSC, a professional service corporation owned by Matthew C. Wallis, DC and Jason Brame, DC. IMAC Management Services LLC, our 100%-owned subsidiary, and Integrated Medicine and Chiropractic Regeneration Center PSC agreed to a long-term, exclusive management services agreement on June 28, 2018. See “Prospectus Summary – Our Company; Business Transactions.”
   
(3) We previously owned 36% of the outstanding limited liability company membership interests of IMAC of St. Louis, LLC, and acquired the remaining 64% of the outstanding units on June 1, 2018. See “Prospectus Summary – Our Company; Business Transactions.”
   
(4) We acquired 100% of the outstanding units of Advantage Hand Therapy and Orthopedic Rehabilitation, LLC in August 2018. See “Prospectus Summary – Our Company; Business Transactions.”
   
(5) We previously owned 76% of the outstanding limited liability company membership interests of IMAC Regeneration Management of Nashville, LLC, and acquired the remaining 24% of the outstanding units on June 1, 2018. Our medical clinics in Tennessee are held in IMAC Regeneration Center of Nashville, P.C., a professional service corporation headed by David Smithson, M.D., the centers’ medical director. IMAC Regeneration Management of Nashville, LLC, now our 100%-owned subsidiary, and IMAC Regeneration Center of Nashville, P.C. agreed to a long-term, exclusive management services agreement on November 1, 2016. See “Prospectus Summary – Our Company; Business Transactions.”
   
(6) We acquired a 70% ownership position in BioFirma, LLC on August 20, 2018. BioFirma owns a trademark on NeoCyte, an umbilical cord-derived mononuclear cell product following the FDA’s cGCPs regulations, in which we are investing to support further research and product development of NeoCyte and other regenerative medicine products. See “Prospectus Summary – Our Company; Business Transactions.”

 

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Our consolidated financial statements include the accounts of IMAC Holdings, Inc. and the following entities which are consolidated due to direct ownership of a controlling voting interest or other rights granted to us as the sole general partner or managing member of the entity: IMAC Management Services, LLC and IMAC Regeneration Management of Nashville, LLC; the following entity which is consolidated with IMAC Regeneration Management of Nashville, LLC due to control by contract: IMAC Regeneration Center of Nashville, PC; and the following entities which were held as a minority interest prior to June 1, 2018: IMAC of St. Louis, LLC and due to control by contract, as of June 29, 2018, Integrated Medicine and Chiropractic Regeneration Center PSC.

 

Effective June 1, 2018, IMAC Holdings converted into a Delaware corporation and we changed our name to IMAC Holdings, Inc., which is referred to herein as the Corporate Conversion. In conjunction with the conversion, all of our outstanding membership interests were exchanged on a proportional basis into shares of common stock. As a result of the Corporate Conversion, we are now a federal corporate taxpayer as opposed to a pass-through entity for tax purposes. For more information, see the section entitled “Corporate Conversion.”

 

Our principal executive offices are located at 1605 Westgate Circle, Brentwood, Tennessee 37027 and our telephone number is (844) 266-IMAC (4622). We maintain a corporate website at http://www.imacregeneration.com.

 

We own various U.S. federal trademark registrations and applications, and unregistered trademarks, including the registered mark “IMAC Regeneration Center.” All other trademarks or trade names referred to in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus are referred to without the symbols ® and ™, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent possible under applicable law, their rights thereto.

 

Channels for Disclosure of Information

 

Investors and others should note that we use social media to communicate with the public about our company, our services, new product developments and other matters. Any information that we consider to be material to an evaluation of our company will be included in filings on the SEC website, http://www.sec.gov, and may also be disseminated using our investor relations website, which can be found at http://www.imacregeneration.com, and press releases. However, we encourage investors, the media and others interested in our company to also review our social media channels.

 

We do not incorporate the information on, or accessible through, our website into this prospectus, and you should not consider any information on, or that can be accessed through, our website a part of this prospectus.

 

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THE OFFERING

 

The summary below describes the principal terms of this offering. The “Description of Capital Stock” section of this prospectus contains a more detailed description of our common stock.

 

Common stock offered by us   [●] shares.
     
Proposed initial public offering price   $[●] per share
     
Underwriter’s over-allotment option   We have granted the underwriter a 45-day option to purchase up to an additional [●] shares of our common stock from us at the price to public less underwriting discounts and commissions to cover over-allotments, if any.
     
Common stock to be outstanding after this offering   [●] shares (or [●] shares if the underwriter’s option to purchase additional shares from us is exercised in full)(1).
     
Use of proceeds after expenses   We estimate that the net proceeds of the sale of our common stock in this offering will be approximately $[●] (or approximately $[●] if the underwriter exercises its option in full to purchase additional shares of our common stock), based on an assumed initial public offering price of $[●] per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
     
    We intend to use the net proceeds of this offering (i) to finance the costs of leasing, developing and acquiring new IMAC Regeneration Center medical clinics, (ii) to repay an interim promissory note used for working capital, (iii) to fund research and new product development activities and (iv) for working capital and general corporate purposes. We currently have no commitments in place with respect to any acquisitions or investments. See “Use of Proceeds” for more information.
     
Dividend policy   We have never declared or paid any cash dividends on our common stock. We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Accordingly, we do not expect to pay cash dividends on our common stock in the foreseeable future.
     
Ownership after this offering   Jeffrey S. Ervin, our Chief Executive Officer, Matthew C. Wallis, DC, our Chief Operating Officer, and our other executive officers and directors will beneficially own ___% of our outstanding shares of common stock following this offering.
     
Underwriter Warrants   Upon the closing of this offering, we will issue Cuttone & Co., LLC, as a representative of the underwriters, warrants entitling it to purchase 4% of the number of shares of common stock sold in this offering. The warrants will be exercisable for a period of five years from the effective date of this registration statement of which this prospectus forms a part.

 

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Risk factors   Investing in our common stock involves a high degree of risk. See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock.
     
Lock-up agreements   Our executive officers, directors, and stockholders, have agreed with the underwriters not to sell, transfer or dispose of any shares or similar securities for a period of 180 days following the closing of this offering. See “Underwriting.”
     
Nasdaq trading symbol   IMAC (2)

 

(1) In this prospectus, except as otherwise indicated, the number of shares of our common stock that will be outstanding immediately after this offering and the other information based thereon:

 

  assumes an initial public offering price of $[●] per share of common stock (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus);
     
  includes the issuance of [●] shares of common stock upon the automatic conversion of our convertible promissory notes in the principal amount of $1,730,000 issued in the first six months of 2018;
     
  includes the issuance of (i) [●] shares of common stock under the terms of a merger agreement in connection with our acquisition of Clinic Management Associates, LLC, (ii) [●] shares of common stock under the terms of a unit purchase agreement in connection with our acquisition of IMAC of St. Louis, LLC and (iii) [●] shares of common stock under the terms of a unit purchase agreement in connection with our acquisition of Advantage Hand Therapy and Orthopedic Rehabilitation, LLC;
     
  excludes 1,000,000 shares of our common stock reserved for future issuance under our 2018 Incentive Compensation Plan;
     
  excludes [●] shares of common stock reserved for issuance upon the exercise of the warrants to be issued to the underwriter in this offering; and
     
  no exercise of the underwriter’s option to purchase up to [●] additional shares from us in this offering to cover over-allotments, if any.

 

(2) We have reserved the trading symbol “IMAC” in connection with our application to have our common stock listed for trading on The NASDAQ Capital Market.

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

 

We derived the summary consolidated statements of operations data for 2017 and 2016 and the summary consolidated balance sheet data as of December 31, 2017 from our audited consolidated financial statements included elsewhere in this prospectus. No revenues were recorded in 2016 because we did not own any clinics in our name in 2016 and the clinics with which we entered into management services agreements in 2016 did not open until early 2017. The summary consolidated statements of operations for the six months ended June 30, 2018 and 2017 and the summary consolidated balance sheet data as of June 30, 2018 are derived from our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited condensed consolidated financial statements on the same basis as the audited consolidated financial statements and have included, in our opinion, all adjustments consisting only of normal recurring adjustments that we consider necessary for a fair statement of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future. This summary of historical financial data should be read together with the financial statements and the related notes, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” appearing elsewhere in the prospectus.

 

    IMAC Holdings, Inc.  
    Six Months Ended June 30,     Years Ended December 31,  
Consolidated Statements of Operations Data:   2018     2017     2017     2016  
    (unaudited)        
Patient revenues   $ 1,947,331     $ 163,973     $ 1,378,313     $ -  
Contractual adjustments     (1,108,775 )     (114,886 )     (723,688 )     -  
Total patient revenue, net     838,556       49,087       654,625       -  
                                 
Management fees     64,000       72,200       131,400       15,000  
Total revenue     902,556       121,287       786,025       15,000  
                                 
Total operating expenses     2,404,327       620,780       1,701,092       234,047  
                                 
Operating loss     (1,501,771 )     (499,493 )     (915,067 )     (219,047 )
Total other income (expenses)     (32,495 )     (10,292 )     (15,074 )     4  
                                 
Loss before equity in earnings (loss) of non-consolidated affiliate     (1,534,266 )     (509,785 )     (930,141 )     (219,043 )
                                 
Equity in earnings (loss) of non-consolidated affiliate     (105,550 )     (13,267 )     13,609       (178,397 )
                                 
Net loss   $ (1,639,816 )   $ (523,052 )   $ (916,532 )   $ (397,440 )
                                 
Net loss attributable to the non-controlling interest   $ 503,200     $ 565,655     $ 859,351     $ 16,643  
                                 
Net loss attributable to IMAC Holdings, Inc.   $ (1,136,616 )   $ 42,603     $ (57,181 )   $ (380,797 )

 

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The pro forma financial information below reflects the completion of our Transactions as if they had occurred on January 1, 2017. The pro forma operating data are not necessarily indicative of the actual results of our company had the Transactions occurred as of the beginning of 2017 or of our future operations.

 

    IMAC Group  
    Six Months Ended     Year Ended  
    June 30,     December 31,  
    2018     2017  
    (unaudited)  
Pro Forma Condensed Consolidated Statements of Operations Data:            
Patient revenues   $ 11,189,124     $ 22,710,675  
Contractual adjustments     (7,226,689 )     (14,385,990 )
Total patient revenue, net     3,962,435       8,324,685  
                 
Total operating expenses     6,348,686       9,724,251  
Operating loss     (2,386,251 )     (1,399,566 )
Total other income (expenses)     (52,012 )     (663,086 )
Net loss   $ (2,438,263 )   $ (2,062,652 )

 

The following table summarizes our historical liabilities and equity at June 30, 2018 and on a pro forma basis, giving effect to (a) the issuance of [●] shares of our common stock in this offering at an assumed initial public offering price of $ [●] per share, net of expenses, (b) the conversion of our convertible promissory notes in the principal amount of $1,730,000 into [●] shares of our common stock, and (c) the issuance of [●] shares of our common stock in settlement of liabilities incurred in connection with the transactions with Integrated Medicine and Chiropractic Regeneration Center PSC, IMAC of St. Louis, LLC and IMAC Regeneration Management of Nashville, LLC.

 

    As of June 30, 2018  
             
          Pro Forma,  
    Actual     As Adjusted  
    (unaudited)  
Current liabilities   $ 11,080,892     $                   
Long-term liabilities   $ 1,628,681     $    
Total liabilities   $ 12,709,573     $    
Stockholders’ equity                
Common stock, $0.001 par value, 30,000,000 shares authorized,
6,582,737 shares issued and outstanding; [●] shares issued and
outstanding, pro forma
  $   6,583     $    
Additional paid-in capital   $ 1,231,917          
Accumulated deficit   $ (1,627,690 )        
Non-controlling interest   $ (1,398,339 )        
Total stockholders’ equity   $ (1,787,529 )        
Total liabilities and stockholders’ equity   $ 10,922,044          

 

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RISK FACTORS

 

An investment in our common stock involves a high degree of risk. In addition to the other information contained in this prospectus, prospective investors should carefully consider the following risks before investing in our common stock. If any of the following risks actually occur, as well as other risks not currently known to us or that we currently consider immaterial, our business, operating results and financial condition could be materially adversely affected. As a result, the trading price of our common stock could decline, and you may lose all or part of your investment in our common stock. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. See “Cautionary Note Regarding Forward-looking Statements” in this prospectus. In assessing the risks below, you should also refer to the other information contained in this prospectus, including the financial statements and the related notes, before deciding to purchase any shares of our common stock.

 

Risks Relating to Our Company Business and Industry

 

We are in an early stage of development and have a limited operating history upon which to base an estimate of our future performance.

 

Our current business was formally organized in March 2015 and we currently have open 11 outpatient clinics. Accordingly, we have a limited operating history on which to base an estimate of our future performance. Because we lack a long operating history, you do not have either the type or amount of information that would be available to a purchaser of securities of a company with a more substantial operating history. Our growth and expansion strategy is in the early stages of implementation and there can be no assurance that we will be able to implement our strategy or that we will be commercially successful. Our ability to continue as a growing concern is contingent upon our ability to:

 

  raise sufficient capital, both through the sale of shares in this offering and through other debt and equity raises;
     
  hire and retain a number of highly skilled employees, including medical and chiropractic doctors, physical therapists and other practitioners;
     
  lease and develop acceptable premises for our IMAC Regeneration Centers;

 

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  build a consistent patient base within the areas of our medical clinics;
     
  secure and maintain arrangements with third-party payers, sports celebrity endorsers and other service providers, all on terms favorable or acceptable to our company;
     
  implement the other numerous necessary portions of our growth and expansion strategy; and
     
  attain profitable operations.

 

There can be no assurance that we will be able to accomplish any of the above objectives.

 

Further, because of our small size and limited to no operating history, our company is particularly susceptible to adverse effects from changes in the law, economic conditions, consumer tastes, competition and other contingencies or events beyond our control. It may be more difficult for us to prepare for and respond to these types of risks than it would be for a company with an established business and operating cash flow. Due to changing circumstances or an inability to implement any portion of our growth and expansion strategy, we may be forced to change dramatically our planned operations.

 

We may fail completely to implement key elements of our growth and expansion strategy, which could adversely affect our operations and financial performance.

 

If we cannot implement one or more key elements of our growth and expansion strategy, including raising sufficient capital, hiring and retaining qualified staff, leasing and developing acceptable premises for our medical clinics, securing necessary service contracts on favorable or adequate terms, generating sufficient revenue and achieving numerous other objectives, our projected financial performance may be materially adversely affected. Even if all of the key elements of our growth and expansion strategy are successfully implemented, we may not achieve the favorable results, operations and financial performance that we anticipate.

 

We have a history of annual net losses which may continue and which may negatively impact our ability to compete and achieve our growth and expansion strategy.

 

IMAC Holdings has a history of annual net losses. For the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, we had losses of $(1,639,818) (unaudited), $(916,532), and $(397,440), respectively. IMAC Group has a history of annual net losses. For the six months ended June 30, 2018 and the year ended December 31, 2017, IMAC Group had unaudited pro forma net losses of $(2,438,263) and $(2,062,652), respectively. The net loss for the six months ended June 30, 2018 included one-time costs of approximately $100,000 related to this offering. Our growth and expansion strategy may be unsuccessful and no assurance can be given that we will ever have net income. Accordingly, our prospects must be considered in light of the competition, risks, expenses and difficulties frequently encountered by an emerging company. Our inability to effectively meet our competition could have an adverse effect on our prospects, operating results and financial condition.

 

We have a holding company ownership structure and will depend on distributions from our operating subsidiaries to meet our obligations. Contractual or legal restrictions applicable to our subsidiaries or controlled companies could limit payments or distributions from them.

 

We are a holding company and derive all of our operating income from, and hold substantially all of our assets through, our subsidiaries. The effect of this structure is that we will depend on the earnings of our subsidiaries, and the payment or other distributions to us of these earnings, to meet our obligations. Provisions of law, like those requiring that dividends be paid only out of surplus, and provisions of any future indebtedness, may limit the ability of our subsidiaries to make payments or other distributions to us. Our subsidiaries also control and manage the non-professional aspects of certain other professional service corporations under management services agreements, which could (although they do not currently) contain contractual restrictions on a professional service corporation’s ability to pay service fees to us. The assets of these professional service corporations are not included in our consolidated balance sheets. Additionally, in the event of the liquidation, dissolution or winding up of any of our subsidiaries, creditors of that subsidiary (including trade creditors) will generally be entitled to payment from the assets of that subsidiary before those assets can be distributed to us.

 

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We will incur substantial start-up expenses and do not expect to make a profit at any medical clinic until at least six months after opening each medical clinic.

 

We will incur substantial expenses to implement our growth and expansion strategy, including costs for leasing and developing the premises for each medical clinic, purchasing medical and office equipment, purchasing medical supplies and inventory, marketing and advertising, recruiting and hiring staff, and other expenses. We estimate that it will take at least $700,000 to open each clinic, with an additional $300,000 of operating capital and $200,000 credit line needed to purchase equipment and fund operating losses during the first six months of operation. These start-up costs may increase if there are any delays, problems or other events not currently anticipated. Although we expect each medical clinic to become profitable approximately six months after opening based on our experience with opening the Ozzie Smith Centers in Chesterfield, Missouri in May 2016 and in St. Peters, Missouri in August 2017, and the IMAC Regeneration Center in Murray, Kentucky in February 2017, no guarantee can be made that any of the clinics or our company overall will operate profitably. The David Price Center in Brentwood, Tennessee, which opened in May 2017, initially experienced unforeseen delays in staffing, construction and marketing launch. If we do not reach profitability and recover our start-up expenses and other accumulated operating losses, investors will likely suffer a significant decline in the value of their investment.

 

We may be unable to obtain financing on acceptable terms, or at all, which could materially adversely affect our operations and ability to successfully implement our growth and expansion strategy.

 

Our growth and expansion strategy relies on obtaining sufficient financing, including one or more equipment lines to purchase medical and office equipment and one or more lines of credit for operating and related expenses. We may not be able to obtain financing on acceptable terms or in the amount anticipated by our growth and expansion strategy. If unable to secure the amount of financing anticipated by our growth and expansion strategy, we may be unable to implement one or more portions of our growth and expansion strategy. If we accept less favorable terms for our financing than anticipated, we may incur additional expenses and restrictions on operations and may be less liquid and less profitable than expected. Should either of these events occur, we could suffer material adverse effects to our ability to implement our growth and expansion strategy and operate successfully.

 

We plan to incur indebtedness to implement our growth and expansion strategy and, as a consequence, may be unprofitable and unsuccessful in achieving our financial and operating goals.

 

We plan to finance some of our start-up and operating costs through debt leveraging, including one or more equipment lines and one or more lines of credit. This debt could adversely affect our financial performance and ability to:

 

  implement our growth and expansion strategy;
     
  recoup start-up costs;
     
  operate profitably;
     
  maintain acceptable levels of liquidity;
     
  obtain additional financing in the future for working capital, capital expenditures, development and other general business purposes;
     
  obtain additional financing on favorable terms; and
     
  compete effectively or operate successfully under adverse economic conditions.

 

The development and operation of our medical clinics will require more capital than we will raise in this offering, and we may not be able to obtain additional capital on favorable or even acceptable terms. We may also have to incur additional debt, which may adversely affect our liquidity and operating performance.

 

Our ability to successfully grow our business and implement our growth and expansion strategy depends in large part on the availability of adequate capital to finance operations. We can give no assurance that the funds raised in this offering will provide sufficient capital to support the continued operations of our company. Changes in our growth and expansion strategy, lower than anticipated revenue for the medical clinics, unanticipated and/or uncontrollable events in the credit or equity markets, changes to our liquidity, increased expenses, and other events may cause us to seek additional debt or equity financing. Financing may not be available on favorable or acceptable terms, or at all, and our failure to raise capital could adversely affect our operations and financial condition.

 

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Additional equity financing may result in a dilution of the pro rata ownership stake of the holders of shares sold in this offering. Further, we may be required to offer subsequent investors investment terms, such as preferred distributions and voting rights, that are superior to the rights of the holders of shares sold in this offering, which could have an adverse effect on the value of your investment.

 

Additional debt financing, if available, may involve significant cash payment obligations, covenants and financial ratios that restrict our ability to operate and grow our business, and would cause us to incur additional interest expense and financing costs. As a consequence, our operating performance may be materially adversely affected.

 

We will manage, but will not own, certain of the medical clinics or employ the medical service providers who will treat patients at the clinics.

 

Several of our medical clinics will be owned exclusively by a professional service corporation in order to comply with state laws regulating the ownership of medical practices. We will, in turn, through a contractual arrangement, provide long-term, exclusive management services to those professional service corporations and their medical professionals. All employees who provide direct medical services to patients will be employed by the professional service corporation. These management services agreements protect us from certain liability and provide a structured engagement to deliver non-medical, comprehensive management and administrative services to help the medical professionals operate the business. The management services agreements authorize us to act on behalf of the professional service corporation, but do not authorize the professional service corporations to act on our behalf or enter into contracts with third parties on our behalf. We will employ the non-medical provider staff for the clinics and provide comprehensive management and administrative services to help the professional service corporation operate the clinics. We may also loan money to the professional service corporation for certain payroll and development costs, although we have no obligation to do so. This arrangement makes our financial and operational success highly dependent on the professional service corporation. Under our management service agreements, we provide exclusive comprehensive management and related administrative services to the professional service corporation and receive management fees. Due to this financial and operational control by contract, our financial statements consolidate the financial results of the professional service corporations. However, we will have little, if any, tangible assets as to those operations. These characteristics increase the risk associated with an investment in our company.

 

Our Management Services Agreements may be terminated.

 

The management services agreements we have with several of our clinics may be terminated by mutual agreement of us and the applicable clinic, by a non-breaching party after 30 days following an uncured breach by the other party, upon a bankruptcy of either party or by us upon 90 days’ prior written notice to the clinic. The termination of a management services agreement would result in the termination of payment of management fees from the applicable clinic, which could have an adverse effect on our operating results and financial condition.

 

We do not control the delivery of medical care at any of our facilities.

 

We have no direct control over the medical care in any of our facilities. State medical boards govern the licensing and delivery of medical care within a state. For this reason, the medical practitioners are solely responsible for making medical decisions with their abilities and experience. We run the risk of being associated with a medical practitioner that performs poorly or does not comply with medical board legislation. When we are responsible for the recruitment or staffing of medical professionals, we may hire a professional that delivers care outside of medical protocols. Our inability to exercise control over the medical care and managed centers increases the risks associated with an investment in our company.

 

State medical boards may amend licensing requirements for medical service providers, service delivery oversight for midlevel practitioners, and ownership or location requirements for the delivery of medical treatments.

 

We have no direct control over the medical care in any of our facilities. State medical boards govern the licensing and delivery of medical care within a state. Each state medical board controls the level of licensing required for each medical practitioner and the requirements to obtain such a license to deliver medical care. Furthermore, the state medical board typically determines the required practitioner oversight for medical practitioners based on their license achieved, earned degrees and continuing education. The current requirements for these practitioners may change in the future and we run the risk of additional expenses necessary to meet the state medical board requirements. The state medical board may also determine the location in which services are delivered. We risk the loss of revenue or retrofitting expense if the state medical board amends location requirements for the delivery of certain treatments. Similarly, state medical boards may amend ownership or management requirements for the operation of medical clinics within their respective state. The board may also investigate or dispute the legal establishment of owned or managed medical clinics. We risk a material loss of ownership of or management control and subsequent fee from medical clinics that are in our possession or control.

 

Adverse medical outcomes are possible with conservative and minimally invasive treatments.

 

Medical practitioners performing services at our IMAC facilities run the risk of delivering treatments for which the patient may experience a poor outcome. This is possible with non-invasive and minimally invasive services alike, including the use of autologous treatments in which a patient’s own cells are used to regenerate damaged tissues. At our IMAC Regeneration Centers, a minimally invasive treatment involves puncturing the skin with a needle or a minor incision which could lead to infection, bleeding, pain, nausea, or other similar results. Non-invasive and conservative physical medicine treatments may possibly cause soft tissue tears, contusions, heart conditions, stroke, and other physically straining conditions. The treatments or potential clinical research studies may yield further patient risks. An adverse outcome may include but not be limited to a loss of feeling, chronic pain, long-term disability, or death. We have obtained medical malpractice coverage in the event an adverse outcome occurs. However, the insurance limits may be exceeded or liability outside of the coverage may adversely impact the financial performance of the business, including any potential negative media coverage on patient volume.

 

Potential conflicts of interest exist with respect to the management services agreement that we have entered into concerning our clinics in Kentucky, and it is possible our interests and the affiliated owners of those clinics may diverge.

 

Our medical clinics in Kentucky are held by a professional service corporation that is owned by Matthew C. Wallis, DC, our Chief Operating Officer, a director and co-founder of our company, and Jason Brame, DC, a co-founding member of our company, in order to comply with the state’s laws regulating the ownership of medical practices. The professional service corporation directs the provision of medical services to patients and employs the physicians and registered nurses at the clinics, we do not. Rather, pursuant to the terms of a long-term, exclusive management services agreement, we employ the non-medical provider staff for the clinics and provide comprehensive management and administrative services to help the professional service corporation operate the clinics. We believe that the service fees and other terms of our management services agreement are standard in the outpatient healthcare practice area. Nonetheless, the management services agreement presents the possibility of a conflict of interest in the event that issues arise with regard to the respective medical and non-medical services being provided at the clinics, including quality of care issues of which we become aware and billing and collection matters that we handle on behalf of the physician practices, where our interests may diverge from those of Drs. Wallis and Brame acting on behalf of the professional service corporation. No such issues, however, have occurred during this arrangement.

 

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The management services agreement provides that we will have the right to control the daily operations of the medical clinics subject, in the case of practicing medicine, to the direction of Drs. Wallis and Brame acting on behalf of the professional service corporation. Our interests with respect to such direction may be at odds with those of Drs. Wallis and Brame, requiring them to recuse themselves from our decisions relating to such matters, or even from further involvement with our company.

 

We comply with applicable state law with respect to transactions (including business opportunities and management services agreements) involving potential conflicts. Applicable state corporate law requires that all transactions involving our company and any director or executive officer (or other entities with which they are affiliated) are subject to full disclosure and approval of the majority of the disinterested independent members of our Board of Directors, approval of the majority of our stockholders or the determination that the contract or transaction is intrinsically fair to us. More particularly, our policy is to have any related party transactions (i.e., transactions involving a director, an officer or an affiliate of our company) be approved solely by a majority of the disinterested independent directors serving on the Board of Directors.

 

Upon completion of this offering, Drs. Wallis and Brame will beneficially own approximately ___% and ___% of our outstanding shares of common stock, respectively. Dr. Wallis founded our original IMAC medical clinic in Paducah, Kentucky in August 2000 and, with Jeffrey S. Ervin, our Chief Executive Officer, founded our current company in March 2015. Dr. Wallis, working with Mr. Ervin, will be substantially responsible for selecting the business direction we take, the medical clinics we open in the future and the services we may provide. The management services agreement may present Drs. Wallis and Brame with conflicts of interest.

 

The loss of the services of Jeffrey S. Ervin or Matthew C. Wallis, DC for any reason would materially and adversely affect our business operations and prospects.

 

Our financial success is dependent to a significant degree upon the efforts of Jeffrey S. Ervin, our Chief Executive Officer, and Matthew C. Wallis, DC, our Chief Operating Officer. Mr. Ervin, who has unique knowledge regarding the roll-out of our IMAC Regeneration Centers, and Dr. Wallis, who has extensive business contacts, would be extremely difficult to replace. We have not entered into an employment arrangement with Mr. Ervin or Dr. Wallis, and there can be no assurance that Mr. Ervin or Dr. Wallis will continue to provide services to us. A voluntary or involuntary departure by either executive could have a materially adverse effect on our business operations if we were not able to attract a qualified replacement for him in a timely manner. We plan to obtain a $1.0 million key-man life insurance policy for our benefit on the life of each of Mr. Ervin and Dr. Wallis.

 

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We may fail to obtain the business licenses and any other licenses necessary to operate our medical clinics, or the necessary engineering, building, occupancy and other permits to develop the premises for the clinics, which would materially adversely affect our growth and expansion strategy.

 

If we cannot obtain approval for business licenses or any other licenses necessary to operate our medical clinics, it could materially adversely affect our growth and expansion strategy and could result in a failure to implement our growth and expansion strategy. Failure to obtain the necessary engineering, building, occupancy and other permits from applicable governmental authorities to develop the premises for our medical clinics could also materially adversely affect our growth and expansion strategy and could result in a failure to implement our growth and expansion strategy.

 

We may face strong competition from other providers in our primary service areas, and increased competition from new competitors, which may hinder our ability to obtain and retain customers.

 

We will be in competition with other more established companies using a variety of treatments for the conditions and ailments that our services are intended to treat, including orthopedic surgeons, pain management clinics, hospital systems and outpatient surgery centers providing joint reconstruction and related surgeries. These companies may be better capitalized and have more established name recognition than us. We may face additional competition in the future if other providers enter our primary service areas. Competition from existing providers and providers that may begin competing with us in the future could materially adversely affect our operations and financial performance.

 

Further, the services provided by our company are relatively new and unique. We cannot be certain that our services will achieve or sustain market acceptance, or that a sufficient volume of patients in the Kentucky, Missouri and Tennessee areas will utilize our services. We will be in competition with alternative treatment methods, including those presently existing and those that may develop in the future. As such, our growth and expansion strategy carries many unknown factors that subject us and our investors to a high degree of uncertainty and risk.

 

We are competing in a dynamic market with risk of technological change.

 

The market for medical, physical therapy and chiropractic services is characterized by frequent technological developments and innovations, new product and service introductions, and evolving industry standards. The dynamic character of these products and services will require us to effectively use leading and new technologies, develop our expertise and reputation, enhance our current service offerings and continue to improve the effectiveness, feasibility and consistency of our services. There can be no assurance that we will be successful in responding quickly, cost-effectively and sufficiently to these and other such developments.

 

Our success will depend largely upon general economic conditions and consumer acceptance in our primary service areas.

 

Our current primary service areas are located in certain geographical areas in the states of Kentucky, Missouri and Tennessee. Our operations and profitability could be adversely affected by a local economic downturn, changes in local consumer acceptance of our approach to healthcare, and discretionary spending power, and other unforeseen or unexpected changes within those areas.

 

A decline in general economic conditions may adversely affect consumer behavior and spending, including the affordability of elective medical procedures, and as a result may adversely affect our revenue and operating results.

 

The country may experience an economic downturn or decline in general economic conditions. We are unable to predict the timing and severity of the next economic downturn. Any decline in general economic conditions may cause a decrease in consumer and commercial spending, especially spending on elective medical procedures, which could negatively impact our revenue and operating results.

 

We are required to comply with numerous government laws and regulations, which could change, increasing costs and adversely affecting our financial performance and operations.

 

Medical and chiropractic service providers are subject to extensive federal, state and local regulation, including but not limited to regulation by the U.S. Food and Drug Administration, Centers for Medicare & Medicaid Services (“CMS”), and other government entities. We are subject to regulation by these entities as well as a variety of other laws and regulations. Compliance with such laws and regulations could require substantial capital expenditures. Such regulations may be changed from time to time, or new regulations adopted, which could result in additional or unexpected costs of compliance.

 

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Changes to national health insurance policy and third-party insurance carrier fee schedules for traditional medical treatments could decrease patient revenue and adversely affect our financial performance and operations.

 

Political, economic and regulatory influences are subjecting medical and chiropractic service providers, health insurance providers and other participants in the healthcare industry in the United States to potential fundamental changes. Potential changes to nationwide health insurance policy are currently being debated. We cannot predict what impact the adoption of any federal or state healthcare reform or private sector insurance reform may have on our business.

 

We receive payment for the services we render to patients from their private health insurance providers and from Medicare and Medicaid. If third-party payers change the expected fee schedule (the amount paid by such payers for services rendered by us), we could experience a loss of revenue, which could adversely affect financial performance.

 

At the present time, most private health insurance providers do not cover the regenerative medical treatments provided at our medical clinics. However, traditional physical medical treatments provided at our medical clinics, such as physical therapy, chiropractic services and medical evaluations, are covered by most health insurance providers. Medicare and Medicaid take the same position as private insurers and reimburse patients for traditional physical medical treatments but not for regenerative medical treatments. If private health insurance providers and Medicare and Medicaid were to begin covering regenerative medical treatments, the revenue we would receive on a per-treatment basis would likely decline given their tighter fee schedules. Further, such a change might result in increased competition as additional healthcare providers begin offering our customized services.

 

We could be adversely affected by changes relating to the IMAC Regeneration Center brand name.

 

We are a holding company in which our medical clinics are formed in separate subsidiaries. Our subsidiaries are currently operating in Kentucky, Missouri and Tennessee. As a consequence of this entity structure, any adverse change to the brand, reputation, financial performance or other aspects of the IMAC Regeneration Center brand at any one location could adversely affect the operations and financial performance of the entire company.

 

We will depend heavily on the efforts of our key personnel, as well as sports celebrity endorsers .

 

Our success depends, to a significant extent, upon the efforts and abilities of our officers and key employees, including medical and chiropractic doctors and other practitioners, and our sports celebrity endorsers. Loss or abatement of the services of any of these persons, or any adverse change to the sports celebrity endorsers, could have a material adverse effect on us and our business, operations and financial performance.

 

Our success also will depend on our ability to identify, attract, hire, train and motivate highly skilled managerial personnel, medical doctors, chiropractors, licensed physical therapists, and other practitioners. Failure to attract and retain key personnel could have a material adverse effect on our business, prospects, financial condition and results of operation. Further, the quality, philosophy and performance of key personnel could adversely affect our operations and performance.

 

We may incur losses that are not covered by insurance.

 

We maintain insurance policies against professional liability, general commercial liability and other potential losses of our company. However, our business operations and medical clinics may incur losses that exceed the insurance maximum coverage amounts or are not covered by such insurance policies. Poor patient outcomes for healthcare providers may result in legal actions and/or settlements outside of the scope of our malpractice insurance coverage. Furthermore, we offer regenerative medicine treatments that may not be covered by malpractice medical insurance or under a reduced insurance maximum risk coverage. Regenerative medicine represents approximately 5% of our patient visits and 10% of our revenue. Future innovations in regenerative medicine may require review or approval of such innovations by governmental regulators. During formal research studies performed in collaboration with regulators, we may be required to obtain new insurance policies and there is no assurance that insurance policy underwriters will provide coverage for such research initiatives. If an uninsured loss or a loss in excess of insured limits occurs, our financial performance and operation could suffer material adverse effects.

 

We are susceptible to risks relating to investigation or audit by the Centers for Medicare & Medicaid Services (“CMS”), health insurance providers and the IRS.

 

We may be audited by CMS or any health insurance provider that pays us for services provided to patients. Any such audit may result in reclaimed payments, which would decrease our revenue and adversely affect our financial performance. Our federal tax returns may be audited by the IRS and our state tax returns may be audited by applicable state government authorities. Any such audit may result in the challenge and disallowance of some of our deductions or an increase in our taxable income. No assurance can be made with regard to the deductibility of certain tax items or the position taken by us on our tax returns. Further, an audit or any litigation resulting from an audit could unexpectedly increase our expenses and adversely affect financial performance and operations.

 

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The Food and Drug Administration is actively pursuing bad actors in the regenerative medicine therapy industry, and we could be included in any broad investigation.

 

The U.S. Food and Drug Administration is actively pursuing bad actors in the regenerative medicine therapy industry. Since we provide regenerative medicine treatments, we may be subject to broad investigations from the FDA or state medical boards regarding the marketing and medical delivery of our treatments. In November 2017, we engaged a medical consulting group to advise us on current protocols in this area and to organize a clinical trial towards an investigational new drug application with the FDA, while pursuing a voluntary regenerative medicine advanced therapy (RMAT) designation under Section 3033 of the 21 st Century Cures Act. We have not initiated conversations with the FDA and no assurance can be given that we are able to engage with the FDA or that the FDA will approve us for RMAT designation.

 

We are very early in our product development efforts with respect to our NeoCyte stem cell regenerative product. If we are unable to advance this or other regenerative medicine products to obtain regulatory approval and ultimately commercialize these products, or experience significant delays in doing so, our business will be harmed.

 

We are very early in our product development efforts. In August 2018, we acquired a 70% ownership position in BioFirma, LLC (“BioFirma”). BioFirma owns a trademark on NeoCyte, an umbilical cord-derived mononuclear cell product following FDA cGMP regulations. We intend to use a portion of the net proceeds of this offering for research and product development of NeoCyte and other regenerative medicine products. We are in preclinical development of NeoCyte. Our ability to generate product revenue, which we do not expect to occur, if at all, for the foreseeable future, will depend heavily on the successful development and eventual commercialization of our potential regenerative medicine products, which may never occur. We currently generate no revenue from sales of any product and we may never be able to develop or commercialize a marketable product.

 

Any significant disruption in our computer systems or those of third parties that we utilize in our operations could result in a loss or degradation of service and could adversely impact our business.

 

Our reputation and ability to attract, retain and serve our patients and users is dependent upon the reliable performance of our computer systems and those of third parties that we utilize in our operations. These systems may be subject to damage or interruption from earthquakes, adverse weather conditions, other natural disasters, terrorist attacks, power loss, telecommunications failures, computer viruses, computer denial of service attacks or other attempts to harm these systems. Interruptions in these systems, or to the internet in general, could make our service unavailable or impair our ability to deliver content to our customers. Service interruptions, errors in our software or the unavailability of computer systems used in our operations could diminish the overall attractiveness of our services to existing and potential patients.

 

Our servers and those of third parties we use in our operations are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions and periodically experience directed attacks intended to lead to interruptions and delays in our service and operations as well as loss, misuse or theft of data. Any attempt by hackers to disrupt our service or otherwise access our systems, if successful, could harm our business, be expensive to remedy and damage our reputation. We have implemented certain systems and processes to thwart hackers and, to date, hackers have not had a material impact on our service or systems. However, this is no assurance that hackers may not be successful in the future. Efforts to prevent hackers from disrupting our service or otherwise accessing our systems are expensive to implement and may limit the functionality of or otherwise negatively impact our service offering and systems. Any significant disruption to our service or access to our systems could result in a loss of patients and adversely affect our business and results of operation.

 

We utilize our own communications and computer hardware systems located either in our facilities or in that of a third-party data center. In addition, we utilize third-party internet-based or “cloud” computing services in connection with our business operations. We also utilize third-party content delivery networks to help us stream content to our patients and other parties over the internet. Problems faced by us or our service providers, including technological or business-related disruptions, could adversely impact the experience of our audiences and users.

 

Our reputation and relationships with patients would be harmed if our patients’ data, particularly personally identifying data, were to be subject to a cyber-attack or otherwise accessed by unauthorized persons.

 

We maintain personal data regarding our patients, including their names and other information. With respect to personally identifying data, we rely on licensed encryption and authentication technology to secure such information. We also take measures to protect against unauthorized intrusion into our patients’ data. Despite these measures, we could experience, though we have not to date experienced, a cyber-attack or other unauthorized intrusion into our patients’ data. Our security measures could also be breached due to employee error, malfeasance, system errors or vulnerabilities, or otherwise. In the event our security measures are breached, or if our services are subject to attacks that impair or deny the ability of patients to access our services, current and potential patients may become unwilling to provide us the information necessary for them to become users of our services or may curtail or stop using our services. In addition, we could face legal claims for such a breach. The costs relating to any data breach could be material, and exceed the limits of the insurance we maintain against the risks of a data breach. For these reasons, should an unauthorized intrusion into our patients’ data occur, our business could be adversely affected. Changes to operating rules could increase our operating expenses and adversely affect our business and results of operations.

 

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Our business is subject to reporting requirements that continue to evolve and change, which could continue to require significant compliance effort and resources.

 

Following this offering, we will be subject to certain rules and regulations of federal, state and financial market exchange entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board (PCAOB), the SEC and The NASDAQ Capital Market, periodically issue new requirements and regulations and legislative bodies also review and revise applicable laws. As interpretation and implementation of these laws and rules and promulgation of new regulations continues, we will continue to be required to commit significant financial and managerial resources and incur additional expenses to address such laws, rules and regulations, which could in turn reduce our financial flexibility and create distractions for management. Any of these events, in combination or individually, could disrupt our business and adversely affect our business, financial condition, results of operations and cash flows.

 

Changes in accounting principles or guidance, or in their interpretations, could result in unfavorable accounting charges or effects, including changes to our previously filed consolidated financial statements, which could cause our stock price to decline.

 

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles and guidance. A change in these principles or guidance, or in their interpretations, may have a significant negative effect on our reported results and retrospectively affect previously reported results, which, in turn, could cause our stock price to decline.

 

We will incur increased costs as a result of being a public company and our management expects to devote substantial time to public company compliance programs.

 

As a public reporting company, we will incur significant legal, insurance, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, stock exchange listing requirements and other applicable securities rules and regulations impose various requirements on public companies. Our management and administrative staff will need to devote a substantial amount of time to compliance with these requirements. For example, in anticipation of becoming a public company, we will need to adopt additional internal controls and disclosure controls and procedures and bear all of the internal and external costs of preparing periodic and current public reports in compliance with our obligations under the securities laws. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment will result in increased general and administrative expenses and may divert management’s time and attention away from product development activities. If for any reason our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

 

In connection with this offering, we intend to obtain directors’ and officers’ liability insurance coverage, which will increase our insurance cost. In the future, it may be more expensive for us to obtain directors’ and officers’ 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 executive officers and qualified members of our board of directors, particularly to serve on our audit committee and compensation committee.

 

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In addition, in order to comply with the requirements of being a public company, we may need to undertake various actions, including implementing new internal controls and procedures and hiring new accounting or internal audit staff. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed in reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated and communicated to our principal executive and financial officers. Any failure to develop or maintain effective controls could adversely affect the results of our periodic management evaluations. In the event that we are not able to demonstrate compliance with the Sarbanes-Oxley Act, that our internal control over financial reporting is perceived as inadequate, or that we are unable to produce timely or accurate consolidated financial statements, investors may lose confidence in our operating results and the price of our common stock could decline. In addition, if we are unable to continue to meet these requirements, we could be subject to sanctions or investigations by the stock exchange where we are listed, the SEC or other regulatory authorities, and we may not be able to remain listed on a national securities exchange.

 

We are not currently required to comply with the SEC’s rules that implement Section 404 of the Sarbanes-Oxley Act, and are therefore not yet required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with certain of these rules, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report. This assessment will need to include the disclosure of any material weaknesses in our internal control over financial reporting identified by our management or our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a costly and challenging process to document and evaluate our internal control over financial reporting. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of our internal control over financial reporting. We will also need to continue to improve our control processes as appropriate, validate through testing that our controls are functioning as documented and implement a continuous reporting and improvement process for our internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404.

 

Our auditors have identified material weaknesses in our internal controls over our financial reporting .

 

In connection with the audits of our consolidated financial statements for the years ended December 31, 2017 and 2016, our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weaknesses relate to the absence of in-house accounting personnel with the ability to properly account for complex transactions and a lack of separation of duties between accounting and other functions.

 

We hired a consulting firm to advise on technical issues related to U.S. generally accepted accounting principles as related to the maintenance of our accounting books and records and the preparation of our consolidated financial statements. Although we are aware of the risks associated with not having dedicated accounting personnel, we are also at an early stage in the development of our business. We anticipate expanding our accounting functions with dedicated staff and improving our internal accounting procedures and separation of duties when we can absorb the costs of such expansion and improvement with additional capital resources. In the meantime, management will continue to observe and assess our internal accounting function and make necessary improvements whenever they may be required. If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements, and we could be required to restate our financial results. In addition, if we are unable to successfully remediate this material weakness and if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected and we may be unable to maintain compliance with applicable stock exchange listing requirements.

 

We are an “emerging growth company” and our election to delay adoption of new or revised accounting standards applicable to public companies may result in our consolidated financial statements not being comparable to those of some other public companies. As a result of this and other reduced disclosure requirements applicable to emerging growth companies, our securities may be less attractive to investors.

 

As a public reporting company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” under the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company, we:

 

  are not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act;
     
  are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis”);
     
  are not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes);

 

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  are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure;
     
  may present only two years of audited financial statements and only two years of related Management’s Discussion & Analysis of Financial Condition and Results of Operations, or MD&A; and
     
  are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act.

 

We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our consolidated financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.

 

Certain of these reduced reporting requirements and exemptions were already available to us due to the fact that we also qualify as a “smaller reporting company” under SEC rules. For instance, smaller reporting companies are not required to obtain an auditor attestation and report regarding management’s assessment of internal control over financial reporting, are not required to provide a compensation discussion and analysis, are not required to provide a pay-for-performance graph or CEO pay ratio disclosure, and may present only two years of audited financial statements and related MD&A disclosure.

 

Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act, or such earlier time that we no longer meet the definition of an emerging growth company. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion in principal amount of non-convertible debt over a three-year period. Under current SEC rules, however, we will continue to qualify as a “smaller reporting company” for so long as we have a public float ( i.e. , the market value of common equity held by non-affiliates) of less than $250 million as of the last business day of our most recently completed second fiscal quarter.

 

We cannot predict if investors will find our securities less attractive due to our reliance on these exemptions. If investors were to find our securities less attractive as a result of our election, we may have difficulty raising all of the proceeds we seek in this offering.

 

Risks Related to Ownership of Our Common Stock and this Offering

 

Our stock price may be volatile and your investment could decline in value.

 

The market price of our common stock following this offering may fluctuate substantially as a result of many factors, some of which are beyond our control. These fluctuations could cause you to lose all or part of the value of your investment in our common stock. Factors that could cause fluctuations in the market price of our common stock include the following:

 

  quarterly variations in our results of operations;
     
  results of operations that vary from the expectations of securities analysts and investors;
     
  results of operations that vary from those of our competitors;
     
  changes in expectations as to our future financial performance, including financial estimates by securities analysts;

 

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  publication of research reports about us or the outpatient medical clinic business;
     
  announcements by us or our competitors of significant contracts, acquisitions or capital commitments;
     
  announcements by third parties of significant claims or proceedings against us;
     
  changes affecting the availability of financing in the outpatient medical services market;
     
  regulatory developments in the outpatient medical clinic business;
     
  significant future sales of our common stock, and additions or departures of key personnel;
     
  the realization of any of the other risk factors presented in this prospectus; and
     
  general economic, market and currency factors and conditions unrelated to our performance.

 

In addition, the stock market in general has experienced significant price and volume fluctuations that have often been unrelated or disproportionate to operating performance of individual companies. These broad market factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A class action suit against us could result in significant liabilities and, regardless of the outcome, could result in substantial costs and the diversion of our management’s attention and resources.

 

Our common stock has no prior market and our stock price may decline after the offering.

 

Before this offering, there has been no public market for shares of our common stock. Although we have applied to have our common stock listed on The NASDAQ Capital Market, an active trading market for our common stock may not develop or, if it develops, may not be sustained after this offering. Our company and the underwriters will negotiate to determine the initial public offering price. The initial public offering price may be higher than the market price of our common stock after the offering and you may not be able to sell your shares of our common stock at or above the price you paid in the offering. As a result, you could lose all or part of your investment.

 

Investors purchasing common stock in this offering will experience immediate dilution .

 

The initial public offering price of shares of our common stock is higher than the pro forma as adjusted net tangible book value per outstanding share of our common stock. You will incur immediate dilution of $[●] per share in the pro forma as adjusted net tangible book value of shares of our common stock, based on an assumed initial public offering price of $[●] per share. To the extent outstanding options are ultimately exercised, there will be further dilution of the common stock sold in this offering.

 

Future sales, or the perception of future sales, of a substantial amount of our shares of common stock could depress the trading price of our common stock.

 

If we or our stockholders sell substantial amounts of our shares of common stock in the public market following this offering or if the market perceives that these sales could occur, the market price of shares of our common stock could decline. These sales may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate, or to use equity as consideration for future acquisitions.

 

Immediately upon completion of this offering, based on the number of shares outstanding as of August 31, 2018, we will have 30,000,000 shares of common stock authorized and [●] shares of common stock outstanding. Of these shares, the [●] shares to be sold in this offering (assuming the underwriter does not exercise its option to purchase additional shares in this offering to cover over-allotments, if any) will be freely tradable. We, our executive officers and directors, and all of our stockholders have entered into agreements with the underwriter not to sell or otherwise dispose of shares of our common stock for a period of 180 days following completion of this offering, with certain exceptions. Immediately upon the expiration of this lock-up period, [●] shares will be freely tradable pursuant to Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), by non-affiliates and another [●] shares will be eligible for resale pursuant to Rule 144 under the Securities Act, subject to the volume, manner of sale, holding period and other limitations of Rule 144.

 

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In addition, following the completion of this offering, we intend to file a registration statement on Form S-8 registering the issuance of approximately 1,000,000 shares of common stock subject to stock options or other equity awards issued or reserved for future issuance under our 2018 Incentive Compensation Plan. Shares registered under the registration statement on Form S-8 will be available for sale in the public market subject to vesting arrangements and exercise of options, the lock-up agreements described above and the restrictions of Securities Act Rule 144 in the case of our affiliates.

 

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, or if our actual results differ significantly from our guidance, our stock price and trading volume could decline.

 

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

In addition, from time to time, we may release earnings guidance or other forward-looking statements in our earnings releases, earnings conference calls or otherwise regarding our future performance that represent our management’s estimates as of the date of release. Some or all of the assumptions of any future guidance that we furnish may not materialize or may vary significantly from actual future results. Any failure to meet guidance or analysts’ expectations could have a material adverse effect on the trading price or volume of our stock.

 

Anti-takeover provisions in our charter documents could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.

 

Our corporate documents, to be effective upon completion of this offering, and the Delaware General Corporation Law contain provisions that may enable our board of directors to resist a change in control of our company even if a change in control were to be considered favorable by you and other stockholders. These provisions:

 

  authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to help defend against a takeover attempt;
     
  establish advance notice requirements for nominating directors and proposing matters to be voted on by stockholders at stockholder meetings;
     
  provide that stockholders are only entitled to call a special meeting upon written request by 33 1 / 3 % of the outstanding common stock; and
     
  require supermajority stockholder voting to effect certain amendments to our certificate of incorporation and bylaws.

 

In addition, Delaware law prohibits large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or consolidating with us except under certain circumstances. These provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take other corporate actions you desire.

 

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We have 5,000,000 authorized unissued shares of preferred stock, and our board has the ability to designate the rights and preferences of this preferred stock without your vote.

 

Our certificate of incorporation authorizes our board of directors to issue “blank check” preferred stock and to fix the rights, preferences, privileges and restrictions, including voting rights, of these shares, without further stockholder approval. The rights of the holders of common stock will be subject to and may be adversely affected by the rights of holders of any preferred stock that may be issued in the future. As indicated in the preceding risk factor, the ability to issue preferred stock without stockholder approval could have the effect of making it more difficult for a third party to acquire a majority of the voting stock of our company thereby discouraging, delaying or preventing a change in control of our company. We currently have no outstanding shares of preferred stock, or plans to issue any such shares in the future.

 

Concentration of ownership of our common stock among our existing executive officers and directors may limit new investors from influencing significant corporate decisions.

 

Upon completion of this offering, our executive officers, directors and current beneficial owners of 5% or more of our common stock and their respective affiliates will, in aggregate, beneficially own approximately [●]% of our outstanding shares of common stock. These persons, acting together, would be able to influence all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions. The interests of this group of stockholders may not coincide with our interests or the interests of other stockholders.

 

We do not expect to pay any dividends on our common stock for the foreseeable future.

 

We currently expect to retain all future earnings, if any, for future operation, expansion and debt repayment and have no current plans to pay any cash dividends to holders of our common stock for the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our operating results, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. In addition, we must comply with the covenants in our credit agreements in order to be able to pay cash dividends, and our ability to pay dividends generally may be further limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur. As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it.

 

We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways that may not yield a return.

 

Our management will have considerable discretion in the application of the net proceeds of this offering, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be invested with a view towards long-term benefits for our stockholders and this may not increase our operating results or market value. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” but are also contained in this prospectus. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “aim,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” “target,” “seek” or the negative of these terms, or other comparable terminology intended to identify statements about the future. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

  our dependence upon external sources for the financing of our operations;
     
  our ability to effectively execute our growth and expansion strategy;
     
  changes in the outpatient medical services market;
     
  our limited operating history;
     
  the valuation of assets reflected in our consolidated financial statements;
     
  our reliance on continued access to financing;
     
  our reliance on information provided and obtained by third parties;
     
  federal, state, and local regulatory matters;

 

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  additional expenses, not reflected in our operating history, related to being a public reporting company;
     
  competition, not only in the outpatient medical clinic market, but also for traditional hospital and medical treatment generally; and
     
  covenants contained in our master services agreements.

 

We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.

 

These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain.

 

You should refer to the “Risk Factors” section of this prospectus for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result, of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by federal securities law.

 

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

CORPORATE CONVERSION

 

Prior to June 1, 2018, we operated as a Kentucky limited liability company under the name IMAC Holdings, LLC. Effective June 1, 2018, we converted into a Delaware corporation pursuant to a statutory merger and changed our name to IMAC Holdings, Inc. In order to consummate the Corporate Conversion, a certificate of merger was filed with the Secretary of State of the State of Delaware and with the Secretary of State of the State of Kentucky. Holders of membership interests in IMAC Holdings, LLC received, on a proportional basis, an aggregate of [●] shares of common stock of IMAC Holdings, Inc.

 

Following the Corporate Conversion, IMAC Holdings, Inc. continues to hold all property and assets of IMAC Holdings, LLC and all of the debts and obligations of IMAC Holdings, LLC. We are now governed by a certificate of incorporation filed with the Secretary of State of the State of Delaware and bylaws, the material portions of which are described in the section of this prospectus entitled “Description of Capital Stock.” On the effective date of the Corporate Conversion, the officers of IMAC Holdings, LLC became the officers of IMAC Holdings, Inc. As a result of the Corporate Conversion, we are now a federal corporate taxpayer as opposed to a pass-through entity for tax purposes.

 

The purpose of the Corporate Conversion was to reorganize our corporate structure so that the top-tier entity in our corporate structure — the entity that is offering shares of common stock to the public in this offering — is a corporation rather than a limited liability company and so that our existing owners own shares of our common stock rather than membership interests in a limited liability company.

 

Except as otherwise noted herein, the consolidated financial statements included in this prospectus are those of IMAC Holdings, Inc. and its consolidated subsidiaries.

 

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USE OF PROCEEDS

 

We estimate that the net proceeds from the sale of our common stock in this offering will be approximately $[●] (or approximately $[●] if the underwriter exercises its option in full to purchase additional shares of our common stock), based upon an assumed initial public offering price of $[●] per share after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

We intend to use the net proceeds approximately as follows:

 

Application of Net Proceeds   Approximate
Dollar
Amount
    Approximate
Percentage
of
Net Proceeds
 
             
Financing the costs of leasing, developing and acquiring new clinic locations   $ 7,000,000       52.4 %
Repayment of interim note used for working capital     1,500,000       11.2 %
Funding research and new product development     1,500,000       11.2 %
Working capital and general corporate purposes     3,367,500       25.2 %
Total   $ 13,367,500       100.0 %

 

The net proceeds will also be utilized to finance the costs for leasing and developing the premises for each medical clinic, purchasing medical and office equipment, purchasing medical supplies and inventory, spending on advertising and marketing, as well as recruiting and hiring staff, and other expenses. We estimate that it will take at least $700,000 to open each new clinic, with an additional $300,000 of operating capital and $200,000 credit line needed to purchase equipment and fund operating losses during the first six months of operation. These start-up costs may increase if there are any delays, problems or other events not currently anticipated. Although we expect each medical clinic to become profitable approximately six months after opening based on our experience with opening the Ozzie Smith Centers in Chesterfield, Missouri in May 2016 and in St. Peters, Missouri in August 2017, and with the IMAC Regeneration Center in Murray, Kentucky in February 2017, no guarantee can be made that any of the clinics or our company overall will operate profitably. For example, the David Price Center in Brentwood, Tennessee, which opened in May 2017, initially experienced unforeseen delays in staffing, construction and marketing launch. We also plan to use a portion of the net proceeds of this offering to finance acquisitions of, or investments in, competitive and complementary businesses as a part of our growth strategy. We currently have no commitments in place with respect to any such acquisitions or investments.

 

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On June 1, 2018, we entered into a note payable to The Edward S. Bredniak Trust in the amount of up to $2,000,000. An existing note payable with this entity with an outstanding balance of $379,676 (unaudited) was subsequently combined into the new note payable. The note carries an interest rate of 10% per annum and all outstanding balances are due and payable at the closing of this offering. The proceeds of this note are being used to satisfy ongoing working capital needs, expenses related to the preparation and execution of this offering, equipment and construction costs related to new clinic locations, and potential business combination and transaction expenses.

 

A portion of the net proceeds will be used to fund the purchase of equipment and other research-related materials for the development and testing of our NeoCyte product, as well as the costs associated with hiring additional personnel, engaging with the FDA and obtaining requisite FDA certifications for our NeoCyte product. We believe that NeoCyte has the potential to be an important part of our overall service and treatment offerings. We recognize the benefits of developing the NeoCyte product and quantifying scientific advancements with primary data collected within our IMAC clinics.

 

Funds for working capital and general corporate purposes include amounts required to pay officers’ salaries, consulting fees, professional fees, ongoing public reporting costs, computer equipment costs, data streaming transmission costs, office-related expenses and other corporate expenses.

 

We believe that, with the net proceeds of this offering, our current cash and our available lines of credit, we will have sufficient cash reserves available to cover expenses for at least 12 months following the closing of this offering. Given the volatility in U.S. equity markets and our normal working capital fluctuations, and depending on the actual level of net proceeds raised in this offering, we may seek to raise additional capital following this offering to supplement our operating cash flows to the extent we can do so on competitive market terms. In such event, an equity financing may dilute the ownership interests of our stockholders and investors in this offering. In all events, there can be no assurance that additional financing would be available to us when desired or needed and, if available, on terms acceptable to us.

 

The expected use of net proceeds from this offering represents our intention based upon our present plans and business conditions. We cannot predict with certainty all of the particular uses for the proceeds of this offering or the amounts that we will actually spend on the uses set forth above. Accordingly, our management will have significant flexibility in applying the net proceeds of this offering. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending their use, we intend to invest the net proceeds of this offering in a variety of capital-preservation investments, including short- and intermediate-term, interest-bearing, investment-grade securities.

 

DIVIDEND POLICY

 

Our board of directors will determine our future dividend policy based on our result of operations, financial condition, capital requirements and other circumstances. We have not previously declared or paid any cash dividends on our common stock. We anticipate that we will retain earnings to support operations and finance the growth of our business, as described in this prospectus. Accordingly, it is not anticipated that any cash dividends will be paid on our common stock in the foreseeable future. Previously, as a limited liability company, we made periodic minimal distributions to our members, primarily to cover the members’ tax obligations.

 

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CAPITALIZATION

 

The following table summarizes our historical liabilities and equity at June 30, 2018 and on a pro forma basis, giving effect to (a) the issuance of [●] shares of our common stock in this offering at an assumed initial public offering price of $ [●] per share, net of expenses, (b) the conversion of our convertible promissory notes in the principal amount of $1,730,000 into [●] shares of our common stock, and (c) the issuance of [●] shares of our common stock in settlement of liabilities incurred in connection with the transactions with Integrated Medicine and Chiropractic Regeneration Center PSC, IMAC of St. Louis, LLC and IMAC Regeneration Management of Nashville, LLC.

 

    As of June 30, 2018  
          Pro Forma,  
    Actual     As Adjusted  
             
Current liabilities   $ 11,080,892     $            
Long-term liabilities   $ 1,628,681     $  
Total liabilities   $ 12,709,573     $  
Stockholders’ equity                
Common stock, $0.001 par value, 30,000,000 shares authorized, 6,582,737 shares issued and outstanding; [●] shares issued and outstanding, pro forma   $ 6,583     $  
Additional paid-in capital   $ 1,231,917          
Accumulated deficit   $ (1,627,690 )        
Non-controlling interest   $ (1,398,339 )        
Total stockholders’ equity   $ (1,787,529 )        
Total liabilities and stockholders’ equity   $ 10,922,044          

 

DILUTION

 

If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma, as adjusted net tangible book value per share of our common stock immediately after this offering. Net tangible book value per share is determined by dividing our total tangible assets less total liabilities by the number of outstanding shares of common stock.

 

As of June 30, 2018, we had a net tangible book value of $[●] (unaudited) or $[●] per share of common stock. Our pro forma net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of shares of our common stock outstanding as of June 30, 2018, after giving effect to the Corporate Conversion.

 

Investors participating in this offering will incur immediate and substantial dilution. After giving effect to (a) the issuance and sale of [●] shares of our common stock in this offering at an assumed initial public offering price of $[●] per share, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (b) the automatic conversion of our convertible promissory notes in the principal amount of $1,730,000 issued in the first six months of 2018 into [●] shares of our common stock, upon the closing of this offering, the issuance of [●] shares of our common stock under the terms of a unit purchase agreement in connection with our acquisition of IMAC of St. Louis, LLC and [●] shares of common stock under the terms of a merger agreement in connection with our acquisition of Clinic Management Associates, LLC and the issuance of [●] shares of common stock under the terms of a unit purchase agreement in connection with our acquisition of Advantage, our as adjusted net tangible book value as of June 30, 2018, would have been approximately $[●], or $[●] per share of common stock. This represents an immediate decrease in the pro forma net tangible book value of $[●] per share to existing stockholders and an immediate accretion of $[●] per share to investors purchasing shares of our common stock in this offering. The following table illustrates this per share dilution on a per share basis:

 

    Amount  
       
Assumed initial public offering price   $           
         
Pro forma net tangible book value (deficit) before offering        
         
Increase (Decrease) in pro form net tangible book value attributable to new investors        
         
Pro forma as adjusted net tangible book value after offering        
         
Dilution (Accretive) in pro forma net tangible book value to new investors        

 

If the underwriter exercises its over-allotment option in full to purchase [●] additional shares of common stock from us in this offering to cover over-allotments, if any, the pro forma as adjusted net tangible book value per share after the offering would be $[●] per share, the increase in the pro forma net tangible book value per share to existing stockholders would be $[●] per share and the dilution per share to new investors purchasing common stock in this offering would be $[●] per share.

 

The following table illustrates, on a pro forma as adjusted basis as of June 30, 2018, after giving effect to the Corporate Conversion, the differences between the number of shares of common stock purchased from us, the total consideration paid, and the average price per share paid by existing stockholders and new investors purchasing shares of our common stock in this offering based on an assumed initial public offering price of $[●] per share, and before deducting underwriting discounts and commissions and estimated offering expenses.

 

    Shares
Purchased
    Total
Consideration
    Average
Price Per
 
    Number     Percent     Amount     Percent     Share  
Existing stockholders                 %           %      
New investors           %                 %   $            
Total           100.0 %           100.0 %      

 

The number of shares of common stock shown above to be outstanding after this offering is based on [●] shares of our common stock outstanding as of June 30, 2018, assuming the sale of [●] shares of our common stock offered for sale in this offering and the automatic conversion of our convertible promissory notes in the principal amount of $1,730,000 issued in the first six months of 2018 into [●] shares of our common stock and the issuance of [●] shares of our common stock under the terms of a unit purchase agreement in connection with our acquisition of IMAC of St. Louis, LLC, [●] shares of common stock under the terms of a merger agreement in connection with our acquisition of Clinic Management Associates, LLC and [●] shares of common stock under the terms of a unit purchase agreement in connection with our acquisition of Advantage, and excludes 1,000,000 shares of our common stock reserved for future issuance under our 2018 Incentive Compensation Plan.

 

In addition, if the underwriter exercises its over-allotment option to purchase additional shares in full, the number of shares held by new investors would increase to [●], or [●]% of the total number of shares of our common stock outstanding after this offering.

 

To the extent that new stock options are issued under our 2018 Incentive Compensation Plan 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.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes of IMAC Holdings, Inc. as well as the Pro Forma Financial Statements of IMAC Group and the information contained in other sections of this prospectus, particularly under the headings “Risk Factors” and “Business.” It contains forward-looking statements that involve risks and uncertainties, and is based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those anticipated by our management in these forward-looking statements as a result of various factors, including those discussed below and in this prospectus, particularly under the heading “Risk Factors.”

 

Information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations gives a financial perspective of IMAC Holdings, Inc. and retrospective effect to the consummation of business transactions involving companies owning or managing IMAC Regeneration Centers and the related issuance of shares of common stock and/or cash payments in such transactions, each of which were completed in June 2018, the company herein referred to as “IMAC Group.” Management has used best efforts to clearly document the entities in correlation to the information presented below. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “we,” “us,” “our,” “our company,” “our business” and “IMAC Holdings” are to IMAC Holdings, Inc., a Delaware corporation and prior to the Corporate Conversion discussed in this prospectus, IMAC Holdings, LLC, a Kentucky limited liability company, and in each case, their consolidated subsidiaries. IMAC Holdings includes the financial condition and results of operations of IMAC of Tennessee. The business transactions referenced above are with Integrated Medicine and Chiropractic Regeneration Center PSC (through its Management Services Agreement with a wholly owned subsidiary) and IMAC of St. Louis, LLC. A third acquisition relates to the buy-out of the minority ownership of other parties of IMAC Regeneration Management of Nashville, LLC.

 

Overview

 

We are a provider of movement and orthopedic therapies and minimally invasive procedures performed through our regenerative and rehabilitative medical treatments to improve the physical health of our patients at our fast-growing chain of IMAC Regeneration Centers which we own or manage. Our outpatient medical clinics provide conservative, minimally invasive medical treatments to help patients with back pain, knee pain, joint pain, ligament and tendon damage, and other related soft tissue conditions. Our licensed healthcare professionals evaluate each patient and provide a custom treatment plan that integrates traditional medical procedures and innovative regenerative medicine procedures in combination with physical medicine. We do not use or offer opioid-based prescriptions as part of our treatment options in order to help our patients avoid the dangers of opioid abuse and addiction. The original IMAC Regeneration Center opened in Kentucky in August 2000 and remains the flagship location of our current business, which was formally organized in March 2015. To date, we have opened eleven new outpatient medical clinics in Kentucky, Missouri and Tennessee, and plan with the net proceeds of this offering to further expand the reach of our facilities to other strategic locations throughout the United States. We have partnered with several active and former professional athletes, opening two Ozzie Smith IMAC Regeneration Centers and two David Price IMAC Regeneration Centers, and recently opened a Tony Delk IMAC Regeneration Center in July 2018. Our outpatient medical clinics emphasize our focus around treating sports and orthopedic injuries as an alternative to traditional surgeries for repair or joint replacement.

 

Revenue Model

 

Our revenue mix is diversified between medical treatments and physiological treatments. Our medical treatments are further segmented into traditional medical and regenerative medicine practices. For the last two full fiscal years and the first quarter of this year, traditional medical treatments comprised approximately 33% of total net patient revenues of IMAC Group, while regenerative medicine accounted for approximately 31% of IMAC Group total net patient revenues. Physiological treatments generated the remainder of our total net patient revenues as physical therapy amounted to 31% and chiropractic care at 5% of such revenues. We are an in-network provider for traditional physical medical treatments, such as physical therapy, chiropractic services and medical evaluations, with most private health insurance carriers. Regenerative medical treatments are typically not covered by insurance, but paid by the patient. Approximately 26% of IMAC Group total net patient revenues are attributable to insurance payments, 23% to CMS payments and 51% to cash payments from patients. For more information on our revenue recognition policies, see “Critical Accounting Policies and Estimates - Revenue Recognition.”

 

IMAC Holdings, Inc. recorded consolidated patient billings of $1,947,331 (unaudited) and $1,378,313 and realized total net patient revenues, less allowances for contractual adjustments with third-party payers, of $838,556 (unaudited) and $654,625 for the six months ended June 30, 2018 and the year ended December 31, 2017, respectively, and had no revenues in 2016. No revenues were recorded in 2016 because IMAC Holdings did not own any clinics in its name in 2016 and the clinics with which it had entered into management services agreements in 2016 did not open until early 2017. IMAC Holdings’ net loss for the six months ended June 30, 2018 and year ended December 31, 2017 were $(1,639,816) (unaudited) and $(916,532), respectively. The net loss for the six months ended June 30, 2018 included one-time costs of approximately $100,000 related to this offering.

 

On a pro forma basis to reflect the Integrated Medicine and Chiropractic Regeneration Center PSC and IMAC of St. Louis, LLC transactions, which occurred in June 2018, but as if they each occurred on January 1, 2017, the patient billings of IMAC Group were $11,189,124 (unaudited) and $22,710,675 (unaudited) and total net patient revenues were $3,962,435 (unaudited) and $8,324,685 (unaudited) for the six months ended June 30, 2018 and the year ended December 31, 2017, respectively. IMAC Group’s pro forma net loss for the six months ended June 30, 2018 and the year ended December 31, 2017 was $(2,438,263) (unaudited) and $(2,062,652) (unaudited), respectively. The net loss for IMAC Group for the six months ended June 30, 2018 included one-time costs of approximately $100,000 related to this offering.

 

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Corporate Conversion

 

Prior to June 1, 2018, we were a Kentucky limited liability company named IMAC Holdings, LLC. Effective June 1, 2018, we converted into a Delaware corporation pursuant to a statutory merger, or the Corporate Conversion, and changed our name to IMAC Holdings, Inc. All of our outstanding membership interests were exchanged on a proportional basis into shares of common stock of IMAC Holdings, Inc.

 

Following the Corporate Conversion, IMAC Holdings, Inc. continues to hold all of the property and assets of IMAC Holdings, LLC and all of the debts and obligations of IMAC Holdings, LLC continue as the debts and obligations of IMAC Holdings, Inc. The purpose of the Corporate Conversion was to reorganize our corporate structure so that the top tier entity in our corporate structure — the entity that is offering common stock to the public in this offering — is a corporation rather than a limited liability company and so that our existing owners own shares of our common stock rather than membership interests in a limited liability company. Except as otherwise noted herein, the consolidated financial statements included in this prospectus are those of IMAC Holdings, Inc. and its consolidated subsidiaries.

 

Business Transactions

 

IMAC Management Services, LLC holds a long-term Management Services Agreement with Integrated Medicine and Chiropractic Regeneration Center PSC, a professional service corporation controlled by our co-founders Matthew C. Wallis, DC and Jason Brame, DC, which operates two IMAC Regeneration Centers in Kentucky. The Management Services Agreement is exclusive, extends through June 2048 and will automatically renew annually each year thereafter unless written notice is given within 180 days prior to the completion of the extended term. On June 29, 2018, Clinic Management Associates, LLC, controlled by Drs. Wallis and Brame, merged with and into our subsidiary IMAC Management Services, LLC. IMAC Management Services, LLC provides exclusive comprehensive management and related administrative services to the IMAC Regeneration Centers under the Management Services Agreement. Pursuant to the merger agreement with Clinic Management Associates, LLC, we agreed to pay cash or issue shares of our common stock having a value of $4,598,576 to its former owners stock upon the closing of this offering. Dr. Wallis is an executive officer and greater than 5% beneficial owner in our company and will receive 75% of the sale price of Clinic Management Associates, LLC. Dr. Brame is a greater than 5% beneficial owner in our company and will receive 25% of the sale price of Clinic Management Associates, LLC. Under the Management Services Agreement, we will receive service fees based on the cost of the services we provide, plus a specified markup percentage, and a discretionary annual bonus.

 

We entered into a Unit Purchase Agreement with the equity owners of IMAC of St. Louis, LLC to acquire the remaining 64% of the outstanding units of the limited liability company membership interests we did not already own. This entity, doing business as the Ozzie Smith Center, operates two locations in Missouri. Pursuant to the terms of the Unit Purchase Agreement, we agreed to pay IMAC of St. Louis, LLC’s former owners upon the closing of this offering $1,000,000 in cash and the remainder in shares of our common stock in the aggregate amount of $1,490,632. The effective date of the transaction was June 1, 2018. Dr. Wallis is an executive officer and greater than 5% beneficial owner in our company and will receive cash and stock of $372,658.

 

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We entered into a Unit Purchase Agreement with the equity owners of IMAC Regeneration Management of Nashville, LLC to acquire the remaining 24% of the outstanding units of the limited liability company membership interests we did not already own for an amount equal to $110,000 in cash and $190,000 principal amount of 4% convertible notes (on the same terms as in our 2018 private placement). The effective date of this transaction was June 1, 2018. IMAC Regeneration Management of Nashville, LLC, now our 100%-owned subsidiary, and IMAC Regeneration Center of Nashville, P.C. previously agreed to a long-term, exclusive management services agreement on November 1, 2016. Mr. Ervin is an executive officer and greater than 5% beneficial owner in our company and will receive $50,000.

 

We are compensated under each of our management services agreements through service fees based on the cost of the services provided, plus a specified markup percentage, and a discretionary annual bonus determined in the sole discretion of each professional service corporation. Under our management services agreements, all obligations owed to us by the professional service corporations are secured by all accounts receivable, contract rights, revenues and general intangibles of the applicable professional service corporation. The management services agreements may be terminated by mutual agreement of the parties, by a non-breaching party after 30 days following an uncured breach by the other party, upon a bankruptcy of either party or by us upon 90 days’ prior written notice to the other party.

 

Integrated Medicine and Chiropractic Regeneration Center, PSC, IMAC Management Services, LLC, IMAC of St. Louis, LLC and IMAC Regeneration Management of Nashville, LLC are related companies having common ownership with us and our controlling stockholders and have been operating together with us as a single group since 2015. We intend to make additional acquisitions following this offering and, in the ordinary course of business, we frequently engage in discussions with potential acquisition candidates and/or their representatives. We currently have no commitments or agreements for any acquisitions.

 

In August 2018, we purchased 100% of the outstanding units of Advantage Hand Therapy and Orthopedic Rehabilitation, LLC, a physical and occupational therapy business with four clinics serving the Springfield, Missouri metropolitan area. The purchase price was $22,930 in cash and $870,000 payable in common stock upon the closing of this offering. The acquisition of this entity was not considered significant as measured under specific financial tests of the SEC.

 

On August 20, 2018, we acquired a 70% ownership position in BioFirma, LLC for $1,000 in cash. The acquisition of this entity was not considered significant as measured under specific financial tests of the SEC. BioFirma owns a trademark on NeoCyte, an umbilical cord-derived mononuclear cell product following the FDA’s cGMP regulations. We intend to use approximately $1,500,000 of the net proceeds of this offering for further research and product development of NeoCyte and other regenerative medicine products, including obtaining approvals, certifications or designations from the FDA. A portion of the funds for BioFirma will be used for the employment of Ian A. White, Ph.D., Chief Scientific Officer, for a three-year period, as well as for equipment and manufacturing of the product. When it is market-ready, we intend to sell the NeoCyte product at our IMAC Regeneration Centers and other medical clinics.

 

Matters that May or Are Currently Affecting Our Business

 

We believe that the growth of our business and our future success depend on various opportunities, challenges, trends and other factors, including the following:

 

  Our ability to identify, contract with, install equipment and operate a large number of outpatient medical clinics and attract new patients to them;
     
  Our need to hire additional healthcare professionals in order to operate the large number of clinics we intend to open;
     
  Our ability to enhance revenue at each facility on an ongoing basis through additional patient volume and new services;
     
  Our ability to obtain additional financing for the projected costs associated with the acquisition, management and development of new clinics, and the personnel involved, if and when needed;
     
  Our ability to attract competent, skilled medical and sales personnel for our operations at acceptable prices to manage our overhead; and
     
  Our ability to control our operating expenses as we expand our organization into neighboring states.

 

Critical Accounting Policies and Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses at the date and for the periods that the consolidated financial statements are prepared. On an ongoing basis, we evaluate our estimates, including those related to insurance adjustments and provisions for doubtful accounts. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could materially differ from those estimates.

 

We believe that, of the significant accounting policies discussed in our Notes to the Consolidated Financial Statements, the following accounting policies require our most difficult, subjective or complex judgments in the preparation of our financial statements.

 

Revenue Recognition

 

Our patient service revenue is derived from minimally invasive procedures performed at our outpatient medical clinics and patient visits to physicians. The fees for such services are billed either to the patient or a third-party payer, including Medicare. We recognize patient service revenue, net of contractual allowances, which we estimate based on the historical trend of our cash collections and contractual write-offs in the period in which services are performed.

 

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Other management service fees are derived from management services where we provide billings and collections support to the clinics and where management services are provided based on state specific regulations known as the corporate practice of medicine (“CPM”). Under the CPM, a business corporation is precluded from practicing medicine or employing a physician to provide professional medical services. In these circumstances, we provide all administrative support to the physician-owned PC through an LLC. The PC is consolidated due to control by contract (an “SMA” or Service Management Agreement). The fees we derive from these management arrangements are based on a percentage mark-up on the costs of the LLC. We recognize other management service revenue in the period in which services are rendered. These revenues are eliminated in consolidation.

 

Patient Deposits

 

Patient deposits are derived from patient payments in advance of services delivered. Our service lines include traditional and regenerative medicine. Regenerative medicine procedures are not paid by insurance carriers; therefore, we typically require up-front payment from the patient for regenerative services and any co-pays and deductibles as required by the patient specific insurance carrier. For some patients, credit is provided through an outside vendor. In this case, we are paid from the outsourced credit vendor and the risk is transferred to the credit vendor for collection from the patient. These funds are accounted for as patient deposits until the procedures are performed at which point the patient deposit is recognized as patient service revenue.

 

Accounts Receivable

 

Accounts receivable primarily consists of amounts due from third-party payers (non-governmental), governmental payers and private pay patients and is recorded net of allowances for doubtful accounts and contractual discounts. Our ability to collect outstanding receivables is critical to our results of operations and cash flows. Accordingly, accounts receivable reported in our consolidated financial statements is recorded at the net amount expected to be received. Our primary collection risks are (i) the risk of overestimation of net revenues at the time of billing that may result in our receiving less than the recorded receivable, (ii) the risk of non-payment as a result of commercial insurance companies’ denial of claims, (iii) the risk that patients will fail to remit insurance payments to us when the commercial insurance company pays out-of-network claims directly to the patient, (iv) resource and capacity constraints that may prevent us from handling the volume of billing and collection issues in a timely manner, (v) the risk that patients do not pay us for their self-pay balances (including co-pays, deductibles and any portion of the claim not covered by insurance), and (vi) the risk of non-payment from uninsured patients.

 

Our accounts receivables from third-party payers are recorded net of estimated contractual adjustments and allowances from third-party payers, which are estimated based on the historical trend of our facilities’ cash collections and contractual write-offs, accounts receivable aging, established fee schedules, relationships with payers and procedure statistics. While changes in estimated reimbursement from third-party payers remain a possibility, we expect that any such changes would be minimal and, therefore, would not have a material effect on our financial condition or results of operations. Our collection policies and procedures are based on the type of payer, size of claim and estimated collection percentage for each patient account. The operating systems used to manage our patient accounts provide for an aging schedule in 30-day increments, by payer, physician and patient. We analyze accounts receivable at each of the facilities to ensure the proper collection and aged category. The operating systems generate reports that assist in the collection efforts by prioritizing patient accounts. Collection efforts include direct contact with insurance carriers or patients and written correspondence.

 

Income Taxes

 

Prior to June 1, 2018, IMAC Holdings, IMAC Management Services, IMAC Texas, IMAC of St. Louis and IMAC Nashville were limited liability companies and taxed as partnerships. As a result, income tax liabilities were passed through to the individual members. Any future tax benefit arising from post conversion corporate losses have been offset by a valuation allowance. Accordingly, no provision for income taxes is reflected in the consolidated financial statements. For more information, see “Corporate Conversion.”

 

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References in this section of the MD&A to “IMAC Holdings, Inc.” and prior to June 1,2018,” IMAC Holdings LLC” represent our consolidated financial statements prior to the consummation of certain business transactions. The business transactions refer to the following three transactions with entities for which IMAC Holdings had either no ownership or control, or varying degrees of ownership or control prior to June 30, 2018: “Integrated Medicine and Chiropractic Regeneration Center PSC,” “IMAC of St. Louis, LLC” and “IMAC Regeneration Management of Nashville, LLC.”

 

Results of Operations – IMAC Holdings, Inc.

 

We own our medical clinics directly or have entered into long-term management services agreements to operate and control these medical clinics by contract. Our preference is to own the clinics; however, some state laws restrict the corporate practice of medicine and require a licensed medical practitioner to own the clinic. Accordingly, our managed clinics are owned exclusively by a medical professional within a professional service corporation (formed as a limited liability company or corporation) under common control with us or eligible members of our company in order to comply with state laws regulating the ownership of medical practices. We are compensated under management services agreements through service fees based on the cost of the services provided, plus a specified markup percentage, and a discretionary annual bonus determined in the sole discretion of each professional service corporation.

 

The following table sets forth a summary of IMAC Holdings, Inc.’s statements of operations for the years ended December 31, 2017 and 2016, and the unaudited six months ended June 30, 2018 and 2017:

 

    Six Months Ended June 30,     Years Ended December 31,  
    2018     2017     2017     2016  
    (unaudited)              
Patient revenues   $ 1,947,331     $ 163,973     $ 1,378,313     $ -  
Contractual adjustments     (1,108,775 )     (114,886 )     (723,688 )     -  
Total patient revenue, net     838,556       49,087       654,625       -  
                                 
Management fees     64,000       72,200       131,400       15,000  
Total revenue     902,556       121,287       786,025       15,000  
                                 
Operating expenses:                                
Patient expenses     85,716       18,475       63,216       4,266  
Salaries and benefits     1,035,265       416,441       967,627       33,589  
Share-based compensation     7,500       -       18,747       150,000  
Advertising and marketing     178,511       39,103       119,867       25,000  
General and administrative     976,831       131,441       465,740       21,192  
Depreciation     120,504       15,320       65,895       -  
Total operating expenses     2,404,327       620,780       1,701,092       234,047  
                                 
Operating loss     (1,501,771 )     (499,493 )     (915,067 )     (219,047 )
                                 
Other income (expense):                                
Interest income     5,429       3,948       14,821       4  
Other income     18,356       -       -       -  
Loss on disposal of assets     -       -       (2,744 )     -  
Interest expense     (56,280 )     (14,240 )     (27,151 )     -  
Total other income (expenses)     (32,495 )     (10,292 )     (15,074 )     4  
                                 
Loss before equity in earnings (loss) of non-consolidated affiliate     (1,534,266 )     (509,785 )     (930,141 )     (219,043 )
                                 
Equity in earnings (loss) of non-consolidated affiliate     (105,550 )     (13,267 )     13,609       (178,397 )
                                 
Net loss   $ (1,639,816 )   $ (523,052 )   $ (916,532 )   $ (397,440 )
                                 
Net loss attributable to the non-controlling interest   $ 503,200     $ 565,655     $ 859,351     $ 16,643  
                                 
Net earnings (loss) attributable to IMAC Holdings, Inc.   $ (1,136,616 )   $ 42,603     $ (57,181 )   $ (380,797 )

 

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The following discussion relates to IMAC Holdings Inc. All references to interim six month periods are unaudited.

 

Revenues

 

Gross revenues for the twelve months ended December 31, 2017 were $1,378,313, compared to no revenues for the year ended December 31, 2016. Revenue increased solely due to revenues from IMAC Regeneration Center of Nashville, P.C which opened in May 2017.

 

Gross revenues for the six months ended June 30, 2018 were $1,947,331, compared to $163,973 for the same period in 2017. Revenue increased due to IMAC Regeneration Center of Nashville PC being open a full six months during the six months ended June 30, 2018 compared to being open for one and a half months during the six months ended June 30, 2017, and the acquisition of IMAC of St. Louis, LLC effective June 1, 2018. IMAC Regeneration Center of Nashville, P.C, was open six months in both the Brentwood and Murfreesboro locations for the six months ended June 30, 2018 compared to the same period in 2017, during which the Brentwood, Tennessee location was open only one and a half months. IMAC of St. Louis, LLC had gross revenues of $589,935 for the month ended June 30, 2018 compared to no revenue for the six months ended June 30, 2017. IMAC Holdings, Inc. recorded gross revenues of $98,291 for the six months ended June 30, 2018 compared to no revenues for the same period in 2017. We record revenue at the facility level, but due to the timing of the closing of the June Transactions and certain related factors, there was $98,291 in gross revenue recorded at IMAC Holdings at the corporate level. This revenue will be allocated to the appropriate facility in future reporting periods.

 

Net revenue (gross revenues less contractual adjustments) for the twelve months ended December 31, 2017 was $654,625 as compared to no net revenue for the year ended December 31, 2016.

 

Net revenue (gross revenues less contractual adjustments) for the six months ended June 30, 2018 was $838,556 as compared to $49,087 for the same period in 2017.

 

IMAC Holdings, Inc. had non-patient related revenues for the twelve months ended December 31, 2017 of $131,400. All of the revenue was related to billing services provided by IMAC Management Services, LLC to other IMAC facilities and such revenue to IMAC Holdings, Inc. was not eliminated in consolidation due to ownership. IMAC Management Services, LLC non-patient related revenues for the twelve months ended December 31, 2016 were $15,000.

 

IMAC Holdings, Inc. had non-patient related revenues for the six months ended June 30, 2018 of $64,000. This was related to billing services provided by IMAC Management Services LLC to other IMAC facilities and such revenue to IMAC Holdings, Inc. was not eliminated in consolidation due to ownership. IMAC Management Services, LLC non-patient related revenues for the six months ended June 30, 2017 were $72,200.

 

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Operating Expenses

 

Operating expenses consist of patient expenses, salaries and benefits, advertising and marketing, general and administrative expenses and depreciation expenses.

 

Total operating expenses for the twelve months ended December 31, 2017 increased by $1,467,045 compared to the same period in 2016. The increase was primarily attributable to increased costs in Tennessee and overhead costs at IMAC Holdings related to preparation for this offering.

 

Total operating expenses for the six months ended June 30, 2018 increased by $1,783,547 compared to the same period in 2017. The increase was primarily attributable to increased costs in IMAC of Tennessee, one month of operating expenses of IMAC of St. Louis, LLC in 2018 with no costs in the same period in 2017 and increased overhead costs at IMAC Holdings, Inc. in 2018 related to preparation for this offering and a realignment of resources as compared to the same period in 2017. There were approximately $100,000 of one-time costs in the first six months of 2018 as compared to the same period in 2017.

 

Patient expenses consist of medical supplies for services rendered.

 

Patient expenses increased for the year ended December 31, 2017 compared to the year ended December 31, 2016 by $58,950. IMAC of Tennessee patient expenses were $63,216 in 2017 and it had no expenses in 2016. IMAC Holdings had a reduction in patient expenses of $4,266 in the year ended December 31, 2017 compared to the year ended December 31, 2016.

 

Patient expenses increased by $67,241 for the six months ended June 30, 2018 compared to the same period in 2017. IMAC of Tennessee patient expenses increased by $38,088 due to the Brentwood facility being open a full six months in this period in 2018 and opening the Murfreesboro facility in November 2017, compared to one and a half months of expenses for the Brentwood facility in the same period in 2017. IMAC of St. Louis, LLC had $29,153 of patient expenses for the six month period ended June 30, 2018 and no expense in the same period in 2017.

 

Salaries and benefits consist of payroll, benefits and related party contracts.

 

Salaries and benefits increased for the year ended December 31, 2017 by $934,037 compared to the year ended December 31, 2016. IMAC of Tennessee had an increase in salaries and benefits of $760,873 due to being open seven and a half months in 2017 and only $21,111 in salaries and benefits cost for the year ended December 31, 2016. All facilities have startup costs attributable to the need to hire staff in advance of opening. IMAC Management Services had an increase in salaries and wages of $173,165 attributable to billing and collection services cost for new facilities.

 

Salaries and benefits increased by $618,824 for the six months ended June 30, 2018 compared to the same period in 2017. IMAC of Tennessee had an increase in salaries and benefits of $122,034 for the six month period ended June 30, 2018 compared to the same period in 2017. The additional expense was due to six months of staff and provider cost for both the Brentwood and Murfreesboro facilities in 2018 compared to limited staff for the Brentwood facility and no staff at the Murfreesboro facility for the same period in 2017. IMAC Holdings Inc. had an increase in costs of $368,039 due to the additional cost related to marketing personnel and the realignment of other personnel from the facilities to IMAC Holdings. IMAC Management Services LLC costs increased by $18,143 for the six months ended June 30 2018 compared to the same period in 2017 due to additional costs to support billing and operations for related facilities. IMAC of St. Louis had salaries and benefits expense of $110,608 in the six months ended June 30, 2018 and no salaries and benefits expense for the six months ended June 30, 2017.

 

Share-based compensation consists of the value of company stock for sponsor efforts outside of an endorsement agreement. At the time of the compensation, our company was still a limited liability company; therefore, compensation was in the form of limited liability company units instead of stock. The units converted to stock effective upon the company’s conversion from a limited liability company to a corporation.

 

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Share-based compensation decreased by $131,253 during the year ended December 31, 2017 compared to the year ended December 31, 2016. One of our Medical Directors was given 20 units in 2016. In 2017, one Brand Ambassador was given four units for current and future efforts and one unit was given to a second Brand Ambassador for bringing a sponsor to the company.

 

Share-based compensation for the six month period ended June 30, 2018 was $7,500 compared to $0 expense for the same period in 2017. This expense reflected six months of one Brand Ambassador’s expense associated with his units issued in 2017.

 

Advertising and marketing consists of marketing, business promotion and brand recognition.

 

Advertising and marketing increased year-over-year by $94,867 for the year ended December 31, 2017 compared to the prior year. IMAC of Tennessee had an increase in advertising and marketing expense of $82,367 for the year ended December 31, 2017 compared to the year ended December 31, 2016. IMAC Holdings’ advertising and marketing expense increased by $12,500.

 

Advertising and marketing increased by $139,408 for the six months ended June 30, 2018 compared to the same period in the prior year. IMAC of Tennessee had an increase in advertising and marketing expense of $29,712 for the six months ended June 30, 2018 compared to the same period in 2017. IMAC Holdings advertising and marketing expense increased by $95,164 for the six months ended June 30, 2018 compared to the same period in 2017 in preparation for this offering. IMAC of St. Louis, LLC had advertising and marketing costs of $14,532 for the month ended June 30, 2018 compared to no costs in the six months ended June 30, 2017.

 

General and administrative (G&A) consists of all other costs other than advertising and marketing, salaries and wages, patient expenses and depreciation.

 

General and administrative expense increased by $444,548 for the year ended December 31, 2017 compared to the prior year. For the year ended December 31, 2017, IMAC of Tennessee G&A costs increased by $354,421 primarily due to rent, legal and professional fees. Management Services G&A increased by $285. IMAC Holdings’ G&A costs increased by $89,842 due to legal and accounting costs associated with the requirements for this public offering.

 

General and administrative expense increased by $845,390 for the six months ended June 30, 2018 compared to the same period in 2017. IMAC of Tennessee G&A costs increased by $181,003 due to a full six months of expense in the Brentwood and Murfreesboro facilities in 2018 compared to limited expense in the Brentwood facility in the same period in 2017. IMAC Management Services LLC G&A increased by $2,236. IMAC Holdings Inc. G&A costs increased by $599,348 due to the additional cost for accounting, legal, audit and consulting costs associated with the requirements for the public filing in the six months ended June 30, 2018 compared to the same period in 2017. IMAC of St. Louis had G&A expense of $62,803 for the six months ended June 30, 2018 compared to no G&A expense for the same period in 2017.

 

We purchase fixed assets, such as equipment or medical equipment, to use in the course of our business activities. We capitalize the full cost of the asset on our balance sheet and depreciate the cost over the asset’s estimated useful life.

 

Depreciation expense increased by $65,895 for the year ended December 31, 2017 compared to the prior year. IMAC of Tennessee had additional depreciation of $65,895 in 2017 as compared to 2016.

 

Depreciation expense increased by $105,184 for the six months ended June 30, 2018 compared to the same period of 2017. IMAC of Tennessee had an increase in depreciation of $47,753 for the six months ended June 30, 2018 compared to the same period in 2017. IMAC Holdings Inc. had $210 in expense for the six months ended June 30, 2018 and no cost in the same period in 2017. IMAC of St. Louis, LLC had $57,220 in depreciation expense for the six months ended June 30, 2018 compared to no expense in the same period in 2017.

 

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Other income (expense)

 

Other income (expense) consists of interest expense, interest income, and loss on disposal of an asset.

 

Total other income (expense) increased by $15,077 for the year ended December 31, 2017 compared to the year ended December 31, 2016.

 

Interest income increased by $14,816 for the year ended December 31, 2017 compared to the year ended December 31, 2016. The $14,816 of interest income was attributable to the related party note from IMAC of St. Louis.

 

Interest expense was $27,151 for the twelve months ended December 31, 2017 compared to no expense in the year ended December 31, 2016. $25,619 was related to the interest expense for The Edward S. Bredniak Trust loan of $500,000. The proceeds of that loan were loaned internally to IMAC of St. Louis and used to obtain a letter of credit to secure our medical clinic lease in Chesterfield, Missouri.

 

Total other income (expense) increased by $22,204 for the six months ended June 30, 2018 compared to the same period in 2017.

 

Interest expense increased by $42,040 for the six months ended June 30, 2018 compared to the same period in 2017. $22,721 of the increase was interest expense attributable to the 2018 private placement of our 4% convertible promissory notes. $13,914 of the increase was interest expense attributable to the promissory note in the amount of $1,232,500 entered into on March 29, 2018. $7,855 of the increase was interest expense attributable to the line of credit obtained by IMAC of Tennessee PC. $1,333 of the increase was attributable to the equipment lease obtained by IMAC of Tennessee. $535 of the increase was attributable to the equipment loan obtained by IMAC of St. Louis. There was a reduction of interest expense of $4,318 attributable to the note payable to The Edward S. Bredniak Trust.

 

Equity in earnings (loss) of non-consolidated affiliate

 

Equity in earnings (loss) of non-consolidated affiliate is the proportional share (based on ownership) of the net earnings or losses of an unconsolidated affiliate.

 

Total equity in earnings (loss) of a non-consolidated affiliate increased by $192,006 for the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase was related to IMAC Holdings’ 36% ownership of the outstanding limited liability company membership units of IMAC of St. Louis, which was impacted by several factors. Net revenue increased $1.8 million year-over-year from 2016 to 2017. IMAC of St. Louis had one facility opened for eight months in 2016 and 12 months in 2017. A second facility opened in August 2017, representing an increase of nine operating months from 2016 to 2017. There was an increase of $1.3 million in expenses in 2017 compared to 2016. Expenses increased across the board due to the increase in the number of facilities that were open and additional locations that were preparing to open. A few of the large increases were salaries of approximately $665,000, rent and related expenses of approximately $135,000, advertising expenses of approximately $81,000, approximately $84,000 of professional fees and approximately $98,000 of patient supplies. Overall net income increased by $510,000 year-over-year, of which IMAC Holdings recognized 36%, consistent with its interest in IMAC of St. Louis.

 

Total equity in earnings (loss) of non-consolidated affiliate decreased by $92,283 for the six months ended June 30, 2018 compared to the same period in 2017. This was related to a slight decrease in net revenue of $109,000 and an increase in expenses of $237,000 for IMAC of St. Louis for the six months ended June 30, 2018 compared to the same period in 2017 due to the opening of the new facility in St. Peters, Missouri. Large increases in expenses included $50,000 for advertising and $142,000 for salaries. These increased expenses for the six months ended June 30, 2018 were due to the fact that there were two locations in 2018 versus one in 2017.

 

Net loss attributable to the non-controlling interest

 

Net loss attributable to the non-controlling interest is the amount of net income (loss) for the period allocated to non-controlling partners of IMAC Holdings Inc. that is included in the entity’s consolidated financial statements.

 

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Net loss attributable to the non-controlling interest increased by $842,708 for the year ended December 31, 2017 compared to the year ended December 31, 2016. The non-controlling interest increase was due to the portion of IMAC of Tennessee PC and IMAC of Tennessee LLC net income (loss) that IMAC Holdings did not own or control. In 2016, neither of the two Tennessee locations were open but minimal expenses were incurred. The Brentwood and Murfreesboro, Tennessee locations opened in May 2017 and November 2017, respectively. During 2017, net revenue of $654,625 was recognized and expenses incurred of $1,445,781 for those locations.

 

Net loss attributable to the non-controlling interest decreased by $62,455 for the six month period ended June 30, 2018 compared to the six months ended June 30, 2017. This was related to reduced losses for our IMAC of Tennessee operations in the first six months of 2018 compared to the losses in the same period in 2017.

 

Net loss

 

Net loss for the twelve months ended December 31, 2017 was $(916,532), which was an increase from a net loss of $(397,440) for the same period in 2016. The increase in net loss was the result of start-up costs for the Brentwood and Murfreesboro locations of IMAC of Tennessee, additional costs of IMAC Holdings in preparation for this offering, and additional costs at IMAC Management Services LLC related to increased billing and collections.

 

Net loss for the six months ended June 30, 2018 was $(1,639,818), which was an increase from a net loss of $(523,053) for the same period in 2017. The additional loss in the six months ended June 30, 2018 compared to the same period in 2017 due to losses from IMAC of St. Louis and new overhead costs at IMAC Holdings. The new overhead costs included marketing expenses of endorsement fees to our athlete investors and website development, salaries, top level revenue and bad debt expense, as well as professional fees for legal and outside consultants related to this offering.

 

Liquidity and Capital Resources

 

As of December 31, 2017, we had $127,788 in cash and working capital of $234,638. As of December 31, 2016, we had cash of $876,205 and working capital of $1,550,461. The decrease in working capital was primarily due to the decrease in the cash balance, the increase in current portion of debt and patient deposits.

 

As of June 30, 2018, we had $212,593 in cash and a working capital deficit of $(9,864,211). Our working capital balance was impacted by three primary factors: acquisition liabilities of $6,389,208, a 4% convertible note of $1,530,000, and a six-month mortgage of $1,232,500 on our new Lexington, Kentucky property, which will be refinanced at maturity.

 

Operating Activities

 

The primary source of our operating cash flow is the collection of accounts receivable from patients, private insurance companies, government programs, self-insured employers and other payers.

 

During the twelve months ended December 31, 2017, our operating cash flow from operations increased to $(436,976) compared to $(880,589) for the twelve months ended December 31, 2016. This increase was primarily attributable to the opening of the Brentwood, Tennessee facility.

 

During the six months ended June 30, 2018, our operating cash flow from operations was $(730,380). This was primarily attributable to the net loss of the $(1,639,816) for the six months ended June 30, 2018.

 

Investing Activities

 

Net cash used in investing activities during the twelve months ended December 31, 2017 was $(472,515) which included $(546,470) related to purchases of property and equipment and leasehold improvements for the new IMAC of Tennessee locations. Net cash used in investing activities during the year ended December 31, 2016 was $(421,603). This was attributable to the investment in and loan to IMAC of St. Louis.

 

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Net cash used in investing activities during the six months ended June 30, 2018 was $(2,406,303), which included $(1,175,000) related to the purchase of our building in Lexington, Kentucky and $355,000 for construction in process and property and equipment for our Lexington, Kentucky facility. Cash used in investing activities also included the purchase of property and equipment in the St. Louis transaction and the Kentucky transaction.

 

Financing Activities

 

Net cash provided by financing activities during the twelve months ended December 31, 2017 was $161,074. Proceeds from notes payable totaled $200,000. This was due to an equipment loan for the IMAC of Tennessee locations. Payments on notes payable totaled $(85,916) for a note payable to The Edward S. Bredniak Trust. Proceeds from the IMAC of Tennessee PC line of credit totaled $25,000.

 

Net cash provided by financing activities during the six months ended June 30, 2018 was $3,221,508. Proceeds from notes payable were $2,803,320. Proceeds were from our convertible notes and a loan payable for our Lexington, Kentucky property for IMAC Holdings, notes for the purchase of equipment and construction costs in connection with the IMAC of St Louis transaction, and notes for the purchase of equipment in connection with the Integrated Medicine and Chiropractic Regeneration Center PSC transaction. There was an additional $365,000 in proceeds from a separate line of credit for the IMAC of Tennessee, IMAC of St. Louis and the Integrated Medicine and Chiropractic Regeneration Center, PSC locations.

 

Contractual Obligations

 

The following table is a summary of contractual cash obligations at December 31, 2017:

 

IMAC Holdings, Inc.                              
    Total     <1     1 - 3     3 - 5     >5  
Notes Payable   $ 614,007     $ 157,932     $ 383,837     $ 59,145     $ 13,093  
Lease Obligation   $ 2,324,078     $ 293,388     $ 907,712     $ 313,459     $ 809,519  

 

The following table is a summary of contractual cash obligations at June 30, 2018:

 

IMAC Holdings, Inc.                                        
      Total       <1       1-3       4-5       >5  
Notes Payable   $ 3,634,997     $ 2,886,675     $ 636,533     $ 43,935     $ 67,854  
Lease Obligation   $ 4,883,802     $ 396,252     $ 2,194,390     $ 641,947     $ 1,651,213  

 

References in this section of the MD&A to “IMAC Group” represent IMAC Holdings, Inc. on an unaudited pro forma basis, assuming that the business transactions resulting in the consolidation of “Integrated Medicine and Chiropractic Regeneration Center PSC,” “IMAC of St. Louis, LLC” and “IMAC Regeneration Management of Nashville, LLC.” were effective as of January 1, 2017.

 

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Results of Operations - IMAC Group

 

The following tables reflect the pro forma operating results for the IMAC Group for the year ended December 31, 2017 and the six months ended June 30, 2018.

 

    Pro Forma  
    Six Months ended June 30, 2018     Year ended December 31, 2017  
             
Patient revenues   $ 11,189,124     $ 22,710,675  
Contractual adjustments     (7,226,689 )     (14,385,990 )
Total patient revenue, net     3,962,435       8,324,685  
                 
Total revenue     3,962,435       8,324,685  
                 
Operating expenses:                
Patient expenses     568,660       1,021,622  
Salaries and related expenses     2,741,641       4,629,923  
Share-based compensation: consulting fees     7,499       18,747  
Advertising and marketing     376,113       465,050  
General and administrative     1,706,028       1,899,209  
Depreciation and amortization     948,745       1,689,700  
Total operating expenses     6,348,686       9,724,251  
                 
Operating loss     (2,386,251 )     (1,399,566 )
                 
Other income (expenses):                
Interest income     -       2,636  
Other income     18,356       -  
Interest expense     (70,368 )     (93,361 )
Loss on disposal of assets     -       (572,361 )
Total other income (expenses)     (52,012 )     (663,086 )
                 
Net loss   $ (2,438,263 )   $ (2,062,652 )

 

IMAC Group                        
Pro Forma Consolidated Statement of Operations                        
For the Twelve Months Ended December 31, 2017                        
                         
    Holdings     IMAC Kentucky     IMAC St. Louis     Total  
Revenue   $ 1,378,313     $ 13,258,419     $ 8,073,943     $ 22,710,675  
Contractual     (723,688 )     (8,298,287 )     (5,364,015 )     (14,385,990 )
Net Revenue     654,625       4,960,132       2,709,928       8,324,685  
Operating Expenses     2,860,989       4,209,109       2,654,153       9,724,251  
Loss from Operations     (2,206,364 )     751,023       55,775       (1,399,566 )
Other Income and Expense     (15,074 )     (606,846 )     (41,166 )     (663,086 )
Net earnings (loss)   $ (2,221,438 )   $ 144,177     $ 14,609     $ (2,062,652 )

 

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IMAC Group                        
Pro Forma Statement of Operations                        
For the Six Months Ended June 30, 2018                        
                         
    Holdings     IMAC Kentucky     IMAC St. Louis     Total  
Revenue   $ 1,357,396     $ 6,231,482     $ 3,600,246     $ 11,189,124  
Contractual adjustments     (713,609 )     (4,055,385 )     (2,457,695 )     (7,226,689 )
Net revenue     643,787       2,176,097       1,142,551       3,962,435  
Operating expenses     2,713,459       2,127,990       1,507,237       6,348,686  
Loss from operations     (2,069,672 )     48,107       (364,686 )     (2,386,251 )
Other income and expense     (28,594 )     (4,778 )     (18,640 )     (52,012 )
Net earnings (loss)   $ (2,098,266 )   $ 43,329     $ (383,326 )   $ (2,438,263 )

 

Revenues-IMAC Group

 

The following revenue information is related to IMAC Group as referenced in the tables above.

 

All revenue information in this section gives retrospective effect to the completion of three transactions involving companies operating IMAC Regeneration Centers and the related issuance of shares of our common stock and/or cash payments in such transactions, which transactions were completed in June 2018. References to “IMAC Group” represents IMAC Holdings, Inc. on a pro forma basis after completion of the transactions.

 

Gross revenues for the twelve months ended December 31, 2017 was $22,710,675. Revenue was diversified across three operating segments, IMAC Holdings, IMAC of St. Louis and IMAC Kentucky. Our Tennessee operations, which are included in IMAC Holdings, opened in May 2017 and had gross revenues of $1,378,313. Our St. Louis operations were open for a full year in 2017 and had revenues of $8,073,943 and our Kentucky operations were open for a full year in 2017 and had revenues of $13,258,419.

 

Net revenue (gross revenues less contractual adjustments) for the twelve months ended December 31, 2017 was $8,324,685. For the twelve months ended December 31, 2017, our IMAC Holdings operations had net revenues of $654,625, our IMAC of St. Louis operations had net revenues of $2,709,928 and our IMAC Kentucky operations had net revenues of $4,960,132.

 

Operating Expenses - IMAC Group

 

The following operating expense information is related to IMAC Group.

 

Operating expenses consist of patient expenses, salaries and benefits, advertising and marketing, general and administrative expenses and depreciation expenses.

 

Total operating expenses for the twelve months ended December 31, 2017 were $9,724,251. The costs were attributable to our IMAC Holdings operations, a full year of costs for our St. Louis and Kentucky operations, and overhead costs at IMAC Holdings related to preparation for this offering.

 

Patient expenses consist of medical supplies for services rendered.

 

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Patient expenses were $1,021,622 for the year ended December 31, 2017. IMAC Holdings had expenses of $63,216, our Kentucky operations had expenses of $648,479 and our St. Louis operations had expense of $309,927 during the year ended December 31, 2017.

 

Salaries and benefits consist of payroll, benefits and related party contracts.

 

Salaries and benefits in total were $4,629,923 for the year ended December 31, 2017. IMAC Holdings salaries and wages expense was $967,627, our Kentucky operations had expense of $2,334,770 and our St. Louis operations had expense of $1,327,526 for the year ended December 31, 2017. All facilities have startup costs attributable to the need to hire staff in advance of opening.

 

Advertising and marketing consists of marketing, business promotion and brand recognition.

 

Advertising and marketing was $465,050. IMAC Holdings expense was $119,867, our Kentucky operations had expense of $142,642 and our St. Louis operations had expense of $202,541 for the year ended December 31, 2017. Advertising and marketing expense reflects necessary cost increases attributable to a new market in Tennessee and a full year of marketing and advertising efforts in St. Louis.

 

General and administrative consists of all other costs other than advertising and marketing, salaries and wages, patient expenses and depreciation.

 

General and administrative expense was $1,899,209 for the year ended December 31, 2017. IMAC Holdings had expenses of $465,740 for the year ended December 31, 2017. Our Kentucky operations had general and administrative expenses of $885,273 for the year ended December 31, 2017, and our St. Louis operations had expenses of $679,596 for the year ended December 31, 2017.

 

A company purchases fixed assets, such as equipment or medical equipment, to use in the course of its business activities. A company capitalizes the full cost of the asset on its balance sheet and depreciates the asset’s cost over its estimated useful life.

 

Depreciation expense was $1,689,700 for the year ended December 31, 2017. IMAC Holdings had depreciation expenses of $65,895. Our Kentucky operations had depreciation expenses of $197,945 for the year ended December 31, 2017, and our St. Louis operations had depreciation expenses of $134,563 for the year ended December 31, 2017.

 

Other Income (Expense ) - IMAC Group

 

Other income (expense) consists of interest expense, interest income, minority interest, and loss on disposal of an asset.

 

Total other income (expense) was $(663,086) for the year ended December 31, 2017.

 

There was a loss on disposal of an asset of $(572,361) for the period ended December 31, 2017.

 

Net Loss - IMAC Group

 

Net loss for the twelve months ended December 31, 2017 was $(2,062,652).

 

Lines of Credit - IMAC Group

 

IMAC Regeneration Center of Nashville, PC has a $150,000 line of credit with a financial institution that matures on October 15, 2018. The line of credit bears interest at 6.50% per year. The line of credit had a balance as of December 31, 2017 and June 30, 2018 of $25,000 and $150,000, respectively. The line of credit is secured by substantially all of IMAC Nashville, PC’s assets and personally guaranteed by the members.

 

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IMAC of St. Louis, LLC has a $150,000 line of credit with a financial institution that matures on November 15, 2018. The line bears interest at 4.25% per year. The line of credit had a balance as of December 31, 2017 and June 30, 2018 of $150,000 and $140,000, respectively. The line is secured by substantially all of the Company’s assets and is personally guaranteed by the members.

 

Integrated Medicine and Chiropractic Regeneration Center PSC has a $150,000 line of line of credit with a financial institution that matures on August 1, 2018. The line bears interest at 4.25% per year. The line of credit had a balance as of December 31, 2017 and June 30, 2018 of $100,000 and $100,000, respectively. The line is secured by substantially all of the Company’s assets and personally guaranteed by the members.

 

Notes Payable - IMAC Group

 

As of December 31, 2017, we had outstanding notes payable in the aggregate amounts of $1,008,461. Of such amounts, $260,157 represented the respective current portions due within one year. As of June 30, 2018, we had outstanding notes payable in the aggregate amount of $3,634,997. Of such amount, $2,936,986 represented the respective current portions due within one year. A description of our notes payable are as follows:

 

We entered into a note payable to The Edward S. Bredniak Trust, the trustee of which is Edward S. Bredniak, a director of our company, in the amount of $500,000 dated December 1, 2016. The note requires 36 monthly installments of $8,534 including principal and interest. The interest rate is fixed at 5% per year. The note matures and has a balloon payment of $250,000 on November 30, 2019, and is secured by the personal guarantees of our members. As of December 31, 2017 and June 30 2018, the note balance was $414,084 and $379,676, respectively. On June 1, 2018, we entered into a note payable to The Edward S. Bredniak Trust in the amount of up to $2,000,000. The existing note payable with this entity in the amount of $379,675 was combined into the new note payable. The note carries an interest rate of 10% per year and all outstanding balances are due and payable at the closing of this offering. The proceeds of this note are being used to satisfy ongoing working capital needs, expenses related to the preparation and execution of this offering, equipment and construction costs related to new clinic locations, and potential transaction expenses.

 

We entered into a note payable to a financial institution in the amount of $131,400 dated August 1, 2016. The note requires 120 monthly installments of $1,394 including principal and interest at 5% per year. The note matures on July 1, 2026, and is secured by a letter of credit. As of December 31, 2017 and June 30, 2018, the balance was $116,525 and $111,019, respectively.

 

We entered into a note payable to a financial institution in the amount of $200,000 dated May 4, 2016. The note requires 60 monthly installments of $3,881 including principal and interest at 4.25% per year. The note matures on May 4, 2021, and is secured by the equipment and personal guarantees of certain stockholders and directors. As of December 31, 2017 and June 30, 2018, the note balances were $147,863 and $127,538, respectively.

 

We entered into a note payable to a financial institution in the amount of $200,000 dated November 15, 2017. The note requires 66 consecutive monthly installments of $2,652 including principal and interest at 5% per year, with a balloon payment of $60,000 on June 15, 2018. The note matures on May 15, 2023, and is secured by the personal guarantees of certain stockholders and directors. As of December 31, 2017 and June 30, 2018, the note balance was $200,000 and $138,209, respectively.

 

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We entered into a note payable to an employee in the amount of $101,906 dated March 8, 2017. The note requires five annual installments of $23,350 including principal and interest at 5% per year. The note matures on December 31, 2021, and is unsecured. As of December 31, 2017 and June 30, 2018, the note balance was $80,000 and $80,000, respectively.

 

We entered into a note payable to a financial institution in the amount of $133,555 dated September 17, 2014. The note requires 60 monthly installments of $2,475 including principal and interest at 4.25% per year. The note matures on September 17, 2019. As of December 31, 2017 and June 30, 2018, the note balance was $49,989 and $36,055, respectively.

 

We entered into a mortgage note payable to a financial institution in the amount of $963,050 dated December 11, 2013. The note required 120 monthly installments of principal and interest at 4.95% per year. The note was repaid in December 2017. As of June 30, 2018, the note balance was $0.

 

In January 2018, we commenced a private placement of up to $2 million of convertible notes. The convertible notes accrue interest at 4% and mature in January 2019. The notes may be converted to shares of our common stock at or prior to maturity at a 20% discount to the per share price of a sale of equity securities. As of June 30, 2018, the convertible note balance was $1,530,000.

 

We entered into a six month promissory mortgage note to a financial institution in the amount of $1,232,500 on March 29, 2018. The note requires monthly payments of interest only at a rate of 3.35% per year and one balloon payment of $1,232,500, plus accrued interest on September 29, 2018. The note is secured by the guarantee of The Edward S. Bredniak Trust.

 

We believe that, with the net proceeds of this offering, our current cash and our available lines of credit, we will have sufficient cash reserves available to cover expenses for longer than the 12 months following the closing of this offering. Given the volatility in U.S. equity markets and our normal working capital fluctuations, and depending on the actual level of net proceeds raised in this offering, we may seek to raise additional capital following this offering to supplement our operating cash flows to the extent we can do so on competitive market terms. In such event, an equity financing may dilute the ownership interests of our stockholders and investors in this offering. In all events, there can be no assurance that additional financing would be available to us when desired or needed and, if available, on terms acceptable to us.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenue, results of operations, liquidity or capital expenditures.

 

Impact of Inflation

 

We believe that inflation has not had a material impact on our results of operations for the years ended December 31, 2017 and 2016. We cannot assure you that future inflation will not have an adverse impact on our operating results and financial condition.

 

Cybersecurity

 

We are a medical provider and comply with HIPAA and data sensitivity requirements as regulated by local and federal authorities. Our patient data is hosted, managed and secured with an approved Electronic Medical Record vendor. Cybersecurity is of paramount importance and our executive officers have implemented routine cyber breach insurance policies to protect our company from potential predatory initiatives to access patient and company data. See “Risk Factors – Our reputation and relationships with patients would be harmed if our patients’ data, particularly personally identifying data, were to be subject to a cyber-attack or otherwise by unauthorized persons.”

 

Seasonality

 

Our business has a seasonal business cycle with much of our patient revenues being derived during the spring and fall months of the year. We believe this occurs primarily as a result of increased exercise and lifestyle activities by persons during these months. We have historically experienced most of our operating losses in the winter months.

 

Recent Accounting Pronouncements

 

The new revenue recognition accounting standard, ASC Topic 606 Revenue from Contracts with Customers, takes effect for public entities January 1, 2018, and January 1, 2019 for private entities. Management does not believe the provisions of ASC Topic 606 will have a material impact on our financial position or results of operations when adopted.

 

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The new lease accounting standard, ASC Topic 842, takes effect for public entities January 1, 2019, and January 1, 2020 for private entities. Management believes the provisions of ASC Topic 842 will result in the recognition of lease assets and liabilities on its consolidated financial statements when adopted.

 

Controls and Procedures

 

In connection with the audits of our consolidated financial statements for the years ended December 31, 2017 and 2016, our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weaknesses relate to the absence of in-house accounting personnel with the ability to properly account for complex transactions and a lack of separation of duties between accounting and other functions.

 

We hired a consulting firm to advise on technical issues related to U.S. generally accepted accounting principles as related to the maintenance of our accounting books and records and the preparation of our consolidated financial statements. Although we are aware of the risks associated with not having dedicated accounting personnel, we are also at an early stage in the development of our business. We anticipate expanding our accounting functions with dedicated staff and improving our internal accounting procedures and separation of duties when we can absorb the costs of such expansion and improvement with additional capital resources. In the meantime, management will continue to observe and assess our internal accounting function and make necessary improvements whenever they may be required.

 

JOBS Act

 

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This means that an “emerging growth company” can make an election to delay the adoption of certain accounting standards until those standards would apply to private companies. We have elected to delay such adoption of new or revised accounting standards and, as a result, we may not comply with new or revised accounting standards at the same time as other public reporting companies that are not “emerging growth companies.” This exemption will apply for a period of five years following our first sale of common equity securities under an effective registration statement or until we no longer qualify as an “emerging growth company” as defined under the JOBS Act, whichever is earlier.

 

Quantitative and Qualitative Disclosures about Market Risk

 

We conduct our operations in the United States dollar. We are not exposed to foreign exchange rate fluctuations.

 

We currently have no material exposure to interest rate risk. In the future, we intend to invest our excess cash primarily in money market funds, debt instruments of the United States government and its agencies and in high quality corporate bonds and commercial paper. Due to the short-term nature of these investments, we do not believe that there will be material exposure to interest rate risk arising from our investments.

 

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BUSINESS

 

Company Overview

 

We are a growing chain of Integrated Medicine and Chiropractic (IMAC) Regeneration Centers, combining life science advancements with traditional medical care for movement restricting diseases and conditions. Our mix of medical and physical procedures is designed to improve patient experiences and outcomes, and reduce healthcare costs as compared to other available treatment options. We own six and manage five outpatient clinics that provide regenerative, orthopedic and minimally invasive procedures and therapies. Our treatments are performed by licensed medical practitioners through our regenerative rehabilitation protocols designed to improve the physical health, to advance the quality of life and to lessen pain of our patients. We do not prescribe opioids, but instead offer an alternative to conventional surgery or joint replacement surgery by delivering minimally invasive medical treatments to help patients with sports injuries, back pain, knee pain, joint pain, ligament and tendon damage, and other related soft tissue conditions. Our employees focus on providing exceptional customer service to give our patients a memorable and caring experience. We believe that we have priced our treatments to be affordable by 95% of the population.

 

Our licensed healthcare professionals provide each patient a custom treatment plan that integrates innovative regenerative medicine protocols (representing 31% of our revenue) with traditional, minimally invasive (minimizing incisions and skin punctures) medical procedures (representing 33% of our revenue) in combination with physical therapies (representing 31% of our revenue from physical therapy, and remaining 5% of our revenue from chiropractic). We do not use or offer opioid-based prescriptions as part of our treatment options in order to help our patients avoid the dangers of opioid abuse and addiction. We have successfully treated patients that were previously addicted to opioids because of joint or soft tissue related pain. Further, our procedures comply with all professional athletic league drug restriction policies, including the NFL, NBA, NHL and MLB.

 

Dr. Matthew Wallis, DC, our COO, opened the first IMAC Regeneration Center in Paducah, Kentucky in August 2000, which remains the flagship location of our current business. Dr. Jason Brame, DC joined Dr. Wallis in 2008. In 2015, Drs. Wallis and Brame hired Jeffrey S. Ervin as our CEO to collectively create and implement their growth strategy. The result was the formal creation of IMAC Holdings, LLC to expand IMAC clinics outside of western Kentucky, with such facilities to remain owned or operated under the group using the IMAC Regeneration Center name and services. In June 2018, we completed a corporate conversion in which IMAC Holding, LLC was converted to IMAC Holding, Inc. to consolidate ownership of existing clinics and implement our growth strategy.

 

Since May 2016 to the date of this prospectus, IMAC has opened six outpatient medical clinics and acquired four physical therapy practices for a total of 11 clinics in Kentucky, Missouri and Tennessee. We plan to use the net proceeds of this offering to further expand the reach of our facilities to other strategic locations throughout the United States. In order to enhance our brand, we have partnered with several active and former professional athletes, opening two Ozzie Smith IMAC Regeneration Centers, two David Price IMAC Regeneration Centers, and one Tony Delk IMAC Regeneration Center. We have also signed former NBA player George Gervin to be a brand ambassador for future clinics in Texas.

 

Our brand ambassadors help deliver awareness to our non-opioid services, emphasizing our ability to treat sports and orthopedic injuries as an alternative to traditional surgeries for joint repair or replacement. For the eight months ended August 31, 2018, IMAC Group had 62,916 patient visits, which was 18% higher than the 53,287 visits for the comparable period in 2017.

 

We are focused on providing natural, non-opioid solutions to pain as consumers increasingly demand conservative treatments for an aging population. The demand for our services continues to grow fueled by consumer preferences for organic healthcare solutions over traditionally invasive orthopedic practices. We believe that our regenerative rehabilitation treatments are provided to patients at a much lower price than our primary competitors, including orthopedic surgeons, pain management clinics and hospital systems targeting invasive joint reconstruction. Surgical joint replacements cost several times more than our therapies initially treating the same condition. The U.S. government has recently adopted strict surgery pre-approval initiatives to reduce the cost for CMS and limit the proliferation of opioids since they accompany substantially all joint replacement surgeries.

 

We believe patient satisfaction will be driven by our following five fundamental beliefs:

 

1. We believe that the body has the ability to heal itself, and better results occur with our solutions to unlock the body’s natural healing process;

 

2. We believe in the power of doctors, from many different specializations, working together for the best patient care possible;

 

3. We believe that employees should know patients by their face, not by a chart number;

 

4. We believe consumers have a choice regardless of physician referral or insurance coverage; and

 

5. We believe a medical setting should be comforting.

 

We are led by senior executive officers who together have more than 70 years of combined experience in the healthcare services industry. Jeffrey S. Ervin, our Chief Executive Officer, joined us in March 2015. Mr. Ervin has a history of sourcing private equity investments and managing private equity operations in the healthcare and other growth industries. Before joining us, he was the senior financial officer at Medx Publishing, LLC, an online healthcare marketing and technology firm and parent company of Medicare.com, where he was responsible for the successful sake and disposition of Medicare.com to eHealth Insurance and sale of Medicaid.com to United Healthcare. Mr. Ervin earned an M.B.A. degree from Vanderbilt University. The founder of our company, Matthew C. Wallis, DC, a former licensed chiropractor, is our Chief Operating Officer. Dr. Wallis has implemented strategies in the company to create consistent operating efficiencies for our sales, marketing and service delivery operations. D. Anthony Bond, CPA joined us as our Chief Financial Officer in October 2017. Mr. Bond has a long history in senior financial roles with healthcare organizations managing multi-state operations. Ian A. White, Ph.D. joined us as our Chief Scientific Officer in August 2018. He is the President of BioFirma, LLC, a stem cell regenerative medicine research firm, and Chairman of the Scientific Committee for the American Association of Stem Cell Physicians. Dr. White received his Ph.D. in P hy si ology , B i ophy s ic s a n d Sy st e m s B i olog y from Cornell University at its Ansary Stem Cell Institute.

 

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Our Market Opportunity

 

Orbis Research reported that the regenerative healthcare industry in the United States is estimated to be $67.6 billion by 2019, and IBIS World estimated that outpatient rehabilitation in the U.S. is an approximately $30 billion industry, with approximately 90% of that revenue generated from physical rehabilitation services, including orthopedic, sports, geriatric and other forms of physical medicine. Outpatient rehabilitation is anticipated to grow at a rate of 2% to 7% in the coming years, according to these industry research companies, due to the aging baby boomer generation, sustained high rates of obesity and healthcare reform. As healthcare insurance providers seek to reduce medical costs and government regulation restricts access to opioid pain prescriptions, physical therapy and outpatient services are poised to capture a larger share of healthcare spending. As the workforce continues to grow, employer-based insurance expenditures will increase. In addition, government spending on Medicare will continue to be significant.

 

Outpatient Rehabilitation Spending by Segment

 

According to the Centers for Medicare & Medicaid Services’ National Health Expenditure Projections 2017-2026, national healthcare expenditures continue to rise and are projected to grow from an estimated $3.5 trillion in 2017 to $5.7 trillion by 2026, representing an average annual rate of growth of 5.5%, reaching a projected 19.7% of U.S. gross domestic product in 2026, as shown below.

 

 

Demand for minimally invasive movement corrections and non-opioid pain management has surged with the growth of the baby boomer generation. The U.S. Census estimates that the U.S. population over 65 years of age is projected to more than double from 47.8 million to nearly 98.2 million persons and the 85 and older population is expected to more than triple, from 6.3 million to 19.7 million persons, between 2015 and 2060. Additionally, according to the U.S. Census Bureau, the number of older Americans is increasing as a percentage of the total U.S. population with the number of persons older than 65 estimated to comprise 14.9% of the total U.S. population in 2015 and projected to grow to 23.6% by 2060.

 

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Source: U.S. Census Bureau

 

This significant demographic shift is changing healthcare consumption patterns. At the same time, individuals who are not eligible for Medicare have faced a significant rise in health insurance premiums. As consumers assume the burden of greater healthcare costs, they are price shopping and considering second opinions from conservative treatment providers like our company.

 

Despite ongoing consolidation in the outpatient rehabilitation services industry, the industry remains highly fragmented, which has allowed many competitors to enter the market. In such an environment, reputable and successful outpatient clinics will be able to grow through organic expansion and combining services with other providers. While there is significant competition in the industry, we believe no single participant currently captures more than 10% of the market, which may allow existing market participants to distinguish themselves from their competitors as they grow. The attractiveness of outpatient facilities to reduce medical costs has also been seen in other medical areas. Insurer UnitedHealth Group recently purchased surgical care centers and medical practices, with an apparent aim to reduce hospital spending.

 

Our Operations

 

We currently operate 11 outpatient medical clinics in three states. Our original clinic opened in August 2000 and remains the flagship location of our current business, which was formally organized in March 2015 with the mission of expanding the reach of our facilities to other strategic locations throughout the United States. Our flagship medical clinic has been operated during the last 18 years by Matthew C. Wallis, DC and Jason Brame, DC, two of our co-founders, and, since March 2015, together with Jeffrey S. Ervin, our third co-founder and the current Chief Executive Officer of the company. This management team continues today throughout the organization incorporating the same strategies used to build and operate the company’s flagship location. During 2016 and 2017, we opened five medical clinics and expanded into two new states, Missouri and Tennessee. This year, to date, we opened one medical clinic and acquired four physical therapy clinics.

 

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Below is a list of our outpatient medical clinics and information about how we own or control these medical clinics:

 

Clinic Name   Location of Clinic  

Date

Opened or Acquired

 

Form and

Date of

Control

  Primary Services Performed   Operations Included in 2017 Consolidated Pro Forma Results   Operations Included in June 30, 2018 Consolidated Pro Forma Results
                         
IMAC Regeneration Center   Paducah, Kentucky   August 2000   Managed since June 28, 2018   Regenerative medicine, medical evaluations with x-ray, fluoroscopic spine, joint and appendage injections, and physical medicine   12 months   6 months
                         
Ozzie Smith Center   Chesterfield, Missouri   May 2016   Full ownership effective June 1, 2018, when remaining 64% interest was acquired   Regenerative medicine, medical evaluations with x-ray, fluoroscopic spine, joint and appendage injections, and physical medicine   12 months   6 months
                         
IMAC Regeneration Center   Murray, Kentucky   February 2017   Managed since June 28, 2018   Medical evaluations with x-rays, fluoroscopic joint and appendage injections, and physical medicine   11 months   6 months
                         
David Price Center   Brentwood, Tennessee   May 2017   Managed since November 1, 2016   Regenerative medicine, medical evaluations with x-ray, fluoroscopic spine, joint and appendage injections, and physical medicine   8 months   6 months
                         
Ozzie Smith Center   St. Peters, Missouri   August 2017   Full ownership effective June 1, 2018, when remaining 64% interest was acquired   Medical evaluations with x-ray, fluoroscopic joint and appendage injections, and physical medicine   5 months   6 months

 

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David Price Center   Murfreesboro, Tennessee   November 2017   Managed since November 2017   Medical evaluations with x-ray, fluoroscopic joint and appendage injections, and physical medicine   2 months   6 months
                         
Tony Delk Center   Lexington, Kentucky   July 2018   Managed since July 2, 2018   Medical evaluations with x-ray, fluoroscopic joint and appendage injections, and physical medicine   None   None
                         
Advantage Therapy   South Springfield, Missouri   August 2018 (originally opened August 2004)   Full ownership effective August 1, 2018, when 100% interest was acquired   Occupational and physical therapy   None   None
                         
Advantage Therapy   North Springfield, Missouri   August 2018 (originally opened March 2013)   Full ownership effective August 1, 2018, when 100% interest was acquired   Occupational and physical therapy   None   None
                         
Advantage Therapy   Monett, Missouri   August 2018 (originally opened May 2015)   Full ownership effective August 1, 2018, when 100% interest was acquired   Occupational and physical therapy   None   None
                         
Advantage Therapy   Ozark, Missouri   August 2018 (originally opened February 2017)   Full ownership effective August 1, 2018, when 100% interest was acquired   Occupational and physical therapy   None   None

 

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In 2017, IMAC Group recorded 81,256 total patient visits at six medical clinics, with partial months for clinics that opened in 2017, as follows :

 

IMAC Clinics-81,256 Patient Visits in 2017  
Clinic Name   Location of Clinic   Date Opened   No. of Months Open in 2017  
               
IMAC Regeneration Center   Paducah, Kentucky   August 2000     12  
                 
Ozzie Smith Center   Chesterfield, Missouri   May 2016     12  
                 
IMAC Regeneration Center   Murray, Kentucky   February 2017     11  
                 
David Price Center   Brentwood, Tennessee   May 2017     8  
                 
Ozzie Smith Center   St. Peters, Missouri   August 2017     5  
                 
David Price Center   Murfreesboro, Tennessee   November 2017     2  

 

Below is a description of each of our outpatient medical clinics:

 

Integrated Medicine and Chiropractic Regeneration Center PSC . In November 2015, we relocated our Paducah, Kentucky operations into a 10,200 square foot build-to-suit facility. This facility serves as an anchor clinic for the western Kentucky market of roughly 50,000 residents. The clinic performs medical evaluations with x-ray, fluoroscopic spine, joint and appendage injections, regenerative medicine and physical medicine. The lease term ends in December 2020.

 

We opened a 4,700 square foot facility in Murray, Kentucky, a town of nearly 15,000 residents near the Tennessee border. This facility provides medical evaluations, fluoroscopic joint and appendage injections, and physical medicine and refers patients to Paducah for regenerative PRP medical procedures. The lease is scheduled to expire in December 2023.

 

IMAC of St. Louis, LLC. In January 2016, IMAC of St. Louis, LLC, doing business as the Ozzie Smith Center, executed a lease for a 13,300 square foot facility in Chesterfield, Missouri, a suburb 18 miles west of downtown St. Louis. The Ozzie Smith Center opened in May 2016. The lease agreement runs until August 2026. Dr. Devin Bell, D.O. is the medical director. The clinic performs medical evaluations with x-ray, fluoroscopic spine, joint and appendage injections, regenerative PRP medicine and physical medicine. Namesake Ozzie Smith was inducted into the Major League Baseball Hall of Fame in 2002 and replicas of his 13 gold glove trophies are in the lobby of the clinic.

 

The Ozzie Smith Center opened a satellite facility in St. Peters, Missouri to assist with demand from suburbs west of the Missouri River. The St. Peters clinic opened for business in July 2017. The lease expires in August 2022. The facility operates under the direction of Dr. Bell and offers patient medical evaluations with x-ray, fluoroscopic joint and appendage injections, and physical medicine.

 

IMAC Regeneration Center of Nashville, PC. The David Price Center opened in Brentwood, Tennessee in May 2017. Dr. David Smithson, M.D. is double board certified in Sports Medicine and Internal Medicine and serves as its medical director. The 7,500 square foot clinic is leased through July 2024. The clinic performs medical evaluations with x-ray, fluoroscopic spine, joint and appendage injections, regenerative PRP medicine and physical medicine.

 

In November 2017, we opened a 5,500 square foot facility in Murfreesboro, Tennessee, a southeastern suburb of Nashville with more than 100,000 residents and hometown to David Price. Mr. Price, who was born and raised in middle Tennessee, was the first pick of the 2007 Major League draft from Vanderbilt University. This facility performs patient medical evaluations with x-ray, fluoroscopic joint and appendage injections, and physical medicine. We occupy 10% of the building and the lease expires in October 2022.

 

Tony Delk Center. In March 2018, we entered into a $1.2 million commitment to purchase a medical practice building in Lexington, Kentucky, where our seventh IMAC outpatient medical clinic, named the Tony Delk Center, opened on July 2, 2018. We have received a six-month promissory note commitment at an annual interest rate of 3.35%.

 

Advantage Therapy. In August 2018, we acquired the physical and occupational therapy provider, Advantage Therapy, which operates four locations in the Springfield, Missouri metropolitan area. The South Springfield location occupies 5,000 square feet and expires in June, 2019. The North Springfield, Monett and Ozark locations function as satellite locations. The north location functions within 2,400 square feet with an expiration date of May, 2019. The Monett location occupies 2,200 square feet pursuant to a lease that expires in February 2021, while the Ozark location operates in approximately 1,000 square feet pursuant to a lease that expires upon 30 days’ notice. Advantage Therapy is an established business with over 10 years of operation in the Springfield, Missouri market. We believe there is potential to grow the existing practice that provides over 1,000 therapy visits each month with the addition of medical services to offer our comprehensive IMAC service line.

 

Our Services

 

The licensed healthcare professionals at our clinics work with each patient to create a protocol customized for each patient by utilizing a combination of the following traditional and innovative treatments:

 

Medical Treatments. Our specialized team of doctors work together to provide the latest minimally invasive, prescription-free treatments for movement challenges or pain related to orthopedic conditions. The treatments are customized to treat the underlying condition instead of addressing the challenge with prescriptions or surgeries.

 

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Regenerative Medicine. Regenerative therapy at IMAC Regeneration Centers utilizes cellular tissue harvested from a patient’s own body to regenerate damaged tissue. The majority of our procedures utilize cells from the patient, harvested under minimal manipulation, and applied during the same visit to the clinic. These autologous cells help to heal degenerative soft tissue conditions, which cause pain or compromise the patient’s quality of life. Clinical trials have demonstrated that autologous cell treatments using stromal vascular fraction (adipose) and bone marrow lead to improved function and decreased pain within joints, muscles and connective tissue and can help alleviate osteoarthritis and degenerative disease.

 

Physical Medicine. Our team of sports medicine practitioners start by collaboratively building a personalized physical medicine treatment plan designed to help patients get back to living the life they deserve.

 

Physical Therapy. With a combination of biomechanical loading and tissue mobilization, our licensed physical rehabilitation therapists work with each patient to help the body restore skill within the joint or soft tissue.

 

Spinal Decompression. During this treatment, the spine is stretched and relaxed intermittently in a controlled manner, creating a negative pressure in the disc area that can pull herniated or bulging tissue back into the disc. Whether caused by trauma or degeneration, we realize the impact a spinal injury can have on the quality of one’s life and are committed to providing the most innovative, minimally invasive medical technology and care to relieve back pain and restore function.

 

Chiropractic Manipulation. Common for spine conditions, manual manipulation is used to increase range of motion, reduce nerve irritability and improve function.

 

In November 2017, we engaged a medical consulting group to advise us on current regenerative medicine therapy protocols and to organize a clinical trial towards an investigational new drug application (IND) with the FDA, while pursuing a voluntary Regenerative Medicine Advanced Therapy (RMAT) designation. This process is defined under Section 3033 of the 21 st Century Cures Act. We intend to pursue a trial utilizing autologous cellular structures to alleviate symptoms of debilitating neurological conditions and diseases.

 

The medical consulting group has assisted us in conducting research, establishing patient engagement tools and developing clinical strategies to achieve the RMAT. We have not yet engaged with the FDA and we anticipate our first communication with the FDA to occur during the fourth quarter of 2018 or first quarter of 2019 as an INTERACT (Initial Targeted Engagement for Regulatory Advice on CBER products) meeting. Following the INTERACT meeting, an amount of work (which cannot be quantified as of yet) will be performed to prepare for a pre-Investigational New Drug meeting and gain more precise feedback from the FDA before completing an IND submission. Another round of work will be performed to complete the IND application. Finally, the FDA Office of Tissues and Advanced Therapies will notify us of the IND application result no later than 60 days after receipt of the IND submission and RMAT request.

 

No assurance can be given that the FDA will find that our trial meets the criteria for RMAT designation. We believe that a RMAT designation may be helpful in differentiating our services and gaining a collaborative connection with the FDA. The failure to earn the RMAT designation will result in unfulfilled research expenses but should not negatively affect our operations. We expect the cost to pursue the RMAT designation will be between $100,000 and $300,000 and take 18 to 30 months of time from the original engagement with our medical consultant.

 

Our Growth and Expansion Strategy

 

We have plans to open additional IMAC Regeneration Centers in the states in which we currently operate, as well as in other strategic locations throughout the United States, building on our familiarity with the demographic market and our reputation in the area to attract new patients and endorsements. Our strategic partnerships with regional and national sports celebrities have enabled us to increase our visibility in our markets and become known for providing innovative regenerative-based therapies. We continue to seek opportunities to work with more athletes to draw awareness to our services. In addition, we have enlisted a wide range of medical and alternative medicine professionals to continue providing innovative outpatient treatments to our patients without major surgery or prescription pain medication.

 

The key elements of our strategy that we believe will continue to propel our growth and expansion are:

 

Open New Outpatient Locations and Facilities. We are in the process of identifying strategic new locations at which to lease and develop new IMAC Regeneration Centers. We anticipate initial expansion in the Midwest and southern United States, including in Illinois, Kansas, Oklahoma and Texas within the first 12 months following this offering. By branching into states adjacent to existing centers, we will expand our regional market familiarity, with our outpatient clinics and focus our marketing efforts. We believe our strong regional operations will provide brand awareness and allow us to leverage our established administrative infrastructure and will provide a foundation to support our expansion.

 

Expand Our Service Offerings to Employers and Self-Insured Health Plans . We have received inquiries from employers researching conservative treatment options for their employees. The inquiries primarily focus on minimizing employee time away from work related to injuries or occupational hazards and the cost of aggressive orthopedic treatments and threat of opioid abuse for employees enrolled in an employer health plan. We intend to use a portion of the net proceeds from this offering for the purpose of creating simple conservative treatment protocols for employers seeking to reduce employee downtime, prescription narcotic usage and surgical expenditures within their health plan.

 

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Continue to Obtain Endorsements from Well-Known Sports Celebrities. We continue to attract celebrity sports endorsers for each market in which we operate and plan to expand. By collaborating and co-branding with well-known sports figures, patients become more familiar with our brand and associate our company with physical fitness and well-being. Working with sports celebrities that are well-known in our markets and personally recommend our treatments helps establish credibility with patients in those markets.

 

Accelerate Research and Development of New Regenerative Products. Our recent investment in BioFirma LLC was executed in order to research and develop regenerative medicine products and supplies. We intend to use a portion of the net proceeds from the offering to fund this research with the goal of identifying innovative treatments to deliver within IMAC Regeneration Centers, as well as producing approved products for distribution into the broader medical community.

 

Expand Our Advertising and Marketing. We intend to increase our advertising and marketing efforts and reach throughout our primary service areas in order to grow patient volume at our existing facilities and spur interest in newer locations. Our current marketing efforts include a combination of local television, internet and event advertising. We will introduce employer marketing initiatives with help from our celebrity endorsers. While we welcome patients that are referred to us by other healthcare providers, we believe that direct marketing will generate more new patients for our outpatient clinics than relying solely on antiquated medical referral practices.

 

Offer State-of-the-Art Orthopedic Treatments. Our regenerative medicine techniques are used to prevent arthritis, treat meniscus tears, defeat muscle deterioration and address other damaged tissue conditions. We will continue offering innovative therapies and recently approved medical technologies, including alternative medicine treatments, and will adapt our treatment offerings as new treatments are developed and come to market. By bringing together a diverse array of medical specialists, we are able to treat more health conditions and attract a larger base of patients.

 

Advertising and Marketing

 

Our corporate advertising and marketing efforts focus on increasing our brand awareness and communicating our commitment to “success without major surgery,” along with the many other competitive advantages our company offers. Our marketing strategy is to offer a innovative and recently approved medical technologies for movement and orthopedic therapies that appeal to a wide range of potential patients, continually elevate awareness of our brand and generate demand for our outpatient medical services. We rely on a number of channels in this area, including digital advertising, email marketing, social media and affiliate marketing, as well as through strategic partnerships with well-known sports celebrities to build our endorsements and draw patients to our IMAC Regeneration Centers. Our celebrity endorsers appear in our press marketing and social media marketing efforts and help generate interest in our brand and services. We maintain our website at www.imacregeneration.com. We intend to hire additional sales and marketing personnel and increase our spending on sales, marketing and promotion in connection with the continued expansion of our outpatient locations. Advertising and marketing expense was $178,511 (unaudited) and $119,867 for the six months ended June 30, 2018 and the year ended December 31, 2017.

 

Our sales and marketing strategy focuses on active individuals who seek to maintain, restore and maximize their health and wellness. A majority of our customers are located within 25 miles of one of our outpatient medical clinics. During the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, no single customer accounted for more than 10% of our consolidated revenue, respectively.

 

Competition and Our Competitive Advantages

 

The outpatient physical therapy industry is highly competitive, with thousands of clinics across the country. While some of our competitors offer regenerative medical treatments as an effective treatment for degenerative health conditions, we believe that few companies have the multi-disciplinary approach of combining physical therapy and medical professionals working together to generate optimal regenerative health outcomes. Our internal survey results conducted randomly with more than 120 patients during 2016 and 2017 reported that 91% of our patients experienced improvement in their health after treatments at our outpatient clinics. One of our major competitive advantages is the offering of more broadly affordable regenerative treatments.

 

Competitive factors affecting our business include quality of care, cost, treatment outcomes, convenience of location, and relationships with, and ability to meet the needs of, referral and payor sources. Our clinics compete, directly or indirectly, with many types of healthcare providers including the physical therapy departments of hospitals, private therapy clinics, physician-owned therapy clinics, and chiropractors. We may face more intense competition if consolidation of the therapy industry continues.

 

We believe that we differentiate ourselves from our competition and have been able to grow our business as a result of the following competitive strengths:

 

Our Minimally Invasive Approach to Traditional Orthopedic Care. We pay particular attention to rehabilitating our patients’ musculoskeletal system to reduce pain and enhance mobility without major surgery or anesthesia. By combining physical therapy and regenerative medicine, we are able to treat a variety of physical conditions by using a patient’s own body to help heal itself.

 

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We Do Not Prescribe Addictive Opioids. We do not use or offer opioid-based prescriptions as part of our treatment options in order to help our patients avoid the dangers of opioid abuse and addiction. We focus on preventing the potential for addiction through our regenerative-based therapies that help alleviate chronic pain.

 

We Employ a Regenerative Medicine Scientist. Few medical provides employ scientists. Our regenerative medicine scientist works at our BioFirma office in Miami, Florida and provides direction to our medical professionals as to the availability of regenerative medicine advancements in the marketplace. Collaborative work among our medical professionals and our regenerative medicine scientist through regular meetings, in person visits and telephonic communication yields broad discussions on the potential to develop proprietary techniques or services using such advancements.

 

Utilizing Diverse Medical Specialists for Customized Care. Our treatment protocols are customized by a team of medical doctors, nurse practitioners, chiropractors and physical therapists and are designed to heal damaged tissue without major surgery or prescription pain medication. This team approach delivers comprehensive service while avoiding the higher costs of major reconstructive surgery by medical specialists.

 

Protection of Proprietary Information

 

We own various U.S. federal trademark registrations and applications, and unregistered trademarks, including the registered mark “IMAC Regeneration Center.” We rely on trademark laws in the United States, as well as confidentiality procedures and contractual provisions, to protect our proprietary information and brand. We cannot assure you that existing trademark laws or contractual rights will be adequate for protecting our intellectual property and proprietary information. Protection of confidential information, trade secrets and other intellectual property rights in the markets in which we operate and compete is highly uncertain and may involve complex legal questions. We cannot completely prevent the unauthorized use or infringement of our confidential information or intellectual property rights as such prevention is inherently difficult. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our confidential information and intellectual property protection.

 

We are not aware of any claims of infringement or other challenges to our rights in our trademarks. We do not expect to need any additional intellectual property rights to carry out our growth and expansion strategy.

 

For the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, we did not incur any material time or labor for the development of the technology we use in our operations.

 

Government Regulation

 

Numerous federal, state and local regulations regulate healthcare services and those who provide them. Some states into which we may expand have laws requiring facilities employing health professionals and providing health-related services to be licensed and, in some cases, to obtain a certificate of need (that is, demonstrating to a state regulatory authority the need for, and financial feasibility of, new facilities or the commencement of new healthcare services). None of the states in which we currently operate require a certificate of need for the operation of our physical therapy business functions. Our healthcare professionals and/or medical clinics, however, are required to be licensed, as determined by the state in which they provide services. Failure to obtain or maintain any required certificates, approvals or licenses could have a material adverse effect on our business, financial condition and results of operations.

 

Regulations Controlling Fraud and Abuse. Various federal and state laws regulate financial relationships involving providers of healthcare services. These laws include Section 1128B(b) of the Social Security Act (42 U.S. C. § 1320a-7b[b]) (the “Fraud and Abuse Law”), under which civil and criminal penalties can be imposed upon persons who, among other things, offer, solicit, pay or receive remuneration in return for (i) the referral of patients for the rendering of any item or service for which payment may be made, in whole or in part, by a Federal health care program (including Medicare and Medicaid); or (ii) purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, ordering any good, facility, service, or item for which payment may be made, in whole or in part, by a Federal health care program (including Medicare and Medicaid). We believe that our business procedures and business arrangements are in compliance with these provisions. However, the provisions are broadly written and the full extent of their specific application to specific facts and arrangements to which we are a party is uncertain and difficult to predict. In addition, several states have enacted state laws similar to the Fraud and Abuse Law, which may be more restrictive than the federal Fraud and Abuse Law.

 

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Stark Law. Provisions of the Omnibus Budget Reconciliation Act of 1993 (42 U.S.C. §1395nn) (the “Stark Law”) prohibit referrals by a physician of “designated health services” which are payable, in whole or in part, by Medicare or Medicaid, to an entity in which the physician or the physician’s immediate family member has an investment interest or other financial relationship, subject to several exceptions. Unlike the Fraud and Abuse Law, the Stark Law is a strict liability statute. Proof of intent to violate the Stark Law is not required. Physical therapy services are among the “designated health services.” Further, the Stark Law has application to our management contracts with individual physicians and physician groups, as well as, any other financial relationship between us and referring physicians, including medical advisor arrangements and any financial transaction resulting from a clinic acquisition. The Stark Law also prohibits billing for services rendered pursuant to a prohibited referral. Several states have enacted laws similar to the Stark Law. These state laws may cover all (not just Medicare and Medicaid) patients. As with the Fraud and Abuse Law, we consider the Stark Law in planning our outpatient clinics, establishing contractual and other arrangements with physicians, marketing and other activities, and believe that our operations are in substantial compliance with the Stark Law. If we violate the Stark Law or any similar state laws, our financial results and operations could be adversely affected. Penalties for violations include denial of payment for the services, significant civil monetary penalties, and exclusion from the Medicare and Medicaid programs.

 

HIPAA. In an effort to further combat healthcare fraud and protect patient confidentially, Congress included several anti-fraud measures in the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). HIPAA created a source of funding for fraud control to coordinate federal, state and local healthcare law enforcement programs, conduct investigations, provide guidance to the healthcare industry concerning fraudulent healthcare practices, and establish a national data bank to receive and report final adverse actions. HIPAA also criminalized certain forms of health fraud against all public and private payers. Additionally, HIPAA mandates the adoption of standards regarding the exchange of healthcare information in an effort to ensure the privacy and electronic security of patient information and standards relating to the privacy of health information. Sanctions for failing to comply with HIPAA include criminal penalties and civil sanctions. In February of 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law. Title XIII of ARRA, the Health Information Technology for Economic and Clinical Health Act (“HITECH”), provided for substantial Medicare and Medicaid incentives for providers to adopt electronic health records (“EHRs”) and grants for the development of health information exchange (“HIE”). Recognizing that HIE and EHR systems will not be implemented unless the public can be assured that the privacy and security of patient information in such systems is protected, HITECH also significantly expanded the scope of the privacy and security requirements under HIPAA. Most notable are the mandatory breach notification requirements and a heightened enforcement scheme that includes increased penalties, and which now apply to business associates as well as to covered entities. In addition to HIPAA, a number of states have adopted laws and/or regulations applicable in the use and disclosure of individually identifiable health information that can be more stringent than comparable provisions under HIPAA.

 

We believe that our operations comply with applicable standards for privacy and security of protected healthcare information. We cannot predict what negative effect, if any, HIPAA/HITECH or any applicable state law or regulation will have on our business.

 

Cybersecurity. We are a medical provider and comply with HIPAA and data sensitivity requirements as regulated by local and federal authorities. Our patient data is hosted, managed and secured with an approved Electronic Medical Record vendor. Cybersecurity is of paramount importance and our executive officers have implemented routine cyber breach insurance policies to protect our company from potential predatory initiatives to access patient and company data. See “Risk Factors – Our reputation and relationships with patients would be harmed if our patients’ data, particularly personally identifying data, were to be subject to a cyber-attack or otherwise by unauthorized persons.”

 

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FDA Drug Approval Process

 

In the United States, pharmaceutical products are subject to extensive regulation by the Food and Drug Administration (the “FDA”). The Federal Food, Drug, and Cosmetic Act (“FDC Act”) and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending new drug applications (“NDAs”), warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution. As a result of these regulations, pharmaceutical product development and approval are very expensive and time consuming.

 

Pharmaceutical product development for a new product or certain changes to an approved product in the United States typically involves preclinical laboratory and animal tests, the submission to the FDA of an investigational new drug (“IND”), which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease.

 

Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess pharmacological actions, side effects associated with increasing doses and, if possible, early evidence on effectiveness. For dermatology products, Phase 2 usually involves trials in a limited patient population to determine metabolism, pharmacokinetics, the effectiveness of the drug for a particular indication, dosage tolerance and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 clinical trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases the FDA requires two adequate and well-controlled Phase 3 clinical trials with statistically significant results to demonstrate the efficacy of the drug. A single Phase 3 clinical trial with other confirmatory evidence may be sufficient in rare instances where the study is a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of an effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.

 

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After completion of the required activities, including clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin in the United States.

 

The FDA also may refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with the FDA’s good clinical practice requirements. Additionally, the FDA typically inspects the facility or the facilities at which the drug is manufactured, and may inspect the sponsor company and investigator sites that participated in the clinical trials. The FDA will not approve the product unless compliance with current good manufacturing practice (“cGMP”) is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective for the stated indication.

 

After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction following FDA review of a resubmission of the NDA, the FDA will issue an approval letter.

 

An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy (“REMS”), to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals and elements to assure safe use (“ETASU”). ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

 

Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA generally uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.

 

Section 505(b)(2) New Drug Applications

 

Most drug products obtain FDA marketing approval pursuant to an NDA filed under section 505(b)(1) of the FDC Act. An alternative is a special type of NDA, commonly referred to as a Section 505(b)(2) NDA (“505(b)(2) NDA”), which enables the applicant to rely, in part, on the FDA’s previous approval of a similar product, or published literature, in support of its application.

 

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505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference. If the 505(b)(2) NDA applicant can establish that reliance on the FDA’s previous approval is scientifically appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product candidate for all, or some, of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) NDA applicant.

 

Biologics

 

Biological products used for the prevention, treatment or cure of a disease or condition of a human being are subject to regulation under the FDC Act, except the section of the FDC Act which governs the approval of NDAs. Biological products are approved for marketing under provisions of the Public Health Service Act (“PHSA”), via a Biologics License Application (“BLA”). However, the application process and requirements for approval of BLAs and BLA supplements, including review timelines, are very similar to those for NDAs and NDA supplements, and biologics are associated with similar approval risks and costs as other drugs.

 

Post-Approval Requirements

 

Once an NDA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.

 

Adverse event reporting and submission of periodic safety reports is required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality-control, drug manufacture, packaging and labeling procedures must continue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.

 

Pediatric Information

 

Under the Pediatric Research Equity Act, NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data.

 

The Best Pharmaceuticals for Children Act (“BPCA”) provides NDA holders a six-month extension of any exclusivity, patent or non-patent, for a drug if certain conditions are met. Conditions for exclusivity include the FDA’s determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, the FDA making a written request for pediatric studies and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.

 

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Disclosure of Clinical Trial Information

 

Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials after completion. Competitors may use this publicly available information to gain knowledge regarding the progress of our programs.

 

Regenerative Medicine Advanced Therapies (RMAT) Designation

 

The FDA has established a Regenerative Medicine Advanced Therapy (“RMAT”) designation as part of its implementation of the 21st Century Cures Act, or Cures Act. The RMAT designation program is intended to fulfill the Cures Act requirement that the FDA facilitate an efficient development program for, and expedite review of, any drug that meets the following criteria: (1) it qualifies as a RMAT, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products, with limited exceptions; (2) it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such a disease or condition. Like breakthrough therapy designation, RMAT designation provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product candidate, and eligibility for rolling review and priority review. Products granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion to additional sites. RMAT-designated products that receive accelerated approval may, as appropriate, fulfill their post-approval requirements through the submission of clinical evidence, clinical studies, patient registries, or other sources of real world evidence (such as electronic health records); through the collection of larger confirmatory data sets; or via post-approval monitoring of all patients treated with such therapy prior to approval of the therapy.

 

Other Regulatory Factors. Political, economic and regulatory influences are fundamentally changing the healthcare industry in the United States. Congress, state legislatures and the private sector continue to review and assess alternative healthcare delivery and payment systems. Potential alternative approaches could include mandated basic healthcare benefits, controls on healthcare spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups, and price controls. Legislative debate is expected to continue in the future and market forces are expected to demand only modest increases or reduced costs. For instance, managed care entities are demanding lower reimbursement rates from healthcare providers and, in some cases, are requiring or encouraging providers to accept capitated payments that may not allow providers to cover their full costs or realize traditional levels of profitability. We cannot reasonably predict what impact the adoption of federal or state healthcare reform measures or future private sector reform may have on our business.

 

In recent years, federal and state governments have launched several initiatives aimed at uncovering behavior that violates the federal civil and criminal laws regarding false claims and fraudulent billing and coding practices. Such laws require providers to adhere to complex reimbursement requirements regarding proper billing and coding in order to be compensated for their services by government payers. Our compliance program requires adherence to applicable law and promotes reimbursement education and training; however, a determination that our clinics’ billing and coding practices are false or fraudulent could have a material adverse effect on us.

 

As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental inspections, reviews, audits and investigations to verify our compliance with these programs and applicable laws and regulations. Managed care payers may also reserve the right to conduct audits. An adverse inspection, review, audit or investigation could result in refunding amounts we have been paid; fines penalties and/or revocation of billing privileges for the affected clinics; exclusion from participation in the Medicare or Medicaid programs or one or more managed care payer network; or damage to our reputation.

 

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We and our outpatient medical clinics are subject to federal and state laws prohibiting entities and individuals from knowingly and willfully making claims to Medicare, Medicaid and other governmental programs and third-party payers that contain false or fraudulent information. The federal False Claims Act encourages private individuals to file suits on behalf of the government against healthcare providers such as us. As such suits are generally filed under seal with a court to allow the government adequate time to investigate and determine whether it will intervene in the action, the implicated healthcare providers often are unaware of the suit until the government has made its determination and the seal is lifted. Violations or alleged violations of such laws, and any related lawsuits, could result in (i) exclusion from participation in Medicare, Medicaid and other federal healthcare programs, or (ii) significant financial or criminal sanctions, resulting in the possibility of substantial financial penalties for small billing errors that are replicated in a large number of claims, as each individual claim could be deemed a separate violation. In addition, many states also have enacted similar statutes, which may include criminal penalties, substantial fines, and treble damages.

 

Employees

 

As of August 31, 2018, after giving effect to the Transactions, we employed 95 people, of which 73 were full-time employees. As of that date, none of our employees were governed by collective bargaining agreements or were members of a union. We consider our relations with our employees to be very good.

 

In the states in which our current outpatient clinics are located, persons performing designated medical or physical therapy services are required to be licensed by the state. Based on standard employee screening systems in place, all persons currently employed by us who are required to be licensed are licensed. We are not aware of any federal licensing requirements applicable to our employees.

 

Medical and Scientific Advisory Board

 

We intend to establish a Medical and Scientific Advisory Board under the direction of our Chief Scientific Officer comprised of physicians, other healthcare professionals, scientific researchers and university professors with experience in the areas of regenerative medicine. The Advisory Board is expected to meet periodically with our Board of Directors and management to discuss matters relating to our orthopedic therapies, range of medical treatments and strategic direction. Members of the Advisory board will be reimbursed by us for out-of-pocket expenses incurred in serving on the Advisory Board. We do not expect any Advisory Board members will have a conflict of interest between their obligation to us and their obligations to other companies or organizations.

 

Facilities

 

We manage our business operations from our principal executive office in Brentwood, Tennessee, in approximately 7,500 square feet of leased space. Our office lease extends through July 2024, under which we currently pay $17,465 per month. Our business is conducted at eleven outpatient medical clinics. For more information about our outpatient locations and the terms of their leases, see “Our Operations” above.

 

We expect total rent expense to be approximately $636,170 under our office and medical clinic leases for 2018.

 

We believe our present office space and locations are adequate for our current operations and for near-term planned expansion.

 

Legal Proceedings

 

There are no legal proceedings or arbitration proceedings currently pending against our company.

 

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MANAGEMENT

 

Executive Officers and Directors

 

The following table sets forth certain information regarding our executive officers and directors as of the date of this prospectus:

 

Name   Age   Position
         
Jeffrey S. Ervin   41   Chief Executive Officer and Director
         
Matthew C. Wallis, DC   44   Chief Operating Officer and Director
         
Ian A. White, Ph.D.   44   Chief Scientific Officer
         
D. Anthony Bond, CPA   56   Chief Financial Officer
         
Edward S. Bredniak   60   Director
         
David Ellwanger   58   Director Nominee
         
George Hampton   49   Director Nominee
         
Dean Weiland   63   Director Nominee

 

Messrs. Ellwanger, Hampton and Weiland will assume their positions upon the closing of this offering.

 

The following information provides a brief description of the business experience of each executive officer, director and director nominee.

 

Executive Officers and Employee Directors

 

Jeffrey S. Ervin co-founded our company in March 2015 and serves as our Chief Executive Officer and a member of our Board of Directors. Mr. Ervin earned his M.B.A. from Vanderbilt University and has a history of working within strategic finance roles in the healthcare and high tech industries. Following his M.B.A., Mr. Ervin was the Senior Financial Analyst and Vice President of Finance for the Baptist Hospital System of Nashville from 2006 to September 2011, responsible for sourcing and managing direct investments to satisfy pension obligations. After these five years, Mr. Ervin joined Medicare.com parent Medx Publishing in October 2011 as the senior financial officer tasked with building administrative functions to satisfy rapid growth in the CMS education sector. During this time through March 2015, Medicare.com earned INC. 500 recognition and he was instrumental in the acquisition of Medicaid.com which was sold to United Healthcare Group. Mr. Ervin was also responsible for the disposition and ultimate sale of Medicare.com to eHealth Insurance.

 

As our Chief Executive Officer and a director, Mr. Ervin leads the Board and manages our company. Mr. Ervin brings extensive healthcare services industry knowledge and a deep background in growing early stage companies, mergers and acquisitions and capital market activities. His service as the Chief Executive Officer and a director creates a critical link between management and the Board.

 

Matthew C. Wallis, DC co-founded our company in March 2015 and serves as our Chief Operating Officer and a member of our Board of Directors. Dr. Wallis established the first Integrated Medicine and Chiropractic (IMAC) Regeneration Center in August 2000 and has led the Paducah, Kentucky center since then. Prior to establishing the first IMAC medical clinic, Dr. Wallis practiced as a licensed chiropractor in Kentucky. As our Chief Operating Officer, Dr. Wallis, has implemented consistent operating efficiencies for our sales, marketing and serviced delivery operations. Dr. Wallis received a Doctor of Chiropractic (DC) degree from Life University.

 

Dr. Wallis’ 18 years of experience in the healthcare services industry, day-to-day operational leadership of our initial Paducah, Kentucky medical clinic and in-depth knowledge of our company’s rehabilitative services make him well qualified as a member of the Board.

 

Ian A. White, Ph.D. joined our company in August 2018 and serves as our Chief Scientific Officer. Dr. White most recently founded and continues to serve as the President of BioFirma, LLC, a stem cell regenerative medicine research firm, of which we acquired an interest in August 2018. Prior to founding BioFirma in March 2018, he worked at the University of Miami’s Miller School of Medicine – Interdisciplinary Stem Cell Institute from March 2013 to March 2018, where he published research in the field of regenerative medicine with Dr. Joshua Hare, including a book chapter on the use of mesenchymal stem cells in cardiology. Prior to his work at the University of Miami, Dr. White conducted research at the University of Georgia (February 2009 – January 2013) on embryonic stem cells, at Harvard University (August 2000 – August 2002) on immune stem cell differentiation, and at Dartmouth College (November 1999 – August 2000) on the genetics of gamete biology.

 

Dr. White is considered an expert in the field of regenerative medicine with 20 years of experience working in tissue regeneration and stem cell biology. Dr. White has published extensively in the field of stem cell biology, clinical stem cell applications and regenerative medicine. In 2016, he received an award for the “Best Manuscript” by the American Heart Association for his work highlighting the role of peripheral nerves in cardiac regeneration. Dr. White was recently elected Chairman of the Scientific Committee for the American Association of Stem Cell Physicians and holds an adjunct position at Bascom Palmer Eye Institute in Miami, Florida, where he is the lead scientist in charge of cell research in the Transnational Ocular Regenerative Medicine Unit. Dr. White received a B.Sc. degree from Liverpool John Moores University and a M.Sc. degree from Liverpool School of Tropical Medicine, both in Liverpool, United kingdom, and a Ph.D. in Physiology, Biophysics and Systems Biology from Cornell University at its Ansary Stem Cell Institute.

 

D. Anthony Bond, CPA joined our company in October 2017 and serves as our Chief Financial Officer. Mr. Bond served from 2012 to September 2017 in senior financial capacities as an outside financial consultant with several healthcare organizations managing multi-state operations. From 2008 to 2012, Mr. Bond served as a Group Chief Financial Officer for Symbion Surgery Centers, a company with 20 surgery center facilities and two hospitals. Mr. Bond received a B.A. degree in Accounting from Middle Tennessee State University and is a Certified Public Accountant.

 

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Edward S. Bredniak became a member of our Board of Directors in November 2015. Since 1995, Mr. Bredniak has been a partner and senior executive officer of CCMA, LLC, a global trading house focused on metals, alloys and other raw materials, and since 2011, the owner and manager of LABES, LLC, a farming operation growing wheat, soybeans and corn, both of which are privately held. Mr. Bredniak earned a B.A. degree in economics and communications from the University of Pittsburgh.

 

Mr. Bredniak provides decades of experience in leading and managing business operations, making him well qualified to be a member of the Board.

 

David Ellwanger has agreed to join our Board of Directors upon the closing of this offering. Mr. Ellwanger is currently the President of Health Plan Operations and Senior Vice President for Development of Intercede Health, a private managed care company, since January 2016. At Intercede Health, Mr. Ellwanger is involved in acquiring and building Medicare Advantage programs. From March 2014 to December 2015, Mr. Ellwanger was the President of Hospital Systems and Physicians for Healthways, the largest population health company in the country at the time. From September 2001 to May 2006, Mr. Ellwanger was the President of HealthSpring, an HMO, PPO and Medicare Advantage plan provider. HealthSpring went public in February 2006 and was eventually sold to CIGNA. From April 1994 to July 1997, Mr. Ellwanger worked for InPhyNet Medical Management, where he ran multiple primary care clinics and PPO accepting full risk capitation from insurance payors. InPhyNet went public in 1994 and was sold to MedPartners in 1996. Mr. Ellwanger began his healthcare career in 1985 with Partners National Health Plans, which eventually was merged into Aetna Health Plans.

 

Mr. Ellwanger has more than 33 years of experience operating insurance companies, physician practices and hospitals. Using this experience, Mr. Ellwanger brings insight to the Board and, in particular, with regard to aligning incentives across constituents for long-term results. Additionally, Mr. Ellwanger was part of several management teams that took companies public, such as HealthSpring and InPhyNet Medical Management. Mr. Ellwanger’s experience and expertise in relevant market areas make him well qualified as a member of the Board.

 

George Hampton has agreed to join our Board of Directors upon the closing of this offering. Mr. Hampton has served as executive vice president of the primary care business unit for Horizon Pharmaceuticals, a publicly-traded biopharmaceuticals company, since February 2016. Mr. Hampton leads Horizon Pharmaceuticals’ forward-looking strategy and establishes operational goals for the business. From April 2015 to February 2016, he was the executive vice president, global orphan business unit and international operations for Horizon Pharmaceuticals. From October 2008 to December 2014, Mr. Hampton served as a consultant to Horizon Pharmaceuticals focusing on preparing the company for the commercialization of its first product. Mr. Hampton has been involved in more than ten product launches in roles of increasing responsibility in sales, international marketing and operations at G.D. Searle (1992 to 2002), Abbott (now AbbVie) (2002 to 2005), and Amylin Pharmaceuticals (July 2007 to February 2009). Mr. Hampton earned a B.A. degree from Miami University in Oxford, Ohio.

 

Mr. Hampton has more than 25 years of experience as a successful executive in the pharmaceutical and biotech field on both a national and international scale including specific expertise in the autoimmune, primary care, orthopedic, diabetes, anti-infectives and cardiovascular spaces, making his input invaluable to the Board’s discussions.

 

Dean Weiland has agreed to join our Board of Directors upon the closing of this offering. Mr. Weiland served as a Director, President and Chief Executive Officer of Cogent Healthcare, Inc., a privately-held healthcare company, from June 2013 until it was acquired by Sound Physicians in November 2014. Since November 2014, Mr. Weiland has been retired and serves on the board of VitaHeat, a privately-held company. Prior to Cogent, Mr. Weiland was a co-founder and served as Chief Operating Officer of Renal Advantage Inc. from October 2005 to December 2012. Renal Advantage grew to become the third largest dialysis company in the United States with 158 clinics in 19 states. Renal Advantage merged with Liberty Dialysis in 2010 and was acquired by Fresenius Medical Care in 2012. In 2003, Mr. Weiland was a co-founder of The Work Institute and served as its Chief Executive Officer until July 2005 when he left to form Renal Advantage. From 2000 to 2003, Mr. Weiland was a co-founder of Cleartrack Information Network, a healthcare data company, and served as its Chief Operating Officer from 1997 to 2000. Mr. Weiland served as Executive Vice President at MEDSTAT and the General Manager of Inforum, which were divisions of Thomson Reuters, a public company and held senior positions at Aladdin Industries from 1994 to 1997, and Coventry Corporation from 1993 to 1994. He began his career with Baxter Healthcare from 1977 to 1993, where he served as Vice President of New Business Initiatives for its Caremark division.

 

Mr. Weiland’s in-depth knowledge of the healthcare market and the broad range of companies in the industry makes him well qualified as a member of the Board. He also brings transactional expertise in establishing a multi-state chain of medical clinics.

 

Board Composition

 

Our business and affairs are managed under the direction of our board of directors. The number of directors is determined by our board of directors, subject to the terms of our certificate of incorporation and bylaws that will become effective upon the completion of this offering. Upon the completion of this offering, our board of directors will consist of six members.

 

Director Independence

 

Upon the completion of this offering, our common stock will be listed on The NASDAQ Capital Market. Under Nasdaq rules, independent directors must comprise a majority of a listed company’s board of directors within a specified period after completion of this offering. In addition, Nasdaq rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and governance committees must be independent. Under Nasdaq rules, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

 

Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (i) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (ii) be an affiliated person of the listed company or any of its subsidiaries.

 

Our board of directors undertook a review of its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directors has determined that Messrs. Ellwanger, Hampton and Weiland, and one additional director, representing a majority of our directors, do not have any relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under Nasdaq rules. In making these determinations, our board of directors considered the relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.

 

Board Committees

 

Upon the closing of this offering, our board of directors will have three standing committees: an audit committee, a compensation committee and a nominating and corporate governance committee. Under Nasdaq rules, the membership of the audit committee is required to consist entirely of independent directors, subject to applicable phase-in periods. The following is a brief description of our committees.

 

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Audit committee. In accordance with our audit committee charter, after this offering, our audit committee will: oversee our corporate accounting and financial reporting processes and our internal controls over financial reporting; evaluate the independent public accounting firm’s qualifications, independence and performance; engage and provide for the compensation of the independent public accounting firm; approve the retention of the independent public accounting firm to perform any proposed permissible non-audit services; review our consolidated financial statements; review our critical accounting policies and estimates and internal controls over financial reporting; and discuss with management and the independent registered public accounting firm the results of the annual audit and the reviews of our quarterly consolidated financial statements. We believe that our audit committee members meet the requirements for financial literacy under the current requirements of the Sarbanes-Oxley Act, Nasdaq and SEC rules and regulations. In addition, the board of directors has determined that [ ● ] is qualified as an audit committee financial expert within the meaning of SEC regulations. We have made this determination based on information received by our board of directors, including questionnaires provided by the members of our audit committee. We plan on naming the individuals who will serve on this committee prior to marketing this offering.

 

Compensation committee. In accordance with our compensation committee charter, after this offering, our compensation committee will review and recommend policies relating to compensation and benefits of our officers and employees, including reviewing and approving corporate goals and objectives relevant to compensation of the Chief Executive Officer and other senior officers, evaluating the performance of these officers in light of those goals and objectives and setting compensation of these officers based on such evaluations. The compensation committee will also administer the issuance of stock options and other awards under our equity-based incentive plans. We believe that the composition of our compensation committee meets the requirements for independence under, and the functioning of our compensation committee complies with, any applicable requirements of the Sarbanes-Oxley Act, Nasdaq and SEC rules and regulations. We intend to comply with future requirements to the extent they become applicable to us. We plan on naming the individuals who will serve on this committee prior to marketing this offering.

 

Nominating and governance committee. In accordance with our nominating and governance committee charter, after this offering, our nominating and governance committee will recommend to the board of directors nominees for election as directors, and meet as necessary to review director candidates and nominees for election as directors; recommend members for each committee of the board; oversee corporate governance standards and compliance with applicable listing and regulatory requirements; develop and recommend to the board governance principles applicable to the company; and oversee the evaluation of the board and its committees. We believe that the composition of our nominating and governance committee meets the requirements for independence under, and the functioning of our compensation committee complies with, any applicable requirements of the Sarbanes-Oxley Act, Nasdaq and SEC rules and regulations. We intend to comply with future requirements to the extent they become applicable to us. We plan on naming the individuals who will serve on this committee prior to marketing this offering.

 

Code of Business Conduct and Ethics

 

We will adopt a new code of business conduct and ethics that applies to all of our officers, directors and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions, which will be posted on our website. Our code of business conduct and ethics is a “code of ethics,” as defined in Item 406(b) of Regulation S-K. The information contained on, or accessible from, our website is not part of this prospectus by reference or otherwise. We will make any legally required disclosures regarding amendments to, or waivers of, provisions of our code of business conduct and ethics on our website.

 

Compensation Committee Interlocks and Insider Participation

 

None of the members of our compensation committee is an executive officer or employee of our company. None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

 

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Limitations on Director and Officer Liability and Indemnification

 

Our certificate of incorporation limits the liability of our 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 breach of their fiduciary duties as directors, except liability for:

 

  any breach of their duty of loyalty to the corporation or its stockholders;
     
  acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
     
  unlawful payments of dividends or unlawful stock repurchases or redemptions; or
     
  any transaction from which the director derived an improper personal benefit.

 

Our certificate of incorporation and our bylaws provide that we are required to indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. Any repeal of or modification to our certificate of incorporation and our bylaws may not adversely affect any right or protection of a director or officer for or with respect to any acts or omissions of such director or officer occurring prior to such amendment or repeal. Upon completion of this offering, our bylaws will also provide that we shall advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in connection with their services to us, regardless of whether our bylaws permit such indemnification.

 

Prior to the completion of this offering, we intend to enter into separate indemnification agreements with our directors and executive officers, in addition to the indemnification provided for in our bylaws. These agreements, among other things, provide that we will indemnify our directors and executive officers for certain expenses (including attorneys’ fees), judgments, fines, penalties and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of such person’s services as one of our directors or executive officers, or any other company or enterprise to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers.

 

The limitation of liability and indemnification provisions that will be contained in our certificate of incorporation and our bylaws upon completion of this offering may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. There is no pending litigation or proceeding involving one of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

 

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EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table sets forth summary compensation information for the following persons: (i) all persons serving as our principal executive officer during the years ended December 31, 2017 and 2016, and (ii) our two other most highly compensated executive officers who received compensation during the years ended December 31, 2017 and 2016 of at least $100,000 and who were executive officers on December 31, 2017 and 2016. We refer to these persons as our “named executive officers” in this prospectus. The following table includes all compensation earned by the named executive officers for the respective period, regardless of whether such amounts were actually paid during the period:

 

Name and Position   Years     Salary     Bonus     Stock Awards     Option Awards     Non-equity Incentive Plan Compensation     Non-qualified Deferred Compensation Earnings     All Other Compensation     Total  
Jeffrey S. Ervin,     2017     $ 155,000                                   $ 40,000     $ 195,000  
Chief Executive Officer     2016     $ 152,885                                         $ 152,885  
                                                                         
Matthew C. Wallis, DC,     2017     $ 6,000                                         $ 6,000  
Chief Operating Officer     2016     $ 6,231                                         $ 6,231  
                                                                         
D. Anthony Bond,     2017     $ 26,754                                         $ 26,754  
Chief Financial Officer (1)     2016                                                  

 

 

  (1) Mr. Bond joined our company in October 2017.

 

Employment Agreements

 

Prior to the closing of this offering, we intend to enter into an employment agreement with each of our named executive officers. We expect that each of the agreements will become effective on the closing date of this offering, and will have an initial term that ends three years after the closing date with automatic one-year renewal periods thereafter.

 

Outstanding Equity Awards at December 31, 2017

 

No stock options or other equity awards were granted to any of our named executive officers during the year ended December 31, 2017, and no such awards were outstanding as of such date.

 

2018 Incentive Compensation Plan

 

Under our 2018 Incentive Compensation Plan (the “Plan”), adopted by our board of directors and holders of a majority of our outstanding shares of common stock in May 2018, 1,000,000 shares of common stock (subject to certain adjustments) are reserved for issuance upon exercise of stock options and grants of other equity awards. The Plan is designed to serve as an incentive for attracting and retaining qualified and motivated employees, officers, directors, consultants and other persons who provide services to us. The compensation committee of our board of directors administers and interprets the Plan and is authorized to grant stock options and other equity awards thereunder to all eligible employees of our company, including non-employee consultants to our company and directors.

 

The Plan provides for the granting of “incentive stock options” (as defined in Section 422 of the Code), non-statutory stock options, stock appreciation rights, shares of restricted stock, restricted stock units, deferred stock, dividend equivalents, bonus stock and awards in lieu of cash compensation, other stock-based awards and performance awards. Options may be granted under the Plan on such terms and at such prices as determined by the compensation committee of the board, except that the per share exercise price of the stock options cannot be less than the fair market value of our common stock on the date of grant. Each option will be exercisable after the period or periods specified in the stock option agreement, but all stock options must be exercised within ten years from the date of grant. Options granted under the Plan are not transferable other than by will or by the laws of descent and distribution. The compensation committee of the board has the authority to amend or terminate the Plan, provided that no amendment shall be made without stockholder approval if such stockholder approval is necessary to comply with any tax or regulatory requirement. Unless terminated sooner, the Plan will terminate ten years from its effective date.

 

The compensation committee granted to __________ and __________ stock options under the Plan to purchase _____ and _____ shares of common stock, respectively, at an exercise price equal to the initial public offering price of the common stock in this offering. The stock options will vest in three equal annual installments commencing one year from the date of this prospectus and expire ten years from the date of grant. The compensation committee intends to grant stock options to other key employees and non-executive directors of our company.

 

Director Compensation

 

Following the closing of this offering, we intend to compensate each non-employee director through annual stock option grants and by paying a cash fee for each board of directors and committee meeting attended. Currently, our directors do not receive salaries or fees for serving on our board of directors, nor do they receive any compensation for serving on committees. No compensation was paid to our directors in the year ended December 31, 2017. Our board of directors will review director compensation annually and adjust it according to then current market conditions and good business practices.

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Policies and Procedures for Transactions with Related Persons

 

Our board of directors intends to adopt a written related person transaction policy to set forth the policies and procedures for the review and approval or ratification of related person transactions. Related persons include any executive officer, director or a holder of more than 5% of our common stock, including any of their immediate family members and any entity owned or controlled by such persons. Related person transactions refers to any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships in which (i) we were or are to be a participant, (ii) the amount involved exceeds $120,000, and (iii) a related person had or will have a direct or indirect material interest. Related person transactions include, without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness, and employment by us of a related person, in each case subject to certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act.

 

We expect that the policy will provide that in any related person transaction, our audit committee and board of directors will consider all of the available material facts and circumstances of the transaction, including: the direct and indirect interests of the related persons; in the event the related person is a director (or immediate family member of a director or an entity with which a director is affiliated), the impact that the transaction will have on a director’s independence; the risks, costs and benefits of the transaction to us; and whether any alternative transactions or sources for comparable services or products are available. After considering all such facts and circumstances, our audit committee and board of directors will determine whether approval or ratification of the related person transaction is in our best interests. For example, if our audit committee determines that the proposed terms of a related person transaction are reasonable and at least as favorable as could have been obtained from unrelated third parties, it will recommend to our board of directors that such transaction be approved or ratified. In addition, once we become a public company, if a related person transaction will compromise the independence of one of our directors, our audit committee may recommend that our board of directors reject the transaction if it could affect our ability to comply with securities laws and regulations or Nasdaq listing requirements.

 

Each transaction described in “Certain Relationships and Related Transactions” was entered into prior to the adoption of our audit committee charter and the foregoing policy proposal.

 

Corporate Conversion

 

Effective June 1, 2018, we converted to a Delaware corporation and changed our name to IMAC Holdings, Inc. Prior to June 1, 2018, we were a Kentucky limited liability company controlled by Matthew C. Wallis, DC, Jason Brame, DC, and Jeffrey S. Ervin. Upon the Corporate Conversion, all of our outstanding membership interests were exchanged on a proportional basis for shares of common stock of IMAC Holdings, Inc.

 

Business Transactions

 

IMAC Management Services, LLC holds a long-term Management Services Agreement with Integrated Medicine and Chiropractic Regeneration Center PSC, a professional service corporation controlled by our co-founders Matthew C. Wallis, DC and Jason Brame, DC, which operates two IMAC Regeneration Centers in Kentucky. The Management Services Agreement is exclusive, extends through June 2048 and will automatically renew annually each year thereafter unless written notice is given within 180 days prior to the completion of the extended term. On June 29, 2018, Clinic Management Associates, LLC, controlled by Drs. Wallis and Brame, merged with and into our subsidiary IMAC Management Services, LLC. IMAC Management Services, LLC provides exclusive comprehensive management and related administrative services to the IMAC Regeneration Centers under the Management Services Agreement. Pursuant to the merger agreement with Clinic Management Associates, LLC, we agreed to pay cash or issue shares of our common stock having a value of $4,598,576 to its former owners upon the closing of this offering. Dr. Wallis is an executive officer and greater than 5% beneficial owner in our company and will receive 75% of the sale price of Clinic Management Associates, LLC. Dr. Brame is a greater than 5% beneficial owner in our company and will receive 25% of the sale price of Clinic Management Associates, LLC. Under the Management Services Agreement, we will receive service fees based on the cost of the services we provide, plus a specified markup percentage, and a discretionary annual bonus.

 

We entered into a Unit Purchase Agreement with the equity owners of IMAC of St. Louis, LLC to acquire the remaining 64% of the outstanding units of the limited liability company membership interests we did not already own. This entity, doing business as the Ozzie Smith Center, operates two locations in Missouri. Pursuant to the terms of the Unit Purchase Agreement, we agreed to pay IMAC of St. Louis, LLC’s former owners upon the closing of this offering $1,000,000 in cash and the remainder in shares of our common stock in the aggregate amount of $1,490,632. The effective date of the transaction was June 1, 2018. Dr. Wallis is an executive officer and greater than 5% beneficial owner in our company and will receive cash and stock compensation of $372,658.

 

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We entered into a Unit Purchase Agreement with the equity owners of IMAC Regeneration Management of Nashville, LLC to acquire the remaining 24% of the outstanding units of the limited liability company membership interests we did not already own for an amount equal to $110,000 in cash and $190,000 principal amount of 4% convertible notes (on the same terms as in our 2018 private placement). The effective date of this transaction was June 1, 2018. IMAC Regeneration Management of Nashville, LLC, now our 100%-owned subsidiary, and IMAC Regeneration Center of Nashville, P.C. previously agreed to a long-term, exclusive management services agreement on November 1, 2016. Mr. Ervin is an executive officer and greater than 5% beneficial owner in our company and will receive $50,000 of the sale price.

 

We are compensated under each of our management services agreements through service fees based on the cost of the services provided, plus a specified markup percentage, and a discretionary annual bonus determined in the sole discretion of each professional service corporation. Under our management services agreements, all obligations owed to us by the professional service corporations are secured by all accounts receivable, contract rights, revenues and general intangibles of the applicable professional service corporation. The management services agreements may be terminated by mutual agreement of the parties, by a non-breaching party after 30 days following an uncured breach by the other party, upon a bankruptcy of either party or by us upon 90 days’ prior written notice to the other party.

 

Integrated Medicine and Chiropractic Regeneration Center PSC , IMAC Management Services, LLC, IMAC of St. Louis, LLC and IMAC Regeneration Management of Nashville, LLC are related companies having common ownership with us and our controlling stockholders and have been operating together with us as a single group since 2015.

 

In August 2018, we purchased 100% of the outstanding units of Advantage Hand Therapy and Orthopedic Rehabilitation, LLC, a physical and occupational therapy business with four clinics serving the Springfield, Missouri metropolitan area. The purchase price was $22,930.94 in cash and $870,000 payable in common stock upon the closing of this offering. The acquisition of this entity was not considered significant as measured under specific financial tests of the SEC.

 

On August 20, 2018, we acquired a 70% ownership position of BioFirma, LLC for $1,000 in cash. The acquisition of this entity was not considered significant as measured under specific financial tests of the SEC. BioFirma owns a trademark on NeoCyte, an umbilical cord-derived mononuclear cell product following the FDA’s cGMP regulations. We intend to use approximately $1,500,000 of the net proceeds of this offering for further research and product development of NeoCyte and other regenerative medicine products, including obtaining approvals, certifications or designations from the FDA. A portion of the funds for BioFirma will be used for the employment of Ian A. White, Ph.D., Chief Scientific Officer, for a three-year period, as well as for equipment and manufacturing of the product. When it is market-ready, we intend to sell the NeoCyte product at our IMAC Regeneration Centers and other medical clinics.

 

Related Party Transactions

 

Integrated Medicine and Chiropractic Regeneration Center PSC advanced monies to and leased real estate from OLM, a related company. OLM is a variable interest entity, formed by Jason Brame DC, a founding member of our company, and the spouse of Matthew C. Wallis, DC, our Chief Operating Officer and director, to purchase real estate for expansion of the Kentucky medical clinic. In 2017, OLM decided to not develop the real estate, which was sold. Integrated Medicine and Chiropractic Regeneration Center PSC sustained the loss related to the real estate sale. The financial statements of OLM have not been included in our consolidated financial statements since Integrated Medicine and Chiropractic Regeneration Center PSC was deemed the primary beneficiary of OLM.

 

We contract with SpeakLife to provide staff training and patient advocacy services for $99,000 per year. SpeakLife is owned by Mr. Brame.

 

We contract with UCI to provide marketing services to chiropractic practitioners and sources opportunities to expand chiropractic practices into regenerative medicine for $144,000 per year. UCI is owned by the spouse of Dr. Wallis.

 

We have a note payable to The Edward S. Bredniak Trust, the trustee of which is Edward S. Bredniak, a director of our company, in the amount of $500,000 dated December 1, 2016. The note requires 36 monthly installments of $8,534 including principal and interest. The interest rate is fixed at 5% per annum. The note matures and has a balloon payment of $250,000 on December 31, 2019, and is secured by the personal guarantees of our former members. The proceeds of the note were used to secure our medical clinic lease in Chesterfield, Missouri.

 

On June 1, 2018, we entered into a note payable to The Edward S. Bredniak Trust in the amount of up to $2,000,000. An existing note payable with this entity with an outstanding balance of $379,675.60 will be combined into the new note payable. The note carries an interest rate of 10% per annum and all outstanding balances are due and payable at the closing of this offering. The proceeds of this note are being used to satisfy ongoing working capital needs, expenses related to the preparation for this offering, equipment and construction costs related to new clinic locations, and potential business combination and transaction expenses. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

 

Indemnification Agreements

 

We intend to enter into an indemnification agreement with each of our directors and executive officers. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors and executive officers to the fullest extent permitted by Delaware law. See “Management—Limitations on Director and Officer Liability and Indemnification.”

 

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PRINCIPAL STOCKHOLDERS

 

The following table and accompanying footnotes set forth certain information with respect to the beneficial ownership of our common stock as of August 31, 2018, referred to in the table below as the “Beneficial Ownership Date,” and as adjusted to reflect the sale of shares of our common stock offered by this prospectus, by:

 

  each person who is known to be the beneficial owner of 5% or more of the outstanding shares of our common stock;
     
  each member of our board of directors and each of our named executive officers individually; and
     
  all our directors and executive officers as a group.

 

Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to stock options or warrants held by that person that are currently exercisable or exercisable within 60 days of the Beneficial Ownership Date and shares of restricted stock subject to vesting until the occurrence of certain events, including the closing of this offering, are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Percentage of beneficial ownership is based on [●] shares of common stock outstanding as of the Beneficial Ownership Date and [●] shares of common stock outstanding immediately after this offering, assuming that the underwriter will not exercise its option to purchase up to [●] additional shares of our common stock from us in full.

 

To our knowledge, except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth opposite such person’s name. Except as otherwise indicated, the address of each of the persons in this table is c/o IMAC Holdings, Inc., 1605 Westgate Circle, Brentwood, Tennessee 37027. Each of the persons and entities named in the table below acquired their shares of common stock pursuant to the Corporate Conversion. See “Corporate Conversion” for additional information.

 

Name of Beneficial Owner   Shares
Beneficially
Owned Prior
to Offering
    Percentage
Beneficially
Owned
Before
Offering
    Percentage
Beneficially
Owned After
Offering
 
                   
Jeffrey S. Ervin             5.48 %        
                                        
Matthew C. Wallis, DC             36.99 %        
                         
D. Anthony Bond             *          
                         
Edward S. Bredniak (1)             38.36 %        
                         
David Ellwanger             *          
                         
George Hampton             *          
                         
Dean Weiland             *          
                         
All directors and executive officers as a group (seven persons)             80.83 %        

 

 

 

* Less than 1% of outstanding shares.
   
(1) Shares owned by Edward Bredniak Trust, through which Mr. Bredniak exercises control as trustee.

 

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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, forms of which are incorporated by reference to the exhibits to the registration statement of which this prospectus is a part, as well as the relevant portions of the Delaware law. References to our certificate of incorporation and bylaws are to our certificate of incorporation and our bylaws, respectively, each of which will become effective upon completion of this offering. The description of our common stock and preferred stock reflects the completion of the Corporate Conversion that was effective as of June 1, 2018.

 

General

 

Prior to June 1, 2018, we were a Kentucky limited liability company and the rights and obligations of our members were governed by the IMAC Holdings, LLC operating agreement. On June 1, 2018, we effected the Corporate Conversion pursuant to which we converted into a Delaware corporation and changed our name to IMAC Holdings, Inc. The rights and obligations set forth in the IMAC Holdings, LLC operating agreement terminated immediately prior to the consummation of the Corporate Conversion. As of June 1, 2018, we are a federal taxpayer as opposed to a pass-through entity for tax purposes. The following description of our capital stock is a summary and is qualified in its entirety by reference to our certificate of incorporation and our bylaws, the forms of which are filed as exhibits to the registration statement of which this prospectus forms a part.

 

Upon closing of this offering, our authorized capital stock will consist of 30,000,000 shares of common stock with a $0.001 par value per share, and 5,000,000 shares of preferred stock with a $0.001 par value per share, all of which shares of preferred stock are undesignated. Our board of directors may establish the rights and preferences of the preferred stock from time to time. As of August 31, 2018, there were [●] shares of common stock issued and outstanding, held of record by [●] stockholders, and no shares of preferred stock issued or outstanding.

 

Common Stock

 

Each holder of our common stock is entitled to one vote for each share on all matters to be voted upon by the stockholders and there are no cumulative rights. Subject to any preferential rights of any outstanding preferred stock, holders of our common stock are entitled to receive ratably the dividends, if any, as may be declared from time to time by the board of directors out of legally available funds. If there is a liquidation, dissolution or winding up of our company, holders of our common stock would be entitled to share in our assets remaining after the payment of liabilities and any preferential rights of any outstanding preferred stock.

 

Holders of our common stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of our common stock will be fully paid and non-assessable. The rights, preferences and privileges of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which we may designate and issue in the future.

 

Preferred Stock

 

Under the terms of our certificate of incorporation, our board of directors is authorized to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.

 

The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with possible future acquisitions and other corporate purposes, will affect, and may adversely affect, the rights of holders of common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of common stock until the board of directors determines the specific rights attached to that preferred stock. The effects of issuing preferred stock could include one or more of the following:

 

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  restricting dividends on the common stock;
     
  diluting the voting power of the common stock;
     
  impairing the liquidation rights of the common stock; or
     
  delaying or preventing changes in control or management of our company.

 

We have no present plans to issue any shares of preferred stock.

 

Warrants

 

We have agreed to sell to the Underwriter, for nominal consideration, warrants to purchase up to [●] shares of our common stock as additional consideration to the Underwriter in this offering. In addition, we have granted the Underwriter “piggyback” registration rights with respect to the underlying shares. This piggyback registration right will not be greater than five years from the effective date of this offering in compliance with FINRA Rule 5110(f)(2)(G)(v). See “Underwriting.”

 

Effect of Certain Provisions of our Charter and Bylaws and the Delaware Anti-Takeover Statute

 

Certain provisions of Delaware law, our certificate of incorporation and our bylaws contain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, may have the effect of discouraging coercive takeover practices and inadequate takeover bids. These provisions are also designed, in part, to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.

 

No cumulative voting

 

The Delaware General Corporation Law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our certificate of incorporation provides otherwise. Our certificate of incorporation and bylaws prohibit cumulative voting in the election of directors.

 

Undesignated preferred stock

 

The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue one or more series of preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.

 

Calling of special meetings of stockholders and action by written consent

 

Our charter documents provide that a special meeting of stockholders may be called only by resolution adopted by our board of directors, chairman of the board of directors or chief executive officer or upon the written request of stockholders owning at least 33 1 / 3 % of the outstanding common stock. Stockholder owning less than such required amount may not call a special meeting, which may delay the ability of our stockholders to force consideration of a proposal or for holders controlling a majority of our capital stock to take any action, including the removal of directors.

 

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Our charter documents provide that any action required or permitted to be taken by the stockholders of the company must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing by the stockholders.

 

Requirements for advance notification of stockholder nominations and proposals

 

Our bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors. However, our bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.

 

Amendment of certificate of incorporation and bylaws

 

The amendment of certain provisions (including the above provisions) of our certificate of incorporation and bylaws requires approval by holders of at least two-thirds of our outstanding capital stock entitled to vote generally in the election of directors.

 

Section 203 of the Delaware General Corporation Law

 

Upon completion of this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a three-year period following the time that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. Under Section 203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:

 

  before the stockholder became interested, our board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;
     
  upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances, but not the outstanding voting stock owned by the interested stockholder; or
     
  at or after the time the stockholder became interested, the business combination was approved by our board of directors and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.

 

Section 203 defines a business combination to include:

 

  any merger or consolidation involving the corporation and the interested stockholder;
     
  any sale, transfer, lease, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;
     
  subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
     
  subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; and
     
   the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

 

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In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.

 

Choice of Forum

 

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 (or if no Court of Chancery located within the State of Delaware has jurisdiction, the Federal District Court for the District of Delaware) will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by our directors, officers, or other employees to us or to our stockholders, (iii) any action asserting a claim against us or any director, officer or other employee arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or bylaws or (iv) any action asserting a claim against us or any director, officer or other employee that is governed by the internal affairs doctrine. It is possible that a court could rule that this provision is not applicable or is unenforceable. Any person or entity purchasing or otherwise acquiring shares of our capital stock will be deemed to have notice of and consented to this provision of our certificate of incorporation.

 

Limitations of Liability and Indemnification

 

See “Certain Relationships and Related Transactions—Indemnification Agreements.”

 

Exchange Listing

 

We intend to list our common stock for trading on The NASDAQ Capital Market under the symbol “IMAC.”

 

Transfer Agent and Registrar

 

Upon the completion of this offering, the transfer agent and registrar for our common stock will be Equity Stock Transfer, LLC. The transfer agent and registrar’s address is 237 West 37 th Street, Suite 602, New York, NY 10018.

 

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SHARES ELIGIBLE FOR FUTURE SALE

 

Prior to this offering, there has not been a public market for shares of our common stock. Future sales of substantial amounts of shares of our common stock, including shares issued upon the exercise of outstanding options, in the public market after our initial public offering, or the possibility of these sales occurring, could cause the prevailing market price for our common stock to fall or impair our ability to raise equity capital in the future.

 

We will have [●] shares of common stock outstanding immediately after the completion of this offering based on the number of shares outstanding on August 31, 2018 and assuming no exercise of outstanding options after such date (or [●] shares if the underwriter exercises its over-allotment option to purchase additional shares in full). Of those shares, the [●] shares of common stock sold in the offering (or [●] shares if the underwriter exercises its over-allotment option to purchase additional shares in full) will be freely transferable without restriction, unless purchased by persons deemed to be our “affiliates” as that term is defined in Rule 144 under the Securities Act. Any shares purchased by an affiliate may not be resold except pursuant to an effective registration statement or an applicable exemption from registration, including an exemption under Rule 144 promulgated under the Securities Act. The remaining [●] shares of common stock to be outstanding immediately following the completion of this offering are “restricted,” which means they were originally sold in offerings that were not registered under the Securities Act. Restricted shares may be sold through registration under the Securities Act or under an available exemption from registration, such as provided through Rule 144, which rules are summarized below. Taking into account the lock-up agreements described below, and assuming the underwriter does not release any stockholders from the lock-up agreements, the restricted shares of our common stock will be available for sale in the public market as follows:

 

  [●] shares will be eligible for sale immediately upon completion of this offering;
     
  [●] shares will become eligible for sale, subject to the provisions of Rule 144 or Rule 701, upon the expiration of lock-up agreements not to sell such shares entered into between the underwriter and such stockholders beginning 180 days after the date of this prospectus; and
     
  [●] additional shares will be eligible for sale from time to time thereafter upon expiration of their respective six-month holding periods.

 

Rule 144

 

In general, under Rule 144 of the Securities Act, as in effect on the date of this prospectus, a person (or persons whose shares are aggregated) who has beneficially owned restricted stock for at least six months, will be entitled to sell in any three-month period a number of shares that does not exceed the greater of:

 

  1% of the number of shares of common stock then outstanding ([●] shares immediately after this offering or [●] shares if the underwriter’s over-allotment option to purchase additional shares is exercised in full); or
     
  the average weekly trading volume of our common stock on Nasdaq during the four calendar weeks immediately preceding the date on which the notice of sale is filed with the SEC.
     
  Subject to the lock-up agreements described above, our affiliates who have beneficially owned shares of our common stock for at least six months, including the holding period of any prior owner other than one of our affiliates, will 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, which will equal approximately [●] shares immediately after this offering; and
     
  the average weekly trading volume in our common stock on Nasdaq during the four calendar weeks preceding the date of filing of a Notice of Proposed Sale of Securities Pursuant to Rule 144 with respect to the sale.

 

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Sales pursuant to Rule 144 are subject to requirements relating to manner of sale, notice and availability of current public information about us. A person (or persons whose shares are aggregated) who is not deemed to be an affiliate of ours for 90 days preceding a sale, and who has beneficially owned restricted stock for at least one year is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 144 will not be available to any stockholders until we have been subject to the reporting requirements of the Exchange Act for 90 days.

 

Form S-8 Registration Statement

 

Following the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act to register the shares of our common stock that are issuable pursuant to our 2018 Incentive Compensation Plan. Shares covered by this registration statement will be eligible for sale in the public markets, subject to vesting restrictions, any applicable lock-up agreements described below and Rule 144 limitations applicable to affiliates.

 

Rule 701

 

Rule 701 under the Securities Act, as in effect on the date of this prospectus, permits resale of shares in reliance upon Rule 144 but without compliance with certain restrictions of Rule 144, including the holding period requirement. Most of our employees, executive officers, directors or consultants who purchased shares under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701, but all holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling their shares. However, substantially all Rule 701 shares are subject to lock-up agreements as described below and under “Underwriting” included in this prospectus and will become eligible for sale upon the expiration of the restrictions set forth in those agreements.

 

Lock-Up Agreements

 

All of the executive officers and directors and all of our stockholders have agreed that, without the prior written consent of the underwriter, we and they will not, during the period ending 180 days after the date of this prospectus:

 

  offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exercisable or exchangeable for our common stock; or
     
  enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock;

 

whether any transaction described above is to be settled by delivery of shares of our common stock or such other securities, in cash or otherwise. This agreement is subject to certain exemptions, as set forth in the section entitled “Underwriting.”

 

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UNDERWRITING

 

Subject to the terms and conditions set forth in the underwriting agreement between us and the underwriters named below, for whom Cuttone & Co., LLC is acting as the representative (the “Representative”), we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, the number of shares of our common stock listed next to its name in the following table:

 

Underwriter   Number of
Shares
 
Cuttone & Co., LLC              
Total        

 

Under the terms of the underwriting agreement, the underwriters are committed to purchase all of the shares offered by this prospectus (other than the shares subject to the underwriters’ option to purchase additional shares), if the underwriters buy any of such shares. The underwriters’ obligation to purchase the shares is subject to satisfaction of certain conditions, including, among others, the continued accuracy of representations and warranties made by us in the underwriting agreement, delivery of legal opinions and the absence of any material changes in our assets, business or prospects after the date of this prospectus.

 

The underwriters initially propose to offer the common stock directly to the public at the public offering price set forth on the front cover page of this prospectus and to certain dealers at such offering price less a concession not to exceed $[●] per share. After the initial public offering of the shares of our common stock, the offering price and other selling terms may be changed by the underwriters. Sales of shares of our common stock made outside the United States may be made by affiliates of certain of the underwriters.

 

We have been advised by the representative of the underwriters that the underwriters intend to make a market in our securities but that they are not obligated to do so and may discontinue making a market at any time without notice. In connection with the offering, the underwriters or certain of the securities dealers may distribute prospectuses electronically.

 

Over-Allotment Option

 

We have granted to the underwriters an option to purchase up to [●] additional shares of our common stock at the same price per share as they are paying for the shares shown in the table above. The underwriters may exercise this option in whole or in part at any time within 45 days after the date of this prospectus. To the extent the underwriters exercise this option, each underwriter will be committed, so long as the conditions of the underwriting agreement are satisfied, to purchase a number of additional shares proportionate to that underwriters’ initial commitment as indicated in the table at the beginning of this section plus, in the event that any underwriter defaults in its obligation to purchase shares under the underwriting agreement, certain additional shares.

 

Discounts and Commissions

 

Except as disclosed in this prospectus, the underwriters have not received and will not receive from us any other item of compensation or expense in connection with this offering considered by the Financial Industry Regulatory Authority, Inc. (“FINRA”), to be underwriting compensation under its rule of fair price.

 

The underwriting discount is equal to the public offering price per share, less the amount paid by the underwriters to us per share. The underwriting discount was determined through an arms’ length negotiation between us and the underwriters. We have agreed to sell the shares of common stock in this Offering to the underwriters at the initial offering price of $[●] per share, which represents the initial public offering price of the shares of common stock set forth on the cover page of this prospectus less a 6.25% underwriting discount.

 

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The following table shows the per share and total underwriting discounts and commissions we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares of our common stock.

 

          Total  
    Per Share     No Exercise     Full
Exercise
 
Public offering price   $              $               $              
Underwriting discounts and commissions to be paid by us:   $     $     $  
Total   $     $     $  
Proceeds, before expenses, to us   $     $     $  

 

We estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately $_____.

 

We have agreed to pay a non-accountable expense allowance to the underwriters equal to 0.75% of the gross proceeds received in this Offering. In addition, we have also agreed to pay or reimburse the underwriters for their expenses, including fees of counsel in connection with filing with FINRA, in an amount not to exceed $______. All fees already paid shall be reimbursable to us to the extent not actually incurred. 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.

 

Underwriter’s Warrants

 

Upon the closing of this offering, we have agreed to issue warrants (the “Underwriter’s Warrants”) to the Underwriter to purchase a number of shares of the common stock equal to 4.0% of the total shares of the common stock sold in the closing. The Underwriter’s Warrants are exercisable from the date that is 180 days from the effective date of the registration statement of which this prospectus forms a part and expire on the close of business on the five-year anniversary of the effective date of the registration statement of which this prospectus forms a part. The Underwriter’s Warrants are not redeemable by us. The exercise price for the Underwriter’s Warrants will be the amount that is 120% of the public offering price. The Underwriter’s Warrants may be exercised on a cashless exercise basis.

 

The Underwriter’s Warrants and the common stock underlying the Underwriter’s 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 Underwriter, or permitted assignees under such rule, may not exercise, sell, transfer, assign, pledge or hypothecate the Underwriter’s Warrants or the common stock underlying the Underwriter’s Warrants, nor will the Underwriter or permitted assignees engage in any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the Underwriter’s Warrants or the underlying shares for a period of 180 days from the effective date of the registration statement of which this prospectus forms a part, except that they may be transferred, in whole or in part, by operation of law or by reason of our reorganization, or to any selected dealer participating in the offering and their employees and affiliates if the Underwriter’s Warrants or the underlying shares so transferred remain subject to the foregoing lock-up restrictions for the remainder of the time period. The Underwriter’s Warrants will provide for adjustment in the number and price of the Underwriter’s Warrants and the shares underlying such Underwriter’s Warrants in the event of a recapitalization, merger, stock split or other structural transaction.

 

Right of First Refusal

 

In connection with this offering, we granted Cuttone & Co., LLC a right of first refusal for a period of 15 months following the closing of this offering to act as our investment banker for any future investment banking activities where we hire an investment bank, on competitive market terms.

 

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Stabilization

 

In accordance with Regulation M under the Exchange Act, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common stock, including short sales and purchases to cover positions created by short positions, stabilizing transactions, syndicate covering transactions, penalty bids and passive market making.

 

  Short positions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares or purchasing shares in the open market.
     
  Stabilizing transactions permit bids to purchase the underlying security as long as the stabilizing bids do not exceed a specific maximum price.
     
  Syndicate covering transactions involve purchases of our common stock in the open market after the distribution has been completed 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 to the price at which they may purchase shares through the underwriters’ option to purchase additional shares. If the underwriters sell more shares than could be covered by the underwriters’ option to purchase additional shares, thereby creating a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
     
  Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.
     
  In passive market making, market makers in our common stock who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchase shares of our common stock until the time, if any, at which a stabilizing bid is made.

 

These activities may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result of these activities, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the Nasdaq or otherwise and, if commenced, may be discontinued at any time.

 

Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the Representative will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.

 

Indemnification

 

We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of such liabilities.

 

Discretionary Accounts

 

The underwriters have informed us that they do not expect to make sales to accounts over which they exercise discretionary authority in excess of 5% of the shares of our common stock being offered in this offering.

 

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IPO Pricing

 

Prior to the completion of this offering, there has been no public market for our common stock. The initial public offering price has been negotiated between us and the Representative. Among the factors considered in these negotiations are: the history of, and prospects for, us and the industry in which we compete; our past and present financial performance; an assessment of our management; the present state of our development; the prospects for our future earnings; the prevailing conditions of the applicable United States securities market at the time of this offering; previous trading prices for our common stock in the private market and market valuations of publicly traded companies that we and the representative believe to be comparable to us.

 

Lock-up Agreements

 

We have agreed that for a period of 180 days after the date of the underwriting agreement, we will not, without the prior written consent of Cuttone & Co., LLC, which may be withheld or delayed in Cuttone & Co., LLC’s sole discretion:

 

  offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, lend or otherwise dispose of or transfer, directly or indirectly, any of our common stock or any securities convertible into or exercisable or exchangeable for our common stock, or file any registration statement under the Securities Act with respect to any of the foregoing; or
     
  enter into any swap or other arrangement that transfers to another, in whole or in part, directly or indirectly, any of the economic consequences of ownership of any of our common stock,

 

whether any such transaction described above is to be settled by delivery of shares of our common stock or such other securities, in cash or otherwise. The prior sentence will not apply to (i) the shares to be sold pursuant to the underwriting agreement, (ii) any shares of our common stock issued by us upon the exercise of an option or other security outstanding on the date hereof, (iii) such issuances of options or grants of restricted stock or other equity-based awards under our 2018 Incentive Compensation Plan and the issuance of shares issuable upon exercise of any such equity-based awards, and (iv) the filing by us of registration statements on Form S-8.

 

Each of our directors and our executive officers has agreed that for a period ending 180 days after the date of the underwriting agreement, none of them will, without the prior written consent of the Representative which may be withheld or delayed in the Representative’s sole discretion:

 

  offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, lend or otherwise dispose of or transfer, directly or indirectly, any shares of our common stock, or any securities convertible into or exercisable or exchangeable for our common stock owned directly by such director or executive officer or with respect to which such director or executive officer has beneficial ownership; or
     
  enter into any swap or other arrangement that transfers to another, in whole or in part, directly or indirectly, any of the economic consequences of ownership of our common stock, whether any such transaction described above is to be settled by delivery of our common stock or such other securities, in cash or otherwise.

 

Notwithstanding the prior sentence, subject to applicable securities laws and the restrictions contained in our charter, our directors and executive officers may transfer our securities: (i) pursuant to the exercise or conversion of our securities, including, without limitation, options and warrants; (ii) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth above; (iii) to any trust for the direct or indirect benefit of such director or executive officer or the immediate family of such director or executive officer, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth above; (iv) any transfer required under any benefit plans or the Company’s charter or bylaws; (v) as required by participants in our 2018 Incentive Compensation Plan stock incentive plan in order to reimburse or pay federal income tax and withholding obligations in connection with vesting of restricted stock grants or the exercise of stock options or warrants; or (vi) in or in connection with any merger, consolidation, combination or sale of all or substantially all of our assets or in connection with any tender offer or other offer to purchase at least 50% of our common stock.

 

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Notwithstanding the foregoing, nothing shall prevent our directors or executive officers from, or restrict their ability to, (i) purchase our securities in a public or private transaction, or (ii) exercise or convert any options, warrants or other convertible securities issued to or held by such director or executive officer, including those granted under our 2018 Incentive Compensation Plan.

 

Other Relationships

 

Cuttone & Co., LLC may in the future provide us and our affiliates with investment banking and financial advisory services for which Cuttone & Co., LLC may in the future receive customary fees. Cuttone & Co., LLC, as the Representative, may release, or authorize us to release, as the case may be, the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time.

 

Electronic Distribution

 

A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in the offering. The Representative may allocate a number of shares to the underwriters and selling group members, if any, for sale to their online brokerage account holders. Any such allocations for online distributions will be made by the representative on the same basis as other allocations.

 

Listing

 

In connection with this offering, we intend to apply to have our common stock listed on The N asdaq Capital Market under the symbol “IMAC.” There is no assurance that our common stock will be listed on The N asdaq Capital Market or any other national securities exchange.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for our common stock is Equity Stock Transfer, LLC.

 

Selling Restrictions

 

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 supplement (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.

 

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Pursuant to section 3A.3 of National Instrument 33 105 Underwriting Conflicts (NI 33 105), the underwriter is not required to comply with the disclosure requirements of NI 33 105 regarding underwriter conflicts of interest in connection with this offering.

 

European Economic Area

 

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each, a Relevant Member State, an offer to the public of any shares of our common stock may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any shares of our common stock may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

 

  to any legal entity which is a qualified investor as defined in the Prospectus Directive;
     
  to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives for any such offer; or
     
  in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of shares of our common stock shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.

 

For the purposes of this provision, the expression an “offer to the public” in relation to any shares of our common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares of our common stock to be offered so as to enable an investor to decide to purchase any shares of our common stock, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State, and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

 

United Kingdom

 

The underwriter has represented and agreed that:

 

  it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, or FSMA) received by it in connection with the issue or sale of the shares of our common stock in circumstances in which Section 21(1) of the FSMA does not apply to us; and
     
  it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of our common stock in, from or otherwise involving the United Kingdom.

 

Switzerland

 

The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or the 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 or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.

 

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Neither this document nor any other offering or marketing material relating to the offering, or the shares 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 shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. Accordingly, no public distribution, offering or advertising, as defined in CISA, its implementing ordinances and notices, and no distribution to any non-qualified investor, as defined in CISA, its implementing ordinances and notices, shall be undertaken in or from Switzerland, and the investor protection afforded to acquirers of interests in collective investment schemes under CISA does not extend to acquirers of shares.

 

Australia

 

No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission, or the ASIC, in relation to the offering.

 

This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001, or the Corporations Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.

 

Any offer in Australia of the shares may only be made to persons, the Exempt Investors, who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.

 

The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.

 

This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.

 

  88  
 

 

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

 

Section 145 of the Delaware General Corporation Law, as amended, authorizes us to indemnify any director or officer under certain prescribed circumstances and subject to certain limitations against certain costs and expenses, including attorney’s fees actually and reasonably incurred in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, to which a person is a party by reason of being one of our directors or officers if it is determined that such person acted in accordance with the applicable standard of conduct set forth in such statutory provisions. Our certificate of incorporation contains provisions relating to the indemnification of director and officers and our by-laws extend such indemnities to the full extent permitted by Delaware law. We currently maintain insurance for the benefit of any director or officer, which cover claims for which we could not indemnify such persons.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

 

LEGAL MATTERS

 

The validity of the shares of common stock offered hereby will be passed upon for the issuer by Olshan Frome Wolosky LLP, New York, New York. The underwriter has been represented in connection with this offering by Schiff Hardin LLP, Washington, D.C.

 

EXPERTS

 

The consolidated financial statements of IMAC Holdings, Inc., as of December 31, 2016 and 2017, and for each of the two years in the period ended December 31, 2017, appearing in this prospectus and registration statement have been audited by Daszkal Bolton LLP, independent registered public accounting firm, as set forth in their report thereon appearing herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

We have filed with the SEC a registration statement on Form S-1, which includes exhibits, schedules and amendments, under the Securities Act with respect to the common stock we are offering pursuant to this prospectus. The rules and regulations of the SEC allow us to omit certain information from this prospectus that is included in the registration statement. Statements made in this prospectus concerning the contents of any contract, agreement or other document are summaries of all material information about the contract, agreement or other document summarized, but are not complete descriptions of all terms of those contracts, agreements or other documents. If we filed any of those contracts, agreements or other documents as an exhibit to the registration statement, you may read the contract, agreement or other document itself for a complete description of its terms. When we complete this offering, we will also be required to file annual, quarterly and special reports, proxy statements and other information with the SEC.

 

You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. To receive copies of public records not posted to the SEC’s web site 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., Mail Stop 2736, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on their public reference room.

 

  89  
 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
CONSOLIDATED FINANCIAL STATEMENTS OF IMAC HOLDINGS, INC. AND UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF IMAC HOLDINGS, INC.  
   
Report of Independent Registered Public Accounting Firm F-3
Consolidated Balance Sheets as of December 31, 2017 and 2016 and June 30 2018 (unaudited) F-4
Consolidated Statements of Operations for the Years Ended December 31, 2017 and 2016 and the unaudited Six Months ended June 30 2018 and unaudited Six Months ended June 30 2017 F-5

Consolidated Statements Stockholder’s Equity for the Years Ended December 31, 2017 and 2016 and June 30 2018 (unaudited)

F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017 and 2016 and the unaudited Six Months ended June 30 2018 and unaudited Six Months ended June 30 2017 F-7
Notes to the Consolidated Financial Statements F-8
   
CONSOLIDATED FINANCIAL STATEMENTS OF Integrated Medicine and Chiropractic REGENERATION CENTER PSC  
   
Report of Independent Registered Public Accounting Firm F-19
Consolidated Balance Sheets as of December 31, 2017 and 2016 F-20
Consolidated Statements of Operations for the Years Ended December 31, 2017 and 2016 F-21
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017 and 2016 F-22
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017 and 2016 F-23
Notes to the Consolidated Financial Statements F-24
   
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF Integrated Medicine and Chiropractic REGENERATION CENTER PSC  
   
Condensed Consolidated Balance Sheets as of March 31, 2018 (Unaudited) and December 31, 2017. F-30
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017 (Unaudited) F-31
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (Unaudited) F-32
Notes to the Condensed Consolidated Financial Statements F-33
   

FINANCIAL STATEMENTS OF IMAC REGENERATION CENTER OF ST. LOUIS, LLC

 
   
Report of Independent Registered Public Accounting Firm F-42
Balance Sheets as of December 31, 2017 and 2016 F-43
Statements of Operations and Members’ Equity For the Years Ended December 31, 2017 and 2016 F-44
Statements of Cash Flows for the Years Ended December 31, 2017 and 2016 F-45

Notes to the Financial Statements

F-46

 

  F- 1  

 

 

UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS OF IMAC REGENERATION CENTER OF ST. LOUIS, LLC  
   
Condensed Balance Sheets as of March 31, 2018 (Unaudited) and December 31, 2017 F-53

Condensed Statements of Operations and Members’ Equity (Deficit) for the Three Months Ended March 31, 2018 and 2017 (Unaudited)

F-54
Condensed Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (Unaudited) F-55
Notes to the Condensed Financial Statements F-56
   
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION  
Introduction F-65
Pro Forma Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 2018 F-66
Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 2017 F-67

 

  F- 2  

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors

IMAC Holdings, Inc.

Brentwood, Tennessee

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of IMAC Holdings, Inc. (the “Company”) at December 31, 2017 and 2016, and the related consolidated statements of operations and stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Daszkal Bolton LLP

 

We have served as the Company’s auditors since 2017.

 

Boca Raton, Florida

May 31, 2018, except for Note 1 to which the date is June 1, 2018.

 

  F- 3  

 

 

IMAC Holdings, Inc.

Consolidated Balance Sheets

December 31, 2017 and 2016 and June 30, 2018 (Unaudited)

 

 

    December 31,     June 30,  
    2017     2016     2018  
                (Unaudited)  
ASSETS                        
Current assets:                        
Cash   $ 127,788     $ 876,205     $ 212,593  
Accounts receivable, net     138,981       -       526,141  
Employee/Shareholder receivables     1,005       301,000       1,005  
Due from related parties     347,648       421,603       -  
Other assets     93,040       2,743       476,942  
Total current assets     708,463       1,601,551       1,216,681  
                         
Property and equipment, net     542,791       -       3,445,790  
                         
Other assets:                        
Intangible assets, net     -       -       5,771,410  
Security deposits     27,828       -       488,163  
Total other assets     27,828       -       6,259,573  
                         
Total assets   $ 1,279,081     $ 1,601,551     $ 10,922,044  
                         
LIABILITIES AND STOCKHOLDERS’ EQUITY                        
                         
Current liabilities:                        
Accounts payable and accrued expenses   $ 56,665     $ 2,991     $ 644,698  
Acquisition liabilities     -       -       6,389,208  
Patient deposits     130,906       -       593,784  
Due to related parties     95,501       48,099       -  
Notes payable, current portion     157,932       -       2,936,986  
Due to shareholders     -       -       109,829  
Capital lease obligation, net of current portion     7,820       -       16,387  
Line of credit     25,000       -       390,000  
Total current liabilities     473,824       51,090       11,080,892  
                         
Long-term liabilities:                        
Notes payable, net of current portion     456,152       500,000       698,011  
Capital Lease Obligation     52,494       -       92,498  
Deferred Rent     64,753       -       204,455  
Lease Incentive Obligation     60,428       -       633,717  
                         
Total liabilities     1,107,651       551,090       12,709,573  
                         
Stockholders’ equity:                        
                         
Preferred stock - $0.001 par value, 5,000,000 authorized, nil outstanding as of December 31, 2017, 2016, and June 30, 2018 (unaudited)                        
                         
Common stock; $0.001 par value, 30,000,000 authorized, 6,582,737, 6,492,563, and 6,582,737 shares issued and outstanding as of December 31, 2017, 2016 and June 30, 2018 (unaudited)     6,583       6,493       6,583  
                         
Additional paid-in capital     1,231,917       1,194,507       1,231,917  
Accumulated deficit     (491,076 )     (433,896 )     (1,627,690 )
Non-controlling interest     (575,994 )     283,357       (1,398,339 )
Total stockholders’ equity     171,430       1,050,461       (1,787,529 )
                         
Total liabilities and stockholders’ equity   $ 1,279,081     $ 1,601,551     $ 10,922,044  

 

See accompanying notes to the consolidated financial statements.

 

  F- 4  

 

 

IMAC Holdings, Inc.

Consolidated Statements of Operations

For the Years Ended December 31, 2017 and 2016 and the Six Months Ended June 30, 2018 and 2017 (Unaudited)

 

 

                June 30,     June 30,  
    2017     2016     2018     2017  
                (Unaudited)     (Unaudited)  
                         
Patient revenues   $ 1,378,313     $ -     $ 1,947,331     $ 163,973  
Contractual adjustments     (723,688 )     -       (1,108,775 )     (114,886 )
Total patient revenue, net     654,625       -       838,556       49,087  
                                 
Management fees     131,400       15,000       64,000       72,200  
Total revenue     786,025       15,000       902,556       121,287  
                                 
Operating expenses:                                
Patient expenses     63,216       4,266       85,716       18,475  
Salaries and benefits     967,627       33,589       1,035,265       416,441  
Share-based compensation     18,747       150,000       7,500       -  
Advertising and marketing     119,867       25,000       178,511       39,103  
General and administrative     465,740       21,192       976,831       131,441  
Depreciation     65,895       -       120,504       15,320  
Total operating expenses     1,701,092       234,047       2,404,327       620,780  
                                 
Operating loss     (915,067 )     (219,047 )     (1,501,771 )     (499,493 )
                                 
Other income (expense):                                
Interest income     14,821       4       5,429       3,948  
Other income     -       -       18,356       -  
Loss on disposal of assets     (2,744 )     -       -       -  
Interest expense     (27,151 )     -       (56,280 )     (14,240 )
Total other income (expenses)     (15,074 )     4       (32,495 )     (10,292 )
                                 
Loss before equity in earnings (loss) of non-consolidated affiliate     (930,141 )     (219,043 )     (1,534,266 )     (509,785 )
                                 
Equity in earnings (loss) of non-consolidated affiliate     13,609       (178,397 )     (105,550 )     (13,267 )
                                 
Net Loss     (916,532 )     (397,440 )     (1,639,816 )     (523,052 )
                                 
Net loss attributable to the non-controlling interest     859,351       16,643       503,200       565,655  
                                 
Net loss attributable to IMAC Holdings, Inc.   $ (57,181 )   $ (380,797 )   $ (1,136,616 )   $ 42,603  

 

See accompanying notes to the consolidated financial statements.

 

  F- 5  

 

 

IMAC Holdings, Inc.

Consolidated Statement of Stockholders’ Equity

For the Years Ended December 31, 2017 and 2016 and for the Six Month Period Ended June 30, 2018 (Unaudited)

 

 

    Number of
Shares
    Par     Additional
Paid-In-
Capital
    Non-
Controlling
Interest
    Accumulated
Deficit
    Total  
                                     
Balance, January 1, 2016     3,606,979     $ 3,607     $ (2,607 )   $ -     $ (53,099 )   $ (52,099 )
                                                 
Issuance of shares for cash     2,524,885       2,525       1,047,475       -       -       1,050,000  
Issuance of subsidiary shares for cash     -       -       -       300,000       -       300,000  
Issuance of shares for services     360,698       361       149,639       -       -       150,000  
                                                 
Net loss     6,492,563       -       -       (16,643 )     (380,797 )     (397,440 )
Balance, December 31, 2016     6,492,563       6,493       1,194,507       283,357       (433,896 )     1,050,461  
                                                 
Issuance of shares for services     90,174       90       37,410       -       -       37,500  
                                                 
Net loss     -       -       -       (859,351 )     (57,181 )     (916,532 )
Balance, December 31, 2017     6,582,737       6,583       1,231,917       (575,994 )     (491,077 )     171,429  
                                                 
Purchase of non-controlling interest     -       -       -       (319,142 )     -       (319,142 )
                                                 
Net loss     -       -       -       (503,200 )     (1,136,616 )     (1,639,816 )
Balance, June 30, 2018     6,582,737     $ 6,583     $ 1,231,917     $ (1,398,336 )   $ (1,627,693 )   $ (1,787,529 )

 

See accompanying notes to the consolidated financial statements.

 

  F- 6  

 

 

IMAC Holdings, Inc.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2017 and 2016 and the Six Months Ended June 30, 2018 (Unaudited)

 

 

                June 30,     June 30,  
    2017     2016     2018     2017  
                (Unaudited)     (Unaudited)  
                         
Cash flows from operating activities:                                
Net loss   $ (916,532 )   $ (397,440 )   $ (1,639,816 )   $ (523,052 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                                
Depreciation and amortization     65,895       -       120,504       15,320  
Deferred rent     64,753       -       139,702       53,956  
Equity in (earnings) loss of non-consolidated affiliate     13,609       (178,397 )     (105,550 )     (13,267 )
(Increase) decrease in operating assets:                                
Accounts receivable, net     208,416       (305,000 )     (387,160 )     265,776  
Due from related parties     -       -       252,147       -  
Other assets     (90,296 )     (2,743 )     (383,903 )     (57,382 )
Security deposits     (27,828 )     -       (460,334 )     (21,000 )
Increase (decrease) in operating liabilities:                                
Accounts payable and accrued expenses     53,673       2,991       588,034       (6,516 )
Patient deposits     130,906       -       462,878       35,415  
Due to shareholders     -       -       109,829       -  
Lease incentive obligation     60,428       -       573,289       -  
Net cash (used in) provided by operating activities     (436,976 )     (880,589 )     (730,380 )     (250,750 )
                                 
Cash flows from investing activities:                                
Purchase of property and equipment     (546,470 )     -       (2,406,323 )     (324,702 )
Investment in and loan to IMAC St. Louis, LLC     73,955       (421,603 )     -       32,701  
Net cash (used in) provided by investing activities     (472,515 )     (421,603 )     (2,406,323 )     (292,001 )
                                 
Cash flows from financing activities:                                
Proceeds from notes payable     200,000       500,000       2,803,320       -  
Payments on notes payable     (85,916 )     -       (100,933 )     (45,726 )
Proceeds from line of credit     25,000       -       365,000       -  
Proceeds from capital lease obligation     -       -       52,436       -  
Payments on capital lease obligation     (1,901 )     -       (3,865 )     -  
Payment to non-controlling interest     (13,609 )     -       -       -  
Proceeds from non-controlling interest     -       178,397       105,550       -  
Issuance of member units for cash     -       1,350,000       -       -  
Contributions from members     37,500       150,000       -       -  
Net cash provided by (used in) financing activities     161,074       2,178,397       3,221,508       (45,726 )
                                 
Net (decrease) increase in cash     (748,417 )     876,205       84,805       (588,477 )
                                 
Cash, beginning of year     876,205       -       127,788       876,205  
                                 
Cash, end of year   $ 127,788     $ 876,205     $ 212,593     $ 287,728  
                                 
Supplemental cash flow information:                                
Interest paid   $ 27,151     $ -     $ 56,280     $ 14,240  
                                 
Non Cash Financing and Investing:                                
Tangible and intangible assets acquired through acquisition liabilities   $ -     $ -     $ 6,389,208     $ -  

 

See accompanying notes to condensed consolidated financial statements

 

  F- 7  

 

 

IMAC Holdings, Inc.

Notes to the Consolidated Financial Statements

 

Note 1 – Description of Business

 

Effective June 1, 2018, the Company converted from IMAC Holdings, LLC a Kentucky Limited Liability Company to IMAC Holdings, Inc. a Delaware Corporation. This accounting change has been given retrospective treatment in the consolidated financial statements.

 

IMAC Holdings, Inc. and its Affiliates (the “Company”) provide orthopedic therapies through its chain of IMAC Regeneration Centers. Through its consolidated and equity owned entities, its outpatient medical clinics provide conservative, non-invasive medical treatments to help patients with back pain, knee pain, joint pain, ligament and tendon damage, and other related soft tissue conditions. The Company has opened two (2) medical clinics located in Tennessee at December 31, 2017, and plans to expand in the Midwest and Southern United states. The Company has partnered with several well-known sports celebrities such as David Price in opening its medical clinics, with a focus around treating sports injuries.

 

Note 2 – Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of IMAC Holdings, Inc. (“IMAC Holdings”) and the following entities which are consolidated due to direct ownership of a controlling voting interest or other rights granted to us as the sole general partner or managing member of the entity: IMAC Management Services, LLC (“IMAC Management”), and IMAC Regeneration Management of Nashville, LLC (“IMAC Nashville”); the following entity which is consolidated with IMAC Regeneration Management of Nashville, LLC due to control by contract: IMAC Regeneration Center of Nashville, PC (“IMAC Nashville PC”); and the following which prior to June 1, 2018 was held as a minority interest, IMAC Regeneration Center of St. Louis, LLC (“IMAC St. Louis”).

 

In June 2018, the Company consummated certain transactions resulting in the acquisition of the outstanding equity interests in IMAC of St. Louis and Clinic Management Associates of KY, LLC, an entity which consolidates Integrated Medical and Chiropractic Regeneration Center, PSC due to control by contract. These entities are included in the consolidated financial statements from the date of acquisition.

 

All significant intercompany balances and transactions have been eliminated in consolidation.

 

  F- 8  

 

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses at the date and for the periods that the consolidated financial statements are prepared. On an ongoing basis, the Company evaluates its estimates, including those related to insurance adjustments and provisions for doubtful accounts. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could materially differ from those estimates.

 

Revenue Recognition

 

The Company’s patient service revenue is derived from non-surgical procedures performed at our outpatient medical clinics and patient visits to physicians. The fees for such services are billed either to the patient or a third- party payer, including Medicare. We recognize patient service revenue, net of contractual allowances, which we estimate based on the historical trend of our cash collections and contractual write-offs.

 

Other management service fees are derived from management services where the Company provides billings and collections support to the clinics and where management services are provided based on state specific regulations known as the corporate practice of medicine (“CPM”). Under the CPM, a business corporation is precluded from practicing medicine or employing a physician to provide professional medical services. In these circumstances, the Company provides all administrative support to the physician-owned PC through an LLC. The PC is consolidated due to control by contract (an “SMA” - Service Management Agreement). The fees we derive from these management arrangements are either based on a predetermined percentage of the revenue of each clinic or a percentage mark up on the costs of the LLC. We recognize other management service revenue in the period in which services are rendered. These revenues are earned by IMAC Management Services, LLC and are eliminated in consolidation to the extent owned.

 

Patient Deposits

 

Patient deposits are derived from patient payments in advance of services delivered. Our service lines include traditional and regenerative medicine. Regenerative medicine procedures are not paid by insurance carriers; therefore, the Company typically requires up-front payment from the patient for regenerative services and any co-pays and deductibles as required by the patient specific insurance carrier. For some patients, credit is provided through an outside vendor. In this case, the Company is paid from the credit card company and the risk is transferred to the credit card company for collection from the patient. These funds are accounted for as patient deposits until the procedures are performed at which point the patient deposit is recognized as patient service revenue.

 

Fair Value of Financial Instruments

 

The carrying amount of accounts receivable approximate their respective fair values due to the short- term nature. The carrying amount of the line of credit and note payable approximates fair values due to their market interest rates. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.

 

Cash and Cash Equivalents

 

The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents for the periods presented.

 

  F- 9  

 

 

Accounts Receivable

 

Accounts receivable primarily consists of amounts due from third-party payers (non-governmental), governmental payers and private pay patients and is recorded net of allowances for doubtful accounts and contractual discounts. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Accordingly, accounts receivable reported in the Company’s consolidated financial statements is recorded at the net amount expected to be received. The Company’s primary collection risks are (i) the risk of overestimation of net revenues at the time of billing that may result in the Company receiving less than the recorded receivable, (ii) the risk of non-payment as a result of commercial insurance companies’ denial of claims, (iii) the risk that patients will fail to remit insurance payments to the Company when the commercial insurance company pays out-of-network claims directly to the patient, (iv) resource and capacity constraints that may prevent the Company from handling the volume of billing and collection issues in a timely manner, (v) the risk that patients do not pay the Company for their self-pay balances (including co-pays, deductibles and any portion of the claim not covered by insurance) and (vi) the risk of non-payment from uninsured patients.

 

The Company’s accounts receivable from third-party payers are recorded net of estimated contractual adjustments and allowances from third-party payers, which are estimated based on the historical trend of the Company’s facilities’ cash collections and contractual write- offs, accounts receivable aging, established fee schedules, relationships with payers and procedure statistics. While changes in estimated reimbursement from third-party payers remain a possibility, the Company expects that any such changes would be minimal and, therefore, would not have a material effect on the Company’s financial condition or results of operations. The Company’s collection policies and procedures are based on the type of payer, size of claim and estimated collection percentage for each patient account. The operating systems used to manage the Company’s patient accounts provide for an aging schedule in 30-day increments, by payer, physician and patient. The Company analyzes accounts receivable at each of the facilities to ensure the proper collection and aged category. The operating systems generate reports that assist in the collection efforts by prioritizing patient accounts. Collection efforts include direct contact with insurance carriers or patients and written correspondence.

 

Allowance for Doubtful Accounts, Contractual and Other Discounts

 

Management estimates the allowance for contractual and other discounts based on its historical collection experience and contracted relationship with the payers. The services authorized and provided and related reimbursement are often subject to interpretation and negotiation that could result in payments that differ from the Company’s estimates. The Company’s allowance for doubtful accounts is based on historical experience, but management also takes into consideration the age of accounts, creditworthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. An account may be written-off only after the Company has pursued collection efforts or otherwise determines an account to be uncollectible. Uncollectible balances are written-off against the allowance. Recoveries of previously written-off balances are credited to income when the recoveries are made.

 

Property and Equipment

 

Property and equipment are stated at cost, less accumulated depreciation. Additions and improvements to property and equipment are capitalized at cost. Depreciation of owned assets and amortization of leasehold improvements are computed using the straight-line method over the shorter of the estimated useful lives of the related assets or the lease term. The cost of assets sold or retired, and the related accumulated depreciation are removed from the accounts and any resulting gains or losses are reflected in other income (expense) for the year. Expenditures for maintenance and repairs are charged to expense as incurred.

 

Intangible Assets

 

The Company capitalizes the fair value of intangible assets acquired in business combinations. The Company performs valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and allocates the purchase price of each acquired business to its respective net tangible and intangible assets. Acquired intangible assets include trade names, non-compete agreements, customer relationships and contractual agreements.

 

Long-Lived Assets

 

Long-lived assets such as property and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. There were no impairments of long lived assets for the periods presented.

 

  F- 10  

 

 

Advertising and Marketing

 

The Company uses advertising and marketing to promote its services. Advertising and marketing costs are expensed as incurred. Advertising and marketing expense was $119,867, $25,000 and $203,511 (unaudited) and $39,103 (unaudited) for the years ended December 31, 2017 and 2016 and the six months ended June 30, 2018 and 2017, respectively.

 

Income Taxes

 

IMAC Management, IMAC Texas, and IMAC Nashville are limited liability companies and are taxed as partnerships. IMAC Holdings, Inc. was taxed as a partnership through May 31, 2018. As a result, income tax liabilities are passed through to the individual members. Accordingly, no provision for income taxes is reflected in the consolidated financial statements.

 

The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. Interest and penalties related to income tax matters, if any, would be recognized as a component of income tax expense. At December 31, 2017, 2016 and June 30, 2018, the Company had no liabilities for uncertain tax positions. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. Currently, the tax years subsequent to 2016 are open and subject to examination by the taxing authorities.

 

Legal Proceedings and Loss Contingencies

 

The Company is subject to various legal proceedings, many involving routine litigation incidental to business. The outcome of any legal proceeding is not within the Company’s complete control, it is often difficult to predict and is resolved over very long periods of time. Estimating probable losses associated with any legal proceedings or other loss contingencies are very complex and require the analysis of many factors including assumptions about potential actions by third parties. Loss contingencies are disclosed when there is at least a reasonable possibility that a loss has been incurred and are recorded as liabilities in the consolidated financial statements when it is both (1) probable or known that a liability has been incurred and (2) the amount of the loss is reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. If a loss contingency is not probable or cannot be reasonably estimated, a liability is not recorded in the financial statements.

 

There are no known legal proceedings ongoing or loss contingencies for the years ended December 31, 2017, 2016 and the six months ended June 30, 2018.

 

Recent Accounting Pronouncements

 

The Company adopted ASC Topic 606 Revenue from Contracts with Customers . The provisions of ASC Topic 606 did not have a material impact on the Company’s financial position or results of operations.

 

The Company plans to adopt the new lease accounting standard, ASC Topic 842, on January 1, 2019. Management believes the provisions of ASC Topic 842 will result in the recognition of right-of-use assets and related liabilities on its consolidated financial statements when adopted.

 

Note 3 – Concentration of Credit Risks

 

Cash

 

The Company places its cash with high credit quality financial institutions. Cash and cash equivalents in excess of the Federal Deposit Insurance Corporation (“FDIC”) coverage of $250,000 per financial institution was $0, $619,517, and $0 for the years ended December 31 2017, December 31, 2016 and the six month period ended June 30, 2018. The Company maintains its cash in accounts at financial institutions, which may, at times, exceed federally-insured limits. The Company has not experienced any losses on such accounts and does not feel it is exposed to any significant risk with respect to cash.

 

  F- 11  

 

 

Revenue and Accounts Receivable

 

The Company had the following revenue and accounts receivable concentrations:

 

    December 31     June 30  
    2017     2016     2018 (unaudited)     2017 (unaudited)  
    % of
Revenue
    % of
Accounts
Receivable
    % of
Revenue
    % of
Accounts
Receivable
    % of
Revenue
    % of
Accounts
Receivable
    % of
Revenue
    % of
Accounts
Receivable
 
                                                 
Patient payment     56 %     56 %     0 %     0 %     62 %     62 %     69 %     69 %
Medicare payment     12 %     12 %     0 %     0 %     16 %     16 %     12 %     12 %
Insurance payment     32 %     32 %     0 %     0 %     22 %     22 %     19 %     19 %

 

Note 4 – Accounts Receivable

 

Accounts receivable consisted of the following at December 31:

 

    December 31     June 30  
    2017     2016     2018  
                (unaudited)  
                   
Gross accounts receivable   $ 295,704     $      -     $ 1,314,201  
Less: allowance for doubtful accounts and contractual adjustments     (156,723 )     -       (788,060 )
Accounts receivable, net   $ 138,981     $ -     $ 526,141  

 

Note 5 – Business Acquisitions

 

During June 2018, the Company acquired two companies for an aggregate consideration of approximately $6.1 million, to be paid in cash and equity. The operating results of these two companies have been included in the Company’s consolidated financial statements from their dates of acquisition. The Company accounted for the transactions as business combinations, and has allocated the purchase consideration to the net assets acquired based on estimated fair values.

 

In addition, during June 2018, the Company acquired the non-controlling interest held in a majority-owned subsidiary for $300,000.

 

  F- 12  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

 

On June 29, 2018 our subsidiary, IMAC Management Services LLC, completed a merger with Clinic Management Associates of KY LLC (“CMA of KY”). CMA of KY merged with and into IMAC Management Services LLC. CMA of KY ceased corporate existence and IMAC Management Services LLC continues as the surviving corporation. Through this merger, IMAC Management Services, LLC has a long-term Management Services Agreement to provide exclusive comprehensive management and related administrative services to Integrated Medicine and Chiropractic Regeneration Center PSC, an entity engaged in the practice of medicine through physicians and nurse practitioners. The Company has committed to pay approximately $4.6 million in cash and or stock to the previous owners of CMA of KY. Under the Management Services Agreement, the Company will receive service fees based on the cost of the services we provide, plus a specified markup percentage, and a discretionary annual bonus.

 

The Company has included the consolidated financial results of Integrated Medicine and Chiropractic Regeneration Center, PSC in the consolidated financial statements from the date of acquisition. The transaction costs associated with the acquisition were not material.

 

The following table summarizes the fair value of consideration paid and the preliminary allocation of purchase price to the fair value of tangible and intangible assets acquired and liabilities assumed:

 

    Fair Value  
       
Intangible assets   $ 4,224,113  
Property and equipment     607,257  
Deposit     5,521  
Line of credit     (119,902 )
Notes payable     (118,413 )
         
Net Assets Acquired   $ 4,598,576  

 

The identifiable intangible assets acquired represents the Management Service Agreement, which entitles the Company with the right to control all non-medical development, management and administrative services associated with the operations and economics of the Integrated Medicine and Chiropractic Regeneration Center PSC.

 

IMAC of St. Louis, LLC

 

On June 1, 2018 the Company acquired the remaining 64% membership interest in IMAC of St. Louis, LLC not already owned by us, increasing the Company’s ownership to 100%. IMAC of St. Louis, LLC operates two (2) Ozzie Smith Centers in Missouri. Pursuant to the terms of a Unit Purchase Agreement, the Company agreed to pay the current owners, upon the closing of our IPO offering, an amount equal to 1.05 times the total collections from payments at the Centers on account of regeneration-related services and associated products from the period from June 1, 2017 to May 31, 2018, which is estimated to be approximately $1,490,632. The purchase consideration will be payable $1,000,000 in cash and $490,632 in the form of shares of our common stock based on the price per share in the IPO offering.

 

The Company has included the financial results of IMAC of St. Louis LLC in the consolidated financial statements from June 1, 2018, the date of acquisition.

 

  F- 13  

 

 

The following table summarizes the fair value of consideration paid and the preliminary allocation of purchase price to the fair value of intangible assets acquired:

 

    Fair Value     Useful Life
           
Non-Compete   $ 1,591,507     3 years
             
Total intangible assets subject to amortization   $ 1,591,507      

 

IMAC Regeneration Management of Nashville, LLC

 

Also, on June 1, 2018 the Company acquired the remaining 25% of the outstanding units of the limited liability company membership interests not already owned by the Company in IMAC Regeneration Management of Nashville, LLC for $300,000 and will be payable $110,000 in cash and $190,000 in the form of shares of our common stock based on the price per share in the IPO offering.

 

The purchase price consideration in excess of the non-controlling interest acquired was recorded in earnings.

 

Pro Forma Results of Operations (Unaudited)

 

The consolidated pro forma information presented below gives effect to the June 29, 2018 acquisition of Clinic Management Associates of KY, LLC and the June 1, 2018 acquisition of IMAC of St. Louis, LLC and the June 1, 2018 acquisition of the non-controlling interest in IMAC Regeneration Management of Nashville, LLC as if the transactions had occurred on January 1, 2016.

 

    Year Ended     Year Ended     Six Months Ended  
    December 31, 2016     December 31, 2017     June 30, 2018  
Net Revenue   $ 4,225,537     $ 8,324,685     $ 3,962,434  
                         
Operating loss     (1,893,526 )     (1,399,566 )     (2,386,251 )
                         
Net loss   $ (2,090,371 )   $ (2,062,652 )   $ (2,438,263 )

 

Note 6 – Property and Equipment

 

Property and equipment consisted of the following at December 31:

 

    Estimated
Useful Life in
    December 31     June 30  
    Years     2017     2016     2018  
                      (unaudited)  
                         
Land and Building     40     $ -     $      -     $ 1,175,000  
Leasehold improvements     Shorter of asset or lease term       254,515       -       1,186,730  
Medical equipment     5       242,899       -       606,896  
Construction in Progress             -       -       355,463  
Physical therapy equipment     5       90,337       -       170,173  
Office furniture and fixtures     5       2,431       -       34,887  
Computers     3       9,539       -       17,869  
Office equipment     5       -       -       16,336  
Signs     5       -       -       13,412  
Chiropractic equipment     5       8,965       -       8,965  
Vehicles     3       -       -       2,250  
Total property and equipment             608,686       -       3,587,981  
Less: accumulated depreciation             (65,895 )     -       (142,191 )
Total property and equipment, net           $ 542,791     $ -     $ 3,445,790  

 

  F- 14  

 

 

In March 2018, the Company purchased real estate in Lexington Kentucky for the development of an IMAC facility for approximately $1.2 million. The Company funded the purchase with a short term loan which will be replaced with a 15-year mortgage commitment.

 

Depreciation was $65,895 and $0 for the years ended December 31, 2017 and 2016 and $126,035 (unaudited) and $15,320 (unaudited) for the six months ended June 30, 2018 and 2017.

 

Note 7 – Intangibles Assets

 

Intangible assets that were acquired in connection with the acquisition transactions (Note5) during 2018:

 

    June 30, 2018  
    (Unaudited)  
                   
              Accumulated          
      Cost       Amortization       Net  
                         
Intangible assets:                        
Management service agreement     4,224,113       -       4,224,113  
Non-compete agreement     1,591,507       (44,210 )     1,547,297  
Total intangible assets   $ 5,815,620     $ (44,210 )   $ 5,771,410  

 

Estimated future amortization of intangible assets is as follows:

 

Years Ending December 31,      
       
2018 (six months)   $ 328,285  
2019     656,569  
2020     656,569  
2021     355,706  
2022     140,804  
Thereafter     3,633,477  
    $ 5,771,410  

 

  F- 15  

 

 

Note 8 – Operating Leases

 

The Company has certain cancelable and non-cancelable operating leases for facilities used in the treatment of patients, which expire on various dates through 2027. Certain leases contain renewal options.

 

Rent expense for the operating leases was $191,758 and $0 during the years ended December 31, 2017 and 2016 and $166,997(unaudited) and $0 (unaudited) during the six months ended June 30, 2018 and 2017.

 

The required future minimum lease payments under the remaining non-cancelable operating leases consists of the following at June 30, 2018:

 

Years Ending December 31,   Amount  
       
2018 (six months)   $ 396,252  
2019     795,707  
2020     760,101  
2021     638,582  
2022     641,947  
Thereafter     1,651,213  
Total   $ 4,883,802  

 

Note 9 – Lines of Credit

 

IMAC St. Louis, LLC has a $150,000 line of credit with a financial institution that matures on

 

November 15, 2018. The line bears interest at 4.25% per annum. The line is secured by substantially all of the Company’s assets and personally guaranteed by the members. The LOC had a $150,000, $0 and $140,000 balance at December 31, 2017, 2016, and at June 30, 2018 (unaudited).

 

IMAC Regeneration Center of Nashville, P.C. has a $150,000 line of credit with a financial institution that matures on October 15, 2018. The line bears interest at 6.50% per annum. The line is secured by substantially all of the Company’s assets and personally guaranteed by the members. The LOC had a $25,000, $0, and $150,000 balance at December 31, 2017, 2016 and June 30, 2018 (unaudited).

 

Integrated Medicine and Chiropractic Regeneration Center PSC has a $150,000 line of credit with a financial institution that matures on August 1, 2018. The line bears interest at 4.25% per annum. The line is secured by substantially all of the Company’s assets and personally guaranteed by the members. The LOC had a $100,000, $140,000 and $100,000 balance at December 31, 2017, 2016, and at June 30, 2018 (unaudited).

 

  F- 16  

 

 

Note 10-Notes Payable

 

    December 31     June 30  
    2017     2016     2018  
                (unaudited)  
On June 1, 2018, the Company entered into a note payable to The Edward S. Bredniak Trust in the amount of up to $2,000,000. An existing note payable with this entity with an outstanding balance of $379,676 has been combined into the new note payable. The note carries an interest rate of 10% per annum and all outstanding balances are due and payable at the closing of this offering. The proceeds of this note are being used to satisfy ongoing working capital needs, expenses related to the preparation and execution of the offering, equipment and construction costs related to new clinic locations, and potential acquisition expenses.   $ 414,084     $ 500,000     $ 379,676  
                         
Note payable to a financial institution in the amount of $200,000 dated November 15, 2017. The note requires 66 consecutive monthly installments of $2,652 including principal and interest at 5%, with a balloon payment of $60,000 on June 15, 2018. The note matures on May 15, 2023, and is secured by the personal guarantees of the Company’s members.     200,000       -       138,209  
                         
In January 2018, the Company commenced a private placement of up to $2 million of convertible notes, of which approximately $1.73 million has been subscribed as of March 6, 2018. The convertible notes accrue interest at 4%, and mature in January 2019. The notes may be converted to equity at or prior to maturity at a 20% discount to the per share price of a sale of equity securities. At the time of issuance of the convertible notes, the Company was unable to calculate the amount of a beneficial conversion (“BCF”) and related discount to be recorded until the occurrence of a Qualified Financing by the Company. Once the Qualified Financing has occurred, the Company will recognize the BCF and related interest charge associated with the discount, and the BCF will be classified as a liability if it meets the conditions for derivative treatment at the time of recognition.     -       -       1,530,000  
                         
In March 2018, the Company entered into a $1.2 million loan agreement with a financial institution to purchase real estate in Lexington, Kentucky for the development of an IMAC facility. The loan agreement is for 6-months and carries an interest rate 3.35%.     -       -       1,232,500  
                         
Note payable to a financial institution in the amount of $131,400 dated August 1, 2016. The note requires 120 monthly installments of $1,394 including principal and interest at 5%. The note matures on July 1, 2026, and is secured by a letter of credit.     -       -       111,019  
                         
Note payable to a financial institution in the amount of $200,000 dated May 4, 2016. The note requires 60 monthly installments of $3,881 including principal and interest at 4.25%. The note matures on May 4, 2021, and is secured by the equipment and personal guarantees of the Company’s members.     -       -       127,538  
                         
Note payable to an employee in the amount of $101,906 dated March 8, 2017. The note requires 5 annual installments of $23,350 including principal and interest at 5%. The note matures on December 31 2021, and is unsecured.     -       -       80,000  
                         
Note payable to a financial institution in the amount of $133,555 dated September 17, 2014. The note requires 60 monthly installments of $2,475 including principal and interest at 4.25%. The note matures on September 17, 2019.     -       -       36,055  
      614,084       500,000       3,634,997  
Less: current portion:     (157,932 )     -       (2,936,986 )
    $ 456,152     $ 500,000     $ 698,011  

 

Principal maturities of notes payable are as follows at June 30, 2018:

 

Years Ending December 31,   Amount  
       
2018 (six months)   $ 2,886,675  
2019     451,112  
2020     104,435  
2021     80,986  
2022     43,935  
Thereafter     67,854  
Total   $ 3,634,997  

 

  F- 17  

 

 

Note 11 – Related Party Transactions

 

From time to time, the Company advances funds to, and receives funds from, entities with common ownership. At December 31, 2017, 2016 and June 30, 2018, the amounts owed to related parties was $95,501, $48,099 and $0, respectively.

 

The Company with SpeakLife to provide staff training and patient advocacy services for $99,000 per year. SpeakLife is owned by Mr. Brame.

 

The Company with UCI to provide marketing services to chiropractic practitioners and sources opportunities to expand chiropractic practices into regenerative medicine for $144,000 per year. UCI is owned by the spouse of Dr. Wallis.

 

Note 12 – Stockholders’ Equity

 

Prior to the Company’s conversion to a corporation, the Company had 400 member units authorized with 365 units issued and outstanding.

 

On June 1, 2018, the Company converted its 365 outstanding member units into 6,582,737 shares of common stock with a $0.001 par value. The conversion has been given retrospective treatment.

 

During 2016, the Company issued 2,524,885 shares of common stock for cash in the amount of $300,000, and 360,698 shares of common stock for services valued at $150,000.

 

During 2017, the Company issued 90,174 shares of common stock for services valued at $37,500.

 

The Company also has entered into certain agreements which may entitle or require the Company to settle its obligations through the issuance of common stock. See note 14.

 

Note 13 – Retirement Plan

 

The Company offers a 401(k) plan that covers eligible employees. The plan provides for voluntary salary deferrals for eligible employees. Additionally, the Company is required to make matching contributions of 50% of up to 6 % of total compensation for those employees making salary deferrals. The Company made contributions of $13,379 and $914 during 2017 and 2016, respectively. The Company made no contributions during the six month periods ended June 30, 2018 and 2017, respectively.

 

Note 14 – Commitments and Contingencies

 

In connection with the acquisition transactions (Note 5), the Company has committed to fund these transactions using a combination of cash and shares of common stock.

 

In addition, in connection with an agreement with a consultant to provide strategic advisory services, the Company has committed to pay a monthly fee, in addition to a contingent fee payable in shares of common stock upon the effectiveness of a registration statement.

 

The Company is subject to extensive regulation, including health insurance regulations directed at ascertaining the appropriateness of reimbursement, preventing fraud and abuse and otherwise regulating reimbursement. To ensure compliance, various insurance providers often conduct audits and request patient records and other documents to support claims submitted by the Company for payment of services rendered to customers. In the event that an audit results in discrepancies in the records provided, insurance providers may be entitled to extrapolate the results of the audit to make overpayment demands based on a wider population of claims than those examined in the audit.

 

From time to time, the Company is subject to threatened and asserted claims in the ordinary course of business. Because litigation and arbitration are subject to inherent uncertainties and the outcome of such matters cannot be predicted with certainty, future developments could cause any one or more of these matters to have a material impact on the Company’s future financial condition, results of operations or liquidity.

 

Note 15 – Subsequent Events

 

On July 31, 2018, the Company entered into an agreement to purchase all outstanding membership units of Advantage Hand Therapy and Orthopedic Rehabilitation, LLC. The purchase price for the interests was equal to the dollar amount represented by 0.7 times the total collections from payments for service in the Company account from June 1, 2017 to May 31, 2018. The purchase price is estimated to be approximately $892,000, of which $870,000 and $22,000 will be payable in equity and cash, respectively.

 

On August 20, 2018, the Company entered into an agreement to purchase 70% of all outstanding membership units of BioFirma, LLC. The purchase price for the interests was $1,000 paid in cash. BioFirma owns a trademark on NeoCyte, an umbilical cord-derived mononuclear cell product following FDA cGMP regulations. The Company has committed up to $1,000,000 of offering proceeds for further research and development of NeoCyte and other regenerative medicine products.

 

  F- 18  

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors

Integrated Medicine and Chiropractic Regeneration Center PSC

Paducah, Kentucky

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of Integrated Medicine and Chiropractic Regeneration Center PSC. (the “Company”) at December 31, 2017 and 2016, and the related consolidated statements of operations, consolidated statements of stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Daszkal Bolton LLP

 

We have served as the Company’s auditors since 2017.

 

Boca Raton, Florida

May 31, 2018

 

  F- 19  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

Consolidated Balance Sheets

December 31, 2017 and 2016

 

 

    2017     2016  
ASSETS                
Current assets:                
Cash   $ 15,994     $ 29,706  
Accounts receivable, net     324,261       229,849  
Employee and Member receivables     1,070       84,120  
Other assets     65,780       37,749  
Total current assets     407,105       381,424  
                 
Property and equipment, net     708,798       1,105,732  
                 
Other assets:                
Due from related parties     99,832       48,099  
Security deposits     5,520       5,520  
Total other assets     105,352       53,619  
                 
Total assets   $ 1,221,255     $ 1,540,775  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable and accrued expenses   $ 84,180     $ 54,574  
Patient deposits     161,929       165,161  
Notes payable – current portion     49,989       76,950  
Capital lease obligation, current portion     7,867       -  
Line of credit     100,000       140,000  
Total current liabilities     403,965       436,685  
                 
Long-term liabilities:                
Notes payable, net of current portion     80,000       575,095  
Capital lease obligation, net of current portion     46,448       -  
Deferred rent     44,960       33,000  
Lease incentive obligation     205,708       -  
                 
Total liabilities     781,080       1,044,780  
                 
Stockholders’ equity:                
Common stock, $1.00 par value, 1,000 shares issued and outstanding     1,000       1,000  
Retained earnings     439,175       494,995  
Total stockholders’ equity     440,175       495,995  
                 
Total liabilities and stockholders’ equity   $ 1,221,255     $ 1,540,775  

 

See accompanying notes to the consolidated financial statements.

 

  F- 20  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

Consolidated Statements of Operations

For the Years Ended December 31, 2017 and 2016

 

 

    2017     2016  
             
Patient Revenues   $ 13,258,419     $ 14,990,042  
Contractual Adjustments     (8,298,287 )     (11,678,158 )
Total Patient Revenue     4,960,132       3,311,884  
                 
Operating expenses:                
Patient expenses     648,479       581,008  
Salaries and benefits     2,334,770       1,999,455  
Advertising and marketing     142,642       126,419  
General and administrative     885,273       509,360  
Depreciation and Amortization     197,945       139,614  
Total operating expenses     4,209,109       3,355,856  
                 
Operating income (loss)     751,023       (43,972 )
                 
Other income (expense):                
Interest income     -       586  
Loss on disposal of assets     (569,617 )     -  
Interest expense     (37,229 )     (41,100 )
Total other income (expenses)     (606,846 )     (40,514 )
                 
Net income (loss)   $ 144,177     $ (84,486 )

 

See accompanying notes to the consolidated financial statements.

 

  F- 21  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

Consolidated Statements of Stockholders’ Equity

For the Years Ended December 31, 2017 and 2016

 

 

    Common Stock     Retained        
    Shares     Amount     Earnings     Total  
                         
Balance, December 31, 2015     1,000     $ 1,000     $ 719,484     $ 720,484  
                                 
Net loss     -       -       (84,486 )     (84,486 )
                                 
Distributions     -       -       (140,000 )     (140,000 )
                                 
Balance, December 31, 2016     1,000     $ 1,000     $ 494,998     $ 495,998  
                                 
Net Income     -       -       144,177       144,177  
                                 
Distributions     -       -       (200,000 )     (200,000 )
                                 
Balance, December 31, 2017     1,000     $ 1,000     $ 439,176     $ 440,176  

 

See accompanying notes to the consolidated financial statements.

 

  F- 22  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2017 and 2016

 

 

    2017     2016  
             
Cash flows from operating activities:                
Net Income (loss)   $ 144,177     $ (84,486 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:                
Depreciation and amortization     197,945       139,614  
Loss on disposal of assets     569,618       -  
Deferred rent     11,960       10,400  
(Increase) decrease in operating assets:                
Accounts receivable, net     (63,095 )     72,997  
Other assets     (28,031 )     (34,502 )
Security deposits     -       (5,521 )
Increase (decrease) in operating liabilities:                
Accounts payable and accrued expenses     29,608       9,664  
Patient deposits     (3,232 )     104,110  
Lease incentive obligation     205,708       -  
Net cash provided by operating activities     1,064,658       212,277  
                 
Cash flows from investing activities:                
Purchase of property and equipment     (656,507 )     (22,716 )
Proceeds of disposal of property and equipment     346,500       -  
Net cash used in investing activities     (310,007 )     (22,716 )
                 
Cash flows from financing activities:                
Proceeds from notes payable     100,000       -  
Payments on notes payable     (622,057 )     (84,329 )
Proceeds from line of credit     140,000       247,095  
Payments on line of credit     (180,000 )     (227,919 )
Payments on capital lease obligation     (6,306 )     -  
Distributions to stockholders     (200,000 )     (140,000 )
Net cash used in financing activities     (768,363 )     (205,153 )
                 
Net decrease in cash     (13,713 )     (15,592 )
                 
Cash, beginning of year     29,707       45,299  
                 
Cash, end of year   $ 15,994     $ 29,707  

 

See accompanying notes to the consolidated financial statements.

 

  F- 23  

 

 

Note 1 – Description of Business

 

Integrated Medicine and Chiropractic Regeneration Center, PCS (“IMAC Kentucky” or the “Company”) provides orthopedic therapies. Its outpatient medical clinics provide conservative, non-invasive medical treatments to help patients with back pain, knee pain, joint pain, ligament and tendon damage, and other related soft tissue conditions.

 

Note 2 – Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of IMAC Kentucky and the accounts of OLM, a real-estate variable interest entity which IMAC Kentucky is its primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses at the date and for the periods that the consolidated financial statements are prepared. On an ongoing basis, the Company evaluates its estimates, including those related to insurance adjustments and provisions for doubtful accounts. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could materially differ from those estimates.

 

Revenue Recognition

 

The Company’s patient service revenue is derived from non-surgical procedures performed at our outpatient medical clinics and patient visits to physicians. The fees for such services are billed either to the patient or a third- party payer, including Medicare. We recognize patient service revenue, net of contractual allowances, which we estimate based on the historical trend of our cash collections and contractual write-offs.

 

Patient Deposits

 

Patient deposits are derived from patient payments in advance of services delivered. Our service lines include traditional and regenerative medicine. Regenerative medicine procedures are not paid by insurance carriers; therefore, the Company typically requires up-front payment from the patient for regenerative services and any co-pays and deductibles as required by the patient specific insurance carrier. For some patients, credit is provided through an outside vendor. In this case, the Company is paid from the credit card company and the risk is transferred to the credit card company for collection from the patient. These funds are accounted for as patient deposits until the procedures are performed at which point the patient deposit is recognized as patient service revenue.

 

  F- 24  

 

 

Fair Value of Financial Instruments

 

The carrying amount of accounts receivable approximate their respective fair values due to the short- term nature. The carrying amount of the line of credit and note payable approximates fair values due to their market interest rates. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.

 

Cash and Cash Equivalents

 

The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. At December 31, 2017 and 2016, the Company had no cash equivalents.

 

Accounts Receivable

 

Accounts receivable primarily consists of amounts due from third-party payers (non-governmental), governmental payers and private pay patients and is recorded net of allowances for doubtful accounts and contractual discounts. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Accordingly, accounts receivable reported in the Company’s consolidated financial statements is recorded at the net amount expected to be received. The Company’s primary collection risks are (i) the risk of overestimation of net revenues at the time of billing that may result in the Company receiving less than the recorded receivable, (ii) the risk of non-payment as a result of commercial insurance companies’ denial of claims, (iii) the risk that patients will fail to remit insurance payments to the Company when the commercial insurance company pays out-of-network claims directly to the patient, (iv) resource and capacity constraints that may prevent the Company from handling the volume of billing and collection issues in a timely manner, (v) the risk that patients do not pay the Company for their self-pay balances (including co-pays, deductibles and any portion of the claim not covered by insurance) and (vi) the risk of non-payment from uninsured patients.

 

The Company’s accounts receivables from third-party payers are recorded net of estimated contractual adjustments and allowances from third-party payers, which are estimated based on the historical trend of the Company’s facilities’ cash collections and contractual write-offs, accounts receivable aging, established fee schedules, relationships with payers and procedure statistics. While changes in estimated reimbursement from third-party payers remain a possibility, the Company expects that any such changes would be minimal and, therefore, would not have a material effect on the Company’s financial condition or results of operations. The Company’s collection policies and procedures are based on the type of payer, size of claim and estimated collection percentage for each patient account. The operating systems used to manage the Company’s patient accounts provide for an aging schedule in 30-day increments, by payer, physician and patient. The Company analyzes accounts receivable at each of the facilities to ensure the proper collection and aged category. The operating systems generate reports that assist in the collection efforts by prioritizing patient accounts. Collection efforts include direct contact with insurance carriers or patients and written correspondence.

 

Allowance for Doubtful Accounts, Contractual and Other Discounts

 

Management estimates the allowance for contractual and other discounts based on its historical collection experience and contracted relationship with the payers. The services authorized and provided and related reimbursement are often subject to interpretation and negotiation that could result in payments that differ from the Company’s estimates. The Company’s allowance for doubtful accounts is based on historical experience, but management also takes into consideration the age of accounts, creditworthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. An account may be written-off only after the Company has pursued collection efforts or otherwise determines an account to be uncollectible. Uncollectible balances are written-off against the allowance. Recoveries of previously written-off balances are credited to income when the recoveries are made.

 

  F- 25  

 

 

Property and Equipment

 

Property and equipment are stated at cost, less accumulated depreciation. Additions and improvements to property and equipment are capitalized at cost. Depreciation of owned assets and amortization of leasehold improvements are computed using the straight-line method over the shorter of the estimated useful lives of the related assets or the lease term. The cost of assets sold or retired, and the related accumulated depreciation are removed from the accounts and any resulting gains or losses are reflected in other income (expense) for the year. Expenditures for maintenance and repairs are charged to expense as incurred.

 

Long-Lived Assets

 

Long-lived assets such as property and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. There were no impairments of long lived assets in 2017 and 2016.

 

Advertising and Marketing

 

The Company uses advertising and marketing to promote its services. Advertising and marketing costs are expensed as incurred. Advertising and marketing expense was $142,642 and $126,419 for the years ended December 31, 2017 and 2016, respectively.

 

Income Taxes

 

The Company is a chapter S corporation and taxes are recognized and assessed at the shareholder level.

 

Legal Proceedings and Loss Contingencies

 

The Company is subject to various legal proceedings, many involving routine litigation incidental to business. The outcome of any legal proceeding is not within the Company’s complete control, it is often difficult to predict and is resolved over very long periods of time. Estimating probable losses associated with any legal proceedings or other loss contingencies are very complex and require the analysis of many factors including assumptions about potential actions by third parties. Loss contingencies are disclosed when there is at least a reasonable possibility that a loss has been incurred and are recorded as liabilities in the consolidated financial statements when it is both (1) probable or known that a liability has been incurred and (2) the amount of the loss is reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. If a loss contingency is not probable or cannot be reasonably estimated, a liability is not recorded in the financial statements.

 

There are no known legal proceedings ongoing or loss contingencies for the years ended December 31, 2017 and 2016.

 

Recent Accounting Pronouncements

 

The new revenue recognition accounting standard, ASC Topic 606 Revenue from Contracts with Customers , takes effect for public entities January 1, 2018, and January 1, 2019 for private entities. Management does not believe the provisions of ASC Topic 606 will have a material impact on the Company’s financial position or results of operations when adopted.

 

The new lease accounting standard, ASC Topic 842, takes effect for public entities January 1, 2019, and January 1, 2020 for private entities. Management believes the provisions of ASC Topic 842 will result in the recognition of lease assets and liabilities on its consolidated financial statements when adopted.

 

  F- 26  

 

 

Note 3 – Concentration of Credit Risks

 

Cash

 

The Company places its cash with high credit quality financial institutions. There were no balances in excess of the Federal Deposit Insurance Corporation (“FDIC”) coverage of $250,000 per financial institution for the years ended December 31, 2017 and 2016. The Company maintains its cash in accounts at financial institutions, which may, at times, exceed federally-insured limits. The Company has not experienced any losses on such accounts and does not feel it is exposed to any significant risk with respect to cash.

 

Revenue and Accounts Receivable

 

The Company had the following revenue and accounts receivable concentrations at December 31:

 

    2017     2016  
    % of Revenue     % of Accounts Receivable     % of Revenue     % of Accounts Receivable  
                         
Patient payment     47 %     47 %     27 %     27 %
Medicare payment     25 %     25 %     27 %     27 %
Insurance payment     28 %     28 %     46 %     46 %

 

Note 4 – Accounts Receivable

 

Accounts receivable consisted of the following at December 31:

 

    2017     2016  
             
Gross accounts receivable   $ 876,381     $ 1,044,768  
Less: allowance for doubtful accounts and contractual adjustments     552,120       814,919  
Accounts receivable, net   $ 324,261     $ 229,849  

 

Note 5 – Property and Equipment

 

    Estimated              
    Useful Life in Years     2017     2016  
                   
Land     -     $ -     $ 172,379  
Building     40       -       695,931  
Computers     3       23,015       23,015  
Machinery and equipment     5       792,988       667,780  
Office equipment     5       36,328       18,067  
Office furniture and fixtures     5       56,448       56,448  
Rehab equipment     5       196,427       103,089  
Vehicles     3       6,000       6,000  
Leasehold improvements     Shorter of asset or lease term       468,146       105,707  
Total property and equipment             1,579,352       1,848,416  
Less: accumulated depreciation             (870,555 )     (742,684 )
Total property and equipment, net           $ 708,797     $ 1,105,732  

 

Depreciation and amortization was $197,945 and $139,614 for the years ended December 31, 2017 and 2016, respectively.

 

  F- 27  

 

 

Note 6 – Operating Leases

 

The Company has certain cancelable and non-cancelable operating leases for facilities used in the treatment of patients, which expire on various dates through 2024. Certain leases contain renewal options.

 

Rent expense for the operating leases was $191,760 and $149,189 during the years ended December 31, 2017 and 2016, respectively.

 

Years Ending December 31,   Amount  
       
2018   $ 242,924  
2019     242,924  
2020     202,698  
2021     70,980  
2022     74,923  
Thereafter     88,331  
Total   $ 922,780  

 

Note 7 – Line of Credit

 

IMAC Western Kentucky, PC has a $150,000 line of credit with a financial institution that matures on August 1, 2018. The line bears interest at 4.25% per annum (The LOC has a $100,000 and $140,000 balance at December 31, 2017 and 2016, respectively). The line is secured by substantially all of the Company’s assets and personally guaranteed by the members.

 

Note 8 – Notes Payable

 

    2017     2016  
             
Note payable to an employee in the amount of $101,906 dated March 8, 2017. The note requires 5 annual installments of $23,350 including principal and interest at 5%. The note matures on December 31, 2021, and is unsecured.   $ 80,000     $ -  
                 
Note payable to a financial institution in the amount of $133,555 dated September 17, 2014. The note requires 60 monthly installments of $2,475 including principal and interest at 4.25%. The note matures on September 17, 2019.     49,989       76,950  
                 
Mortgage note payable to a financial institution in the amount of $963,050 dated December 11, 2013. The note required 120 monthly installments of principal and interest at 4.95%. The note was repaid in December 2017.     -       575,096  
      129,989       652,046  
Less: current portion     (49,989 )     (76,950 )
                 
Total notes payable, net   $ 80,000     $ 575,096  

 

  F- 28  

 

 

Note 9 – Related Party Transactions

 

IMAC Kentucky advanced monies to and leased real estate from OLM, a related company. OLM is a variable interest entity, formed by a founder and a spouse of one of the founders of the Company to purchase real estate for expansion of the Kentucky medical clinic. In 2017, OLM decided to not develop the real estate, which was sold. The Company sustained the loss related to the real estate sale. The financial statements of OLM have been included in the consolidated financial statements since IMAC of Kentucky was deemed the primary beneficiary of OLM.

 

The Company contracts with SpeakLife to provide staff training and patient advocacy services for $99,000 per year. SpeakLife is owned by one of the Company’s founders.

 

The Company contracts with UCI to provide marketing services to chiropractic practitioners and sources opportunities to expand chiropractic practices into regenerative medicine for $144,000 per year. UCI is owned by the spouse of one of the Company’s founders.

 

As of December 31, 2017, the Company has the following receivable amounts outstanding from entities. These entities are related to the Company by common ownership.

 

    Amount  
IMAC Holdings LLC   $ 52,968  
IMAC Regeneration Management of Nashville LLC     44,285  
IMAC Regeneration Center of St. Louis LLC     2,579  
    $ 99,832  

 

Note 10 – Retirement Plan

 

The Company offers a 401(k) plan that covers eligible employees. The plan provides for voluntary salary deferrals for eligible employees. Additionally, the Company is required to make matching contributions of 50% of up to 6 % of total compensation for those employees making salary deferrals. The Company made contributions of $13,597 and $11,575 during 2017 and 2016, respectively.

 

Note 11 – Commitments and Contingencies

 

The Company is subject to extensive regulation, including health insurance regulations directed at ascertaining the appropriateness of reimbursement, preventing fraud and abuse and otherwise regulating reimbursement. To ensure compliance, various insurance providers often conduct audits and request patient records and other documents to support claims submitted by the Company for payment of services rendered to customers. In the event that an audit results in discrepancies in the records provided, insurance providers may be entitled to extrapolate the results of the audit to make overpayment demands based on a wider population of claims than those examined in the audit.

 

From time to time, the Company is subject to threatened and asserted claims in the ordinary course of business. Because litigation and arbitration are subject to inherent uncertainties and the outcome of such matters cannot be predicted with certainty, future developments could cause any one or more of these matters to have a material impact on the Company’s future financial condition, results of operations or liquidity.

 

Note 13 – Subsequent Events

 

In March 2018, IMAC Holdings LLC, an entity related by common ownership, committed to enter into an exclusive Management Services Agreement (“MSA”) to provide comprehensive management and related administrative services.

 

  F- 29  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

Condensed Consolidated Balance Sheets

March 31, 2018 (unaudited) and December 31, 2017

 

 

    March 31, 2018     December 31, 2017  
    (unaudited)        
ASSETS                
Current assets:                
Cash   $ 65,876     $ 15,994  
Accounts receivable, net     465,568       324,261  
Employee and Member receivables     34,050       1,070  
Other assets     65,880       65,780  
Total current assets     631,374       407,105  
                 
Property and equipment, net     653,666       708,798  
                 
Other assets:                
Due from related parties     41,060       99,832  
Security deposits     5,521       5,521  
Total other assets     46,581       105,353  
                 
Total assets   $ 1,331,621     $ 1,221,256  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
Current liabilities:                
Accounts payable and accrued expenses   $ 144,572     $ 84,180  
Patient deposits     300,885       161,929  
Notes payable - current portion     48,412       49,989  
Capital lease obligation, current portion     8,306       7,867  
Line of credit     149,902       100,000  
Total current liabilities     652,077       403,965  
                 
Long-term liabilities:                
Notes payable, net of current portion     74,675       80,000  
Capital lease obligation, net of current portion     46,176       46,448  
Deferred rent     42,194       44,960  
Lease incentive obligation     193,495       205,708  
                 
Total liabilities     1,008,617       781,081  
                 
Stockholders’ equity:                
Common stock, $1.00 par value, 1,000 shares issued and outstanding     1,000       1,000  
Retained earnings     322,004       439,175  
Total stockholders’ equity     323,004       440,175  
                 
Total liabilities and stockholders’ equity   $ 1,331,621     $ 1,221,256  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

  F- 30  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

Condensed Consolidated Statements of Operations

For the Three Months Ended March 31, 2018 and 2017 (Unaudited)

 

 

    2018     2017  
    (unaudited)     (unaudited)  
             
Patient Revenues   $ 2,825,256     $ 2,930,075  
Contractual Adjustments     (1,845,047 )     (1,776,260 )
Total patient revenue     980,209       1,153,815  
                 
Operating expenses:                
Patient expenses     138,853       126,320  
Salaries and benefits     651,282       564,616  
Advertising and marketing     44,817       40,511  
General and administrative     203,376       208,985  
Depreciation and amortization     59,752       33,621  
Total operating expenses     1,098,080       974,053  
                 
Operating (loss) income     (117,871 )     179,762  
                 
Other income (expense):                
Gain on disposal of assets     -       74,120  
Interest income     4,096          
Interest expense     (3,395 )     (22,010 )
Total other income (expense)     701       52,110  
                 
Net (loss) income   $ (117,170 )   $ 231,872  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

  F- 31  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2018 and 2017 (Unaudited)

 

 

    2018     2017  
    (unaudited)     (unaudited)  
             
Cash flows from operating activities:                
Net (loss) income   $ (117,170 )   $ 231,873  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:                
Depreciation and amortization     59,752       33,620  
Deferred rent     (2,766 )     5,534  
(Increase) decrease in operating assets:                
Accounts receivable, net     (115,515 )     (180,229 )
Other assets     (100 )     (1,608 )
Increase (decrease) in operating liabilities:                
Accounts payable and accrued expenses     60,391       75,237  
Patient deposits     138,956       126,628  
Lease incentive obligation     (12,213 )     (2,331 )
Net cash provided by (used in) operating activities     11,335       288,724  
                 
Cash flows from investing activities:                
Purchase of property and equipment     (4,453 )     (279,322 )
Net cash used in investing activities     (4,453 )     (279,322 )
                 
Cash flows from financing activities:                
Proceeds from notes payable     -       100,000  
Payments on notes payable     (6,902 )     (6,632 )
Proceeds from line of credit     50,000       -  
Payments on line of credit     (98 )     (61,046 )
Distributions to members     -       (20,000 )
Net cash provided by financing activities     43,000       12,322  
                 
Net (decrease) increase in cash     49,882       21,724  
                 
Cash, beginning of quarter     15,994       29,706  
                 
Cash, end of quarter   $ 65,876     $ 51,430  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

  F- 32  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

Note 1 – Description of Business

 

Integrated Medicine and Chiropractic Regeneration Center PSC (“IMAC Kentucky” or the “Company”) provides orthopedic therapies. Its outpatient medical clinics provide conservative, minimally invasive medical treatments to help patients with back pain, knee pain, joint pain, ligament and tendon damage, and other related soft tissue conditions.

 

Note 2 – Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of IMAC Kentucky and the accounts of OLM, a real-estate variable interest entity which IMAC Kentucky is its primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses at the date and for the periods that the consolidated financial statements are prepared. On an ongoing basis, the Company evaluates its estimates, including those related to insurance adjustments and provisions for doubtful accounts. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could materially differ from those estimates.

 

Basis of Presentation

 

The condensed consolidated financial statements have been prepared by the Company, without audit. In the opinion of the Company’s management, the financial statements reflect all adjustments (consisting of normal recurring adjustments, reclassifications and non-recurring adjustments) necessary to present fairly the financial position and results of operations and cash flows for the period presented herein, but are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2018.

 

Revenue Recognition

 

The Company’s patient service revenue is derived from minimally invasive procedures performed at our outpatient medical clinics and patient visits to physicians. The fees for such services are billed either to the patient or a third- party payer, including Medicare. The Company recognizes patient service revenue, net of contractual allowances, which are estimated based on the historical trend of cash collections and contractual write-offs.

 

  F- 33  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Revenue Recognition, continued

 

Patient Deposits

 

Patient deposits are derived from patient payments in advance of services delivered. The Company’s service lines include traditional and regenerative medicine. Regenerative medicine procedures are not paid by insurance carriers; therefore, the Company typically requires up-front payment from the patient for regenerative services and any co-pays and deductibles as required by the patient specific insurance carrier. For some patients, credit is provided through an outside vendor. In this case, the Company is paid from the credit card company and the risk is transferred to the credit card company for collection from the patient. These funds are accounted for as patient deposits until the procedures are performed at which point the patient deposit is recognized as patient service revenue.

 

Fair Value of Financial Instruments

 

The carrying amount of accounts receivable approximate their respective fair values due to the short- term nature. The carrying amount of the line of credit and note payable approximates fair values due to their market interest rates. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.

 

Cash and Cash Equivalents

 

The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. At March 31, 2018 and December 31, 2017, the Company had no cash equivalents.

 

Accounts Receivable

 

Accounts receivable primarily consists of amounts due from third-party payers (non-governmental), governmental payers and private pay patients and is recorded net of allowances for doubtful accounts and contractual discounts. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Accordingly, accounts receivable reported in the Company’s consolidated financial statements is recorded at the net amount expected to be received. The Company’s primary collection risks are (i) the risk of overestimation of net revenues at the time of billing that may result in the Company receiving less than the recorded receivable, (ii) the risk of non-payment as a result of commercial insurance companies’ denial of claims, (iii) the risk that patients will fail to remit insurance payments to the Company when the commercial insurance company pays out-of-network claims directly to the patient, (iv) resource and capacity, constraints that may prevent the Company from handling the volume of billing and collection issues in a timely manner, (v) the risk that patients do not pay the Company for their self-pay balances (including co-pays, deductibles and any portion of the claim not covered by insurance) and (vi) the risk of non-payment from uninsured patients.

 

The Company’s accounts receivables from third-party payers are recorded net of estimated contractual adjustments and allowances from third-party payers, which are estimated based on the historical trend of the Company’s facilities’ cash collections and contractual write-offs, accounts receivable aging, established fee schedules, relationships with payers and procedure statistics. While changes in estimated reimbursement from third-party payers remain a possibility, the Company expects that any such changes would be minimal and, therefore, would not have a material effect on the Company’s financial condition or results of operations. The Company’s collection policies and procedures are based on the type of payer, size of claim and estimated collection percentage for each patient account. The operating systems used to manage the Company’s patient accounts provide for an aging schedule in 30-day increments, by payer, physician and patient. The Company analyzes accounts receivable at each of the facilities to ensure the proper collection and aged category. The operating systems generate reports that assist in the collection efforts by prioritizing patient accounts. Collection efforts include direct contact with insurance carriers or patients and written correspondence.

 

  F- 34  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Allowance for Doubtful Accounts, Contractual and Other Discounts

 

Management estimates the allowance for contractual and other discounts based on its historical collection experience and contracted relationship with the payers. The services authorized and provided and related reimbursement are often subject to interpretation and negotiation that could result in payments that differ from the Company’s estimates. The Company’s allowance for doubtful accounts is based on historical experience, but management also takes into consideration the age of accounts, creditworthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. An account may be written-off only after the Company has pursued collection efforts or otherwise determines an account to be uncollectible. Uncollectible balances are written-off against the allowance. Recoveries of previously written-off balances are credited to income when the recoveries are made.

 

Property and Equipment

 

Property and equipment are stated at cost, less accumulated depreciation. Additions and improvements to property and equipment are capitalized at cost. Depreciation of owned assets and amortization of leasehold improvements are computed using the straight-line method over the shorter of the estimated useful lives of the related assets or the lease term. The cost of assets sold or retired, and the related accumulated depreciation are removed from the accounts and any resulting gains or losses are reflected in other income (expense) for the year. Expenditures for maintenance and repairs are charged to expense as incurred.

 

  F- 35  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Long-Lived Assets

 

Long-lived assets such as property and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. There were no impairments of long lived assets for the three months ended March 31, 2018 and 2017, respectively.

 

Advertising and Marketing

 

The Company uses advertising and marketing to promote its services. Advertising and marketing costs are expensed as incurred. Advertising and marketing expense was $44,817 (unaudited) and $40,511 (unaudited) for the three months ended March 31, 2018 and 2017, respectively.

 

Income Taxes

 

The Company is a chapter S corporation and taxes are recognized and assessed at the shareholder level.

 

Legal Proceedings and Loss Contingencies

 

The Company is subject to various legal proceedings, many involving routine litigation incidental to business. The outcome of any legal proceeding is not within the Company’s complete control, it is often difficult to predict and is resolved over very long periods of time. Estimating probable losses associated with any legal proceedings or other loss contingencies are very complex and require the analysis of many factors including assumptions about potential actions by third parties. Loss contingencies are disclosed when there is at least a reasonable possibility that a loss has been incurred and are recorded as liabilities in the combined consolidated financial statements when it is both (1) probable or known that a liability has been incurred and (2) the amount of the loss is reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. If a loss contingency is not probable or cannot be reasonably estimated, a liability is not recorded in the financial statements.

 

There are no known legal proceedings ongoing or loss contingencies for the three months ended March 31, 2018 and 2017, respectively.

 

Recent Accounting Pronouncements

 

The new revenue recognition accounting standard, ASC Topic 606 Revenue from Contracts with Customers , takes effect for public entities on January 1, 2018, and January 1, 2019 for private entities. Management does not believe the provisions of ASC Topic 606 will have a material impact on the Company’s financial position or results of operations when adopted.

 

  F- 36  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Recent Accounting Pronouncements, continued

 

The new lease accounting standard, ASC Topic 842, takes effect for public entities on January 1, 2019. Management believes the provisions of ASC Topic 842 will result in the recognition of right of use assets and liabilities on its consolidated financial statements when adopted.

 

Note 3 – Concentration of Credit Risks

 

Cash

 

The Company places its cash with high credit quality financial institutions. There were no balances in excess of the Federal Deposit Insurance Corporation (“FDIC”) coverage of $250,000 per financial institution at March 31, 2018 and December 31, 2017, respectively. The Company maintains its cash in accounts at financial institutions, which may, at times, exceed federally-insured limits. The Company has not experienced any losses on such accounts and does not feel it is exposed to any significant risk with respect to cash.

 

Revenue and Accounts Receivable

 

The Company had the following revenue and accounts receivable concentrations at and for the three months ended March 31, 2018 (unaudited) and December 31 2017:

 

    2018     2017  
    (unaudited)        
    % of Revenue     % of
Accounts
Receivable
    % of Revenue     % of
Accounts
Receivable
 
                         
Patient payment     46 %     46 %     53 %     53 %
Medicare payment     22 %     22 %     24 %     24 %
Insurance payment     32 %     32 %     24 %     24 %

 

  F- 37  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

Note 4 – Accounts Receivable

 

Accounts receivable consisted of the following at March 31, 2018 (unaudited) and December 31, 2017:

 

    2018     2017  
    (unaudited)        
             
Gross accounts receivable   $ 1,356,105     $ 876,381  
Less: allowance for doubtful accounts and contractual adjustments     890,537       552,120  
Accounts receivable, net   $ 465,568     $ 324,261  

 

Note 5 – Property and Equipment

 

Property and equipment consisted of the following at March 31, 2018 (unaudited) and December 31, 2017:

 

    Estimated              
    Useful Life in Years     2018     2017  
          (unaudited)        
                   
Computers     3     $ 23,015     $ 23,015  
Machinery and equipment     5       797,608       792,988  
Office equipment     5       36,328       36,328  
Office furniture and fixtures     5       56,448       56,449  
Rehab equipment     5       196,428       196,427  
Vehicles     3       6,000       6,000  
Leasehold improvements     Shorter of asset or lease term       468,146       468,146  
Total property and equipment             1,583,973       1,579,353  
Less: accumulated depreciation             (930,307 )     (870,555 )
Total property and equipment, net           $ 653,666     $ 708,798  

 

Depreciation and amortization was $59,752 (unaudited) and $29,271(unaudited) for the three months ended March 31, 2018 and 2017, respectively.

 

Note 6 – Operating Leases

 

The Company has certain cancelable and non-cancelable operating leases for facilities used in the treatment of patients, which expire on various dates through 2024. Certain leases contain renewal options.

 

Rent expense for the operating leases was $49,067 (unaudited) and $45,850 (unaudited) during the three months ended March 31, 2018 and 2017, respectively.

 

  F- 38  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

Note 6 – Operating Leases, continued

 

The required future minimum lease payments under the remaining non-cancelable operating leases consists of the following at March 31, 2018 (unaudited):

 

Years Ending December 31,   Amount  
       
2018 (9 months)   $ 182,193  
2019     242,924  
2020     202,698  
2021     70,980  
2022     74,923  
Thereafter     88,331  
Total   $ 862,049  

 

Note 7 – Lines of Credit

 

IMAC Kentucky has a $150,000 line of credit with a financial institution that matures on August 1, 2018. The line bears interest at 4.25% per annum (The LOC has a balance of $149,902 (unaudited) and $100,000 at March 31, 2018 and December 31, 2017, respectively). The line is secured by substantially all of the Company’s assets and personally guaranteed by the owners.

 

  F- 39  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

Note 8 – Notes Payable

 

Notes payable consisted of the following at March 31(unaudited):

 

    2018     2017  
    (unaudited)        
             
Note payable to an employee in the amount of $101,906 dated March 8, 2017. The note requires 5 annual installments of $23,350 including principal and interest at 5%. The note matures on December 31, 2021, and is unsecured.   $ 80,000     $ 80,000  
                 
Note payable to a financial institution in the amount of $133,555 dated September 17, 2014. The note requires 60 monthly installments of $2,475 including principal and interest at 4.25%. The note matures on September 17, 2019.     43,087       49,989  
                 
      123,087       129,989  
Less: current portion     (48,412 )     (49,989 )
                 
Total notes payable, net   $ 74,675     $ 80,000  

 

Principal maturities of notes payable at March 31, 2018 (unaudited) are as follows:

 

Years Ending December 31,   Amount  
       
2018 (9 months)   $ 48,412  
2019     34,675  
2020     20,000  
2021     20,000  
Total   $ 123,087  

 

  F- 40  

 

 

Integrated Medicine and Chiropractic Regeneration Center PSC

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

Note 9 – Related Party Transactions

 

The Company contracts with SpeakLife to provide staff training and patient advocacy services for $99,000 per year. SpeakLife is owned by one of the Company’s founders.

 

The Company contracts with UCI to provide marketing services to chiropractic practitioners and sources opportunities to expand chiropractic practices into regenerative medicine for $144,000 per year. UCI is owned by the spouse of one of the Company’s founders.

 

At March 31, 2018 and December 31, 2017, the Company has receivable amounts outstanding from entities which are related to the Company by common ownership. Amounts due to the Company amounted to $41,060 (unaudited) and $99,832 at March 31, 2018 and December 31, 2017, respectively.

 

Note 10 – Retirement Plan

 

The Company offers a 401(k) plan that covers eligible employees. The plan provides for voluntary salary deferrals for eligible employees. Additionally, the Company is required to make matching contributions of 50% of up to 6 % of total compensation for those employees making salary deferrals. The Company made contributions of $4,994 (unaudited) and $2,397 (unaudited) during the three months ended March 31, 2018 and 2017, respectively.

 

Note 11 – Commitments and Contingencies

 

From time to time, the Company is subject to threatened and asserted claims in the ordinary course of business. Because litigation and arbitration are subject to inherent uncertainties and the outcome of such matters cannot be predicted with certainty, future developments could cause any one or more of these matters to have a material impact on the Company’s future financial condition, results of operations or liquidity.

 

The Company is subject to extensive regulation, including health insurance regulations directed at ascertaining the appropriateness of reimbursement, preventing fraud and abuse and otherwise regulating reimbursement. To ensure compliance, various insurance providers often conduct audits and request patient records and other documents to support claims submitted by the Company for payment of services rendered to customers. In the event that an audit results in discrepancies in the records provided, insurance providers may be entitled to extrapolate the results of the audit to make overpayment demands based on a wider population of claims than those examined in the audit.

 

  F- 41  

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors

IMAC Regeneration Center of St. Louis, LLC

St. Louis, Missouri

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of IMAC Regeneration Center of St. Louis, LLC (the “Company”) at December 31, 2017 and 2016, and the related statements of operations and members’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Daszkal Bolton LLP

 

We have served as the Company’s auditors since 2017.

 

Boca Raton, Florida

May 31, 2018

 

  F- 42  

 

 

IMAC Regeneration Center of St. Louis, LLC

Balance Sheets

December 31, 2017 and 2016

 

 

    2017     2016  
ASSETS                
Current assets:                
Cash   $ 34,911     $ 20,797  
Accounts receivable, net     183,064       213,452  
Other assets     29,355       31,726  
Total current assets     247,330       265,975  
                 
Property and equipment, net     878,521       765,220  
                 
Other assets:                
Security deposits     454,814       504,814  
Total other assets     454,814       504,814  
                 
Total assets   $ 1,580,665     $ 1,536,009  
                 
LIABILITIES AND MEMBERS’ EQUITY                
                 
Current liabilities:                
Accounts payable and accrued expenses   $ 39,448     $ 90,507  
Patient deposits     163,176       205,743  
Notes payable – current portion     52,236       49,987  
Related party note payable     420,788       500,000  
Line of credit     150,000       -  
Total current liabilities     825,648       846,237  
                 
Long-term liabilities:                
Notes payable, net of current portion     212,152       264,388  
Deferred rent     98,959       65,700  
Lease incentive obligation     424,844       355,230  
                 
Total liabilities     1,561,603       1,531,555  
                 
Members’ equity     19,062       4,454  
                 
Total liabilities and members’ equity   $ 1,580,665     $ 1,536,009  

 

See accompanying notes to the financial statements.

 

  F- 43  

 

 

IMAC Regeneration Center of St. Louis, LLC

Statements of Operations and Members’ Equity

For the Years Ended December 31, 2017 and 2016

 

 

    2017     2016  
             
Patient revenues:   $ 8,073,943     $ 3,171,811  
Contractual adjustments     (5,364,015 )     (2,258,157 )
Total patient revenues, net     2,709,928       913,654  
                 
Operating expenses:                
Patient expenses     309,927       211,554  
Salaries and benefits     1,327,527       661,882  
Advertising and marketing     202,541       121,040  
General and administrative     679,596       337,409  
Depreciation     134,563       70,979  
Total operating expenses     2,654,154       1,402,864  
                 
Operating income (loss)     55,774       (489,210 )
                 
Other income (expense):                
Interest income     2,670       -  
Interest expense     (43,836 )     (6,336 )
Total other income (expense)     (41,166 )     (6,336 )
                 
Net income (loss)     14,608       (495,546 )
                 
Member’s equity, beginning of year     4,454       500,000  
                 
Member’s equity, end of year   $ 19,062     $ 4,454  

 

See accompanying notes to the financial statements.

 

  F- 44  

 

 

IMAC Regeneration Center of St. Louis, LLC

Statements of Cash Flows

For the Years Ended December 31, 2017 and 2016

 

 

    2017     2016  
             
Cash flows from operating activities:                
Net income (loss)   $ 14,608     $ (495,546 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:                
Depreciation and amortization     134,563       70,979  
Deferred rent     33,259       65,700  
(Increase) decrease in operating assets:                
Accounts receivable, net     30,388       286,548  
Other assets     2,371       (31,726 )
Security deposits     50,000       (504,814 )
Increase (decrease) in operating liabilities:                
Accounts payable and accrued expenses     (51,059 )     90,507  
Patient deposits     (42,567 )     205,743  
Lease Incentive Obligation     69,614       355,230  
Net cash provided by operating activities     241,178       42,621  
                 
Cash flows from investing activities:                
Purchase of property and equipment     (247,864 )     (836,199 )
Net cash used in investing activities     (247,864 )     (836,199 )
                 
Cash flows from financing activities:                
Proceeds from notes payable     -       881,387  
Payments on notes payable     (49,987 )     (67,012 )
Payments on related party note payable     (79,212 )     -  
Proceeds from line of credit     300,000       -  
Payments on line of credit     (150,000 )     -  
Net cash provided by financing activities     20,801       814,375  
                 
Net increase in cash     14,115       20,797  
                 
Cash, beginning of year     20,797       -  
                 
Cash, end of year   $ 34,911     $ 20,797  

 

See accompanying notes to the financial statements.

 

  F- 45  

 

 

Note 1 – Description of Business

 

IMAC Regeneration Center of St. Louis, LLC (“IMAC St. Louis”) was formed in 2015 as a Limited Liability Company and provides orthopedic therapies. Through its entities, its outpatient medical clinics provide conservative, minimally invasive medical treatments to help patients with back pain, knee pain, joint pain, ligament and tendon damage, and other related soft tissue conditions. The Company has partnered with Ozzie Smith in opening its medical clinics, with a focus around treating sports injuries.

 

Note 2 – Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses at the date and for the periods that the financial statements are prepared. On an ongoing basis, the Company evaluates its estimates, including those related to insurance adjustments and provisions for doubtful accounts. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could materially differ from those estimates.

 

Revenue Recognition

 

The Company’s patient service revenue is derived from minimally invasive procedures performed at the Company’s outpatient medical clinics and patient visits to physicians. The fees for such services are billed either to the patient or a third- party payer, including Medicare. The Company recognize patient service revenue, net of contractual allowances, which are estimated based on the historical trend of cash collections and contractual write-offs.

 

Patient Deposits

 

Patient deposits are derived from patient payments in advance of services delivered. Our service lines include traditional and regenerative medicine. Regenerative medicine procedures are not paid by insurance carriers; therefore, the Company typically requires up-front payment from the patient for regenerative services and any co-pays and deductibles as required by the patient specific insurance carrier. For some patients, credit is provided through an outside vendor. In this case, the Company is paid from the credit card company and the risk is transferred to the credit card company for collection from the patient. These funds are accounted for as patient deposits until the procedures are performed at which point the patient deposit is recognized as patient service revenue.

 

Fair Value of Financial Instruments

 

The carrying amount of accounts receivable approximate their respective fair values due to the short- term nature. The carrying amount of the line of credit and note payable approximates fair values due to their market interest rates. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.

 

  F- 46  

 

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Cash and Cash Equivalents

 

The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. At December 31, 2017 and 2016, the Company had no cash equivalents.

 

Accounts Receivable

 

Accounts receivable primarily consists of amounts due from third-party payers (non-governmental), governmental payers and private pay patients and is recorded net of allowances for doubtful accounts and contractual discounts. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Accordingly, accounts receivable reported in the Company’s financial statements is recorded at the net amount expected to be received. The Company’s primary collection risks are (i) the risk of overestimation of net revenues at the time of billing that may result in the Company receiving less than the recorded receivable, (ii) the risk of non-payment as a result of commercial insurance companies’ denial of claims, (iii) the risk that patients will fail to remit insurance payments to the Company when the commercial insurance company pays out-of-network claims directly to the patient, (iv) resource and capacity constraints that may prevent the Company from handling the volume of billing and collection issues in a timely manner, (v) the risk that patients do not pay the Company for their self-pay balances (including co-pays, deductibles and any portion of the claim not covered by insurance) and (vi) the risk of non-payment from uninsured patients.

 

The Company’s accounts receivable from third-party payers are recorded net of estimated contractual adjustments and allowances from third-party payers, which are estimated based on the historical trend of the Company’s facilities’ cash collections and contractual write-offs, accounts receivable aging, established fee schedules, relationships with payers and procedure statistics. While changes in estimated reimbursement from third-party payers remain a possibility, the Company expects that any such changes would be minimal and, therefore, would not have a material effect on the Company’s financial condition or results of operations. The Company’s collection policies and procedures are based on the type of payer, size of claim and estimated collection percentage for each patient account. The operating systems used to manage the Company’s patient accounts provide for an aging schedule in 30-day increments, by payer, physician and patient. The Company analyzes accounts receivable at each of the facilities to ensure the proper collection and aged category. The operating systems generate reports that assist in the collection efforts by prioritizing patient accounts. Collection efforts include direct contact with insurance carriers or patients and written correspondence.

 

  F- 47  

 

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Allowance for Doubtful Accounts, Contractual and Other Discounts

 

Management estimates the allowance for contractual and other discounts based on its historical collection experience and contracted relationship with the payers. The services authorized and provided and related reimbursement are often subject to interpretation and negotiation that could result in payments that differ from the Company’s estimates. The Company’s allowance for doubtful accounts is based on historical experience, but management also takes into consideration the age of accounts, creditworthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. An account may be written-off only after the Company has pursued collection efforts or otherwise determines an account to be uncollectible. Uncollectible balances are written-off against the allowance. Recoveries of previously written-off balances are credited to income when the recoveries are made.

 

Property and Equipment

 

Property and equipment are stated at cost, less accumulated depreciation. Additions and improvements to property and equipment are capitalized at cost. Depreciation of owned assets and amortization of leasehold improvements are computed using the straight-line method over the shorter of the estimated useful lives of the related assets or the lease term. The cost of assets sold or retired, and the related accumulated depreciation are removed from the accounts and any resulting gains or losses are reflected in other income (expense) for the year. Expenditures for maintenance and repairs are charged to expense as incurred.

 

Long-Lived Assets

 

Long-lived assets such as property and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. There were no impairments of long lived assets in 2017 and 2016.

 

Advertising and Marketing

 

The Company uses advertising and marketing to promote its services. Advertising and marketing costs are expensed as incurred. Advertising and marketing expense was $202,541 and $121,040 for the years ended December 31, 2017 and 2016, respectively.

 

Income Taxes

 

IMAC of St. Louis is a limited liability company taxed as a partnership. As a result, income taxes are passed through to the members. Accordingly, no provision for income taxes is reflected in the financial statements.

 

The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. Interest and penalties related to income tax matters, if any, would be recognized as a component of income tax expense. At December 31, 2017 and 2016, the Company had no liabilities for uncertain tax positions. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. All tax years are open and subject to examination by the taxing authorities.

 

  F- 48  

 

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Legal Proceedings and Loss Contingencies

 

The Company is subject to various legal proceedings, many involving routine litigation incidental to business. The outcome of any legal proceeding is not within the Company’s complete control, it is often difficult to predict and is resolved over very long periods of time. Estimating probable losses associated with any legal proceedings or other loss contingencies are very complex and require the analysis of many factors including assumptions about potential actions by third parties. Loss contingencies are disclosed when there is at least a reasonable possibility that a loss has been incurred and are recorded as liabilities in the financial statements when it is both (1) probable or known that a liability has been incurred and (2) the amount of the loss is reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. If a loss contingency is not probable or cannot be reasonably estimated, a liability is not recorded in the financial statements.

 

There are no known legal proceedings ongoing or loss contingencies for the years ended December 31, 2017 and 2016.

 

Recent Accounting Pronouncements

 

The new revenue recognition accounting standard, ASC Topic 606 Revenue from Contracts with Customers , takes effect for public entities January 1, 2018, and January 1, 2019 for private entities. Management does not believe the provisions of ASC Topic 606 will have a material impact on the Company’s financial position or results of operations when adopted.

 

The new lease accounting standard, ASC Topic 842 , takes effect for public entities January 1, 2019, and January 1, 2020 for private entities. Management believes the provisions of ASC Topic 842 will result in the recognition of lease assets and liabilities on its financial statements when adopted.

 

Note 3 – Concentration of Credit Risks

 

Cash

 

The Company places its cash with high credit quality financial institutions. Cash and cash equivalents in excess of the Federal Deposit Insurance Corporation (“FDIC”) coverage of $250,000 per financial institution. There were no balances in excess of the FDIC coverage for the years ended December 31 2017 and 2016. The Company maintains its cash in accounts at financial institutions, which may, at times, exceed federally-insured limits. The Company has not experienced any losses on such accounts and does not feel it is exposed to any significant risk with respect to cash.

 

  F- 49  

 

 

Note 3 – Concentration of Credit Risks, continued

 

Revenue and Accounts Receivable

 

The Company had the following revenue and accounts receivable concentrations at December 31:

 

    2017     2016  
    % of Revenue     % of Accounts Receivable     % of Revenue     % of Accounts Receivable  
                         
Patient payment     57 %     57 %     52 %     52 %
Medicare payment     23 %     23 %     21 %     21 %
Insurance payment     20 %     20 %     27 %     27 %

 

Note 4 – Accounts Receivable

 

Accounts receivable consisted of the following at December 31:

 

    2017     2016  
             
Gross accounts receivable   $ 545,482     $ 741,152  
Less: allowance for doubtful accounts and contractual adjustments     362,418       527,700  
Accounts receivable, net   $ 183,064     $ 213,452  

 

Note 5 – Property and Equipment

 

Property and equipment consisted of the following at December 31:

 

    Estimated
Useful Life in Years
  2017     2016  
                 
Computers   3   $ 5,713     $ 5,713  
Machinery and equipment   5     294,320       166,503  
Office furniture and fixtures   5     10,828       10,828  
Signs   5     20,260       20,260  
Leasehold improvements   Shorter of asset or lease term     752,942       632,895  
Total property and equipment         1,084,063       836,199  
Less: accumulated depreciation         (205,543 )     (70,979 )
Total property and equipment, net       $ 878,520     $ 765,220  

 

Depreciation and amortization was $134,563 and $70,979 for the years ended December 31, 2017 and 2016, respectively.

 

  F- 50  

 

 

Note 6 – Operating Leases

 

The Company has certain cancelable and non-cancelable operating leases for facilities used in the treatment of patients, which expire on various dates through 2026. Certain leases contain renewal options.

 

Years Ending December 31,   Amount  
       
2018   $ 254,866  
2019     254,866  
2020     254,866  
2021     260,341  
2022     253,565  
Thereafter     753,360  
Total   $ 2,031,864  

 

Rent expense for the operating leases was $252,654 and $141,702 during the years ended December 31, 2017 and 2016, respectively.

 

Note 7 – Lines of Credit

 

IMAC St. Louis, LLC has a $150,000 line of credit with a financial institution that matures on November 15, 2018. The line bears interest at 4.25% per annum (The LOC has a $150,000 balance at December 31, 2017). The line is secured by substantially all of the Company’s assets and is personally guaranteed by the members.

 

Note 8-Notes Payable

 

    2017     2016  
             
Note payable to a financial institution in the amount of $131,400 dated August 1, 2016. The note requires 120 monthly installments of $1,394 including principal and interest at 5%. The note matures on July 1, 2026, and is secured by a letter of credit.   $ 116,525     $ 127,134  
                 
Note payable to a financial institution in the amount of $200,000 dated May 4, 2016. The note requires 60 monthly installments of $3,881 including principal and interest at 4.25%. The note matures on May 4, 2021, and is secured by the equipment and personal guarantees of the Company’s members.     147,863       187,241  
      264,388       314,375  
Less: current portion:     (52,236 )     (49,987 )
    $ 212,152     $ 264,388  

 

  F- 51  

 

 

Note 8-Notes Payable, continued

 

Principal maturities of notes payable at December 31, 2017 are as follows:

 

Years Ending December 31,   Amount  
       
2018   $ 52,236  
2019     54,587  
2020     57,047  
2021     32,143  
2022     13,615  
Thereafter     54,760  
Total   $ 264,388  

 

Note 9 – Related Party Transactions

 

The Company owes the following amounts as of December 31st 2017 to the following related entities. These entities are related based on common ownership with the Company:

 

    Amount  
Facility   $ 1,753  
IMAC Holdings LLC     2,577  
Integrated Medicine and Chiropractic Regeneration Center PC   $ 4,330  

 

This balance in included within accounts payable and accrued expenses on the balance sheets.

 

Note 10 – Members’ Equity

 

Pursuant to its operating agreement, the Company has authorized 100 member units, and has 100 units issued and outstanding.

 

The Company maintains separate capital accounts for each member and is credited for capital contributions and each member’s share of profits and is debited for distributions and each member’s share of losses. The allocation of profit and losses is allocated to the members in accordance with their respective percentage interest in each entity.

 

Note 11 – Retirement Plan

 

The Company offers a 401(k) plan that covers eligible employees. The plan provides for voluntary salary deferrals for eligible employees. Additionally, the Company is required to make matching contributions of 50% of up to 6 % of total compensation for those employees making salary deferrals. The Company made contributions of $891 and $0 during 2017 and 2016, respectively.

 

Note 12 – Commitments and Contingencies

 

The Company is subject to extensive regulation, including health insurance regulations directed at ascertaining the appropriateness of reimbursement, preventing fraud and abuse and otherwise regulating reimbursement. To ensure compliance, various insurance providers often conduct audits and request patient records and other documents to support claims submitted by the Company for payment of services rendered to customers. In the event that an audit results in discrepancies in the records provided, insurance providers may be entitled to extrapolate the results of the audit to make overpayment demands based on a wider population of claims than those examined in the audit.

 

From time to time, the Company is subject to threatened and asserted claims in the ordinary course of business. Because litigation and arbitration are subject to inherent uncertainties and the outcome of such matters cannot be predicted with certainty, future developments could cause any one or more of these matters to have a material impact on the Company’s future financial condition, results of operations or liquidity.

 

Note 13 – Subsequent Events

 

In March 2018, the IMAC Holdings LLC entered into an agreement to purchase sixty-four of one hundred of the outstanding ownership shares in the company held by others for an amount based on a percentage of collections from regeneration- related services and associated products for a defined period.

 

  F- 52  

 

 

IMAC Regeneration Center of St Louis, LLC

Condensed Balance Sheets

March 31, 2018 (unaudited) and December 31, 2017

 

    March 31, 2018     December 31, 2017  
    (unaudited)        
ASSETS                
Current assets:                
Cash   $ 16,055     $ 34,911  
Accounts receivable, net     221,502       183,064  
Other assets     13,630       29,355  
Total current assets     251,187       247,330  
                 
Property and equipment, net     847,191       878,521  
                 
Other assets:                
Security deposits     454,814       454,814  
Total other assets     454,814       454,814  
                 
Total assets   $ 1,553,192     $ 1,580,665  
                 
LIABILITIES AND MEMBERS’ EQUITY (DEFICIT)                
                 
Current liabilities:                
Accounts payable and accrued expenses   $ 76,051     $ 35,117  
Patient Deposits     243,077       163,176  
Notes payable - current portion     52,814       52,236  
Related party payable     128,593       4,331  
Related party note payable     420,788       420,788  
Line of credit     150,000       150,000  
Total current liabilities     1,071,323       825,648  
                 
Long-term liabilities:                
Notes payable, net of current portion     198,730       212,152  
Deferred Rent     97,209       98,959  
Lease Incentive Obligation     409,962       424,844  
                 
Total liabilities     1,777,224       1,561,603  
                 
Members’ equity (deficit)     (224,032 )     19,061  
                 
Total liabilities and members’ equity (deficit)   $ 1,553,192     $ 1,580,664  

 

See accompanying notes to the unaudited condensed financial statements.

 

  F- 53  

 

 

IMAC Regeneration Center of St Louis, LLC

Condensed Statements of Income and Members’ Equity (Deficit)

For the Three Months Ended March 31, 2018 and 2017 (unaudited)

 

    2018     2017  
    (unaudited)     (unaudited)  
             
Patient Revenues     1,726,631       1,814,432  
Contractual Adjustments     (1,194,661 )     (1,189,451 )
Total patient revenues, net   $ 531,970     $ 624,981  
                 
Operating expenses:                
Patient expenses     101,761       111,909  
Salaries and benefits     382,016       280,466  
Advertising and marketing     72,489       36,226  
General and administrative     168,772       139,338  
Depreciation and Amortization     39,036       27,104  
Total operating expenses     764,073       595,043  
                 
(Loss) income from operations     (232,103 )     29,938  
                 
Other income (expense):                
Interest expense     (10,991 )     (9,475 )
Total other income (expense)     (10,991 )     (9,475 )
                 
Net (loss) income     (243,094 )     20,463  
                 
Members’ equity, beginning of the period     19,062       4,454  
                 
Members’ equity (deficit), end of the period   $ (224,032 )   $ 24,916  

 

See accompanying notes to the unaudited condensed financial statements.

 

  F- 54  

 

 

IMAC Regeneration Center of St Louis, LLC

Condensed Statements of Cash Flows

For the Three Months Ended March 31, 2018 and 2017 (Unaudited)

 

    2018     2017  
    (unaudited)     (unaudited)  
             
Cash flows from operating activities:                
Net (loss) income   $ (243,094 )   $ 20,462  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:                
Depreciation and amortization     39,036       27,104  
Deferred rent     (1,750 )     -  
(Increase) decrease in operating assets:                
Accounts receivable, net     (38,438 )     44,428  
Other assets     15,725       (1,715 )
Increase (decrease) in operating liabilities:                
Accounts payable and accrued expenses     165,196       (33,077 )
Patient deposits     79,901       4,556  
Lease incentive obligation     (14,882 )     (9,267 )
Net cash provided by operating activities     1,694       52,491  
                 
Cash flows from investing activities:                
Purchase of property and equipment     (7,706 )     (127,690 )
Net cash used in investing activities     (7,706 )     (127,690 )
                 
Cash flows from financing activities:                
Payments on notes payable     (12,843 )     (35,834 )
Proceeds from line of credit     -       130,000  
Net cash (used in) provided by financing activities     (12,843 )     94,166  
                 
Net (decrease) increase in cash     (18,856 )     18,967  
                 
Cash, beginning of period     34,911       20,797  
                 
Cash, end of period   $ 16,055     $ 39,764  

 

See accompanying notes to the unaudited condensed financial statements.

 

  F- 55  

 

 

IMAC Regeneration Center of St. Louis, LLC

Notes to the Condensed Financial Statements (Unaudited)

 

Note 1 – Description of Business

 

IMAC Regeneration Center of St. Louis, LLC (“IMAC St. Louis”) provides orthopedic therapies. Through its entities, its outpatient medical clinics provide conservative, minimally invasive medical treatments to help patients with back pain, knee pain, joint pain, ligament and tendon damage, and other related soft tissue conditions. The Company has partnered with Ozzie Smith in opening its medical clinics, with a focus around treating sports injuries.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation

 

The condensed financial statements have been prepared by the Company, without audit. In the opinion of the Company’s management, the financial statements reflect all adjustments (consisting of normal recurring adjustments, reclassifications and non-recurring adjustments) necessary to present fairly the financial position and results of operations and cash flows for the period presented herein, but are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2018.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses at the date and for the periods that the financial statements are prepared. On an ongoing basis, the Company evaluates its estimates, including those related to insurance adjustments and provisions for doubtful accounts. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could materially differ from those estimates.

 

Revenue Recognition

 

The Company’s patient service revenue is derived from minimally invasive procedures performed at the Company’s outpatient medical clinics and patient visits to physicians. The fees for such services are billed either to the patient or a third- party payer, including Medicare. The Company recognizes patient service revenue, net of contractual allowances, which are estimated based on the historical trend of our cash collections and contractual write-offs.

 

Patient Deposits

 

Patient deposits are derived from patient payments in advance of services delivered. Our service lines include traditional and regenerative medicine. Regenerative medicine procedures are not paid by insurance carriers; therefore, the Company typically requires up-front payment from the patient for regenerative services and any co-pays and deductibles as required by the patient specific insurance carrier. For some patients, credit is provided through an outside vendor. In this case, the Company is paid from the credit card company and the risk is transferred to the credit card company for collection from the patient. These funds are accounted for as patient deposits until the procedures are performed at which point the patient deposit is recognized as patient service revenue.

 

  F- 56  

 

  

IMAC Regeneration Center of St. Louis, LLC

Notes to the Condensed Financial Statements (Unaudited)

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Fair Value of Financial Instruments

 

The carrying amount of accounts receivable approximate their respective fair values due to the short- term nature. The carrying amount of the line of credit and note payable approximates fair values due to their market interest rates. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable.

 

Cash and Cash Equivalents

 

The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. At March 31, 2018 and December 31, 2017, the Company had no cash equivalents.

 

Accounts Receivable

 

Accounts receivable primarily consists of amounts due from third-party payers (non-governmental), governmental payers and private pay patients and is recorded net of allowances for doubtful accounts and contractual discounts. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Accordingly, accounts receivable reported in the Company’s financial statements is recorded at the net amount expected to be received. The Company’s primary collection risks are (i) the risk of overestimation of net revenues at the time of billing that may result in the Company receiving less than the recorded receivable, (ii) the risk of non-payment as a result of commercial insurance companies’ denial of claims, (iii) the risk that patients will fail to remit insurance payments to the Company when the commercial insurance company pays out-of-network claims directly to the patient, (iv) resource and capacity, constraints that may prevent the Company from handling the volume of billing and collection issues in a timely manner, (v) the risk that patients do not pay the Company for their self-pay balances (including co-pays, deductibles and any portion of the claim not covered by insurance) and (vi) the risk of non-payment from uninsured patients.

 

The Company’s accounts receivable from third-party payers are recorded net of estimated contractual adjustments and allowances from third-party payers, which are estimated based on the historical trend of the Company’s facilities’ cash collections and contractual write-offs, accounts receivable aging, established fee schedules, relationships with payers and procedure statistics. While changes in estimated reimbursement from third-party payers remain a possibility, the Company expects that any such changes would be minimal and, therefore, would not have a material effect on the Company’s financial condition or results of operations. The Company’s collection policies and procedures are based on the type of payer, size of claim and estimated collection percentage for each patient account. The operating systems used to manage the Company’s patient accounts provide for an aging schedule in 30-day increments, by payer, physician and patient. The Company analyzes accounts receivable at each of the facilities to ensure the proper collection and aged category. The operating systems generate reports that assist in the collection efforts by prioritizing patient accounts. Collection efforts include direct contact with insurance carriers or patients and written correspondence.

 

  F- 57  

 

 

IMAC Regeneration Center of St. Louis, LLC

Notes to the Condensed Financial Statements (Unaudited)

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Allowance for Doubtful Accounts, Contractual and Other Discounts

 

Management estimates the allowance for contractual and other discounts based on its historical collection experience and contracted relationship with the payers. The services authorized and provided and related reimbursement are often subject to interpretation and negotiation that could result in payments that differ from the Company’s estimates. The Company’s allowance for doubtful accounts is based on historical experience, but management also takes into consideration the age of accounts, creditworthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. An account may be written-off only after the Company has pursued collection efforts or otherwise determines an account to be uncollectible. Uncollectible balances are written-off against the allowance. Recoveries of previously written-off balances are credited to income when the recoveries are made.

 

Property and Equipment

 

Property and equipment are stated at cost, less accumulated depreciation. Additions and improvements to property and equipment are capitalized at cost. Depreciation of owned assets and amortization of leasehold improvements are computed using the straight-line method over the shorter of the estimated useful lives of the related assets or the lease term. The cost of assets sold or retired, and the related accumulated depreciation are removed from the accounts and any resulting gains or losses are reflected in other income (expense) for the year. Expenditures for maintenance and repairs are charged to expense as incurred.

 

Long-Lived Assets

 

Long-lived assets such as property and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. There were no impairments of long lived assets for the three months ended March 31, 2018 and 2017, respectively.

 

Advertising and Marketing

 

The Company uses advertising and marketing to promote its services. Advertising and marketing costs are expensed as incurred. Advertising and marketing expense was $202,541 and $121,040 for the year ended December 31, 2017 and December 31, 2016, respectively, and $72,489 (unaudited) and $36,226 (unaudited) for the three months ended March 31, 2018 and 2017, respectively.

 

Income Taxes

 

IMAC of St. Louis is a limited liability company taxed as a partnership. As a result, income taxes are passed through to the members. Accordingly, no provision for income taxes is reflected in the financial statements.

 

The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. Interest and penalties related to income tax matters, if any, would be recognized as a component of income tax expense. At March 31, 2018 and December 31, 2017, the Company had no liabilities for uncertain tax positions. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. All tax years are open and subject to examination by the taxing authorities.

 

  F- 58  

 

 

IMAC Regeneration Center of St. Louis, LLC

Notes to the Condensed Financial Statements (Unaudited)

 

Note 2 – Summary of Significant Accounting Policies, continued

 

Legal Proceedings and Loss Contingencies

 

The Company is subject to various legal proceedings, many involving routine litigation incidental to business. The outcome of any legal proceeding is not within the Company’s complete control, it is often difficult to predict and is resolved over very long periods of time. Estimating probable losses associated with any legal proceedings or other loss contingencies are very complex and require the analysis of many factors including assumptions about potential actions by third parties. Loss contingencies are disclosed when there is at least a reasonable possibility that a loss has been incurred and are recorded as liabilities in the combined consolidated financial statements when it is both (1) probable or known that a liability has been incurred and (2) the amount of the loss is reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. If a loss contingency is not probable or cannot be reasonably estimated, a liability is not recorded in the financial statements.

 

There are no known legal proceedings ongoing or loss contingencies for the three months ended March 31, 2018 and 2017, respectively.

 

Recent Accounting Pronouncements

 

The new revenue recognition accounting standard, ASC Topic 606 Revenue from Contracts with Customers , takes effect for public entities January 1, 2018, and January 1, 2019 for private entities. Management does not believe the provisions of ASC Topic 606 will have a material impact on the Company’s financial position or results of operations when adopted.

 

The new lease accounting standard, ASC Topic 842, takes effect for public entities on January 1, 2019. Management believes the provisions of ASC Topic 842 will result in the recognition of right of use assets and liabilities on its financial statements when adopted.

 

  F- 59  

 

 

IMAC Regeneration Center of St. Louis, LLC

Notes to the Condensed Financial Statements (Unaudited)

 

Note 3 – Concentration of Credit Risks

 

Cash

 

The Company places its cash with high credit quality financial institutions. Cash and cash equivalents in excess of the Federal Deposit Insurance Corporation (“FDIC”) coverage of $250,000 per financial institution. There were no balances in excess of the FDIC coverage at March 31 2018 and December 31, 2017, respectively. The Company maintains its cash in accounts at financial institutions, which may, at times, exceed federally-insured limits. The Company has not experienced any losses on such accounts and does not feel it is exposed to any significant risk with respect to cash.

 

Revenue and Accounts Receivable

 

The Company had the following revenue and accounts receivable concentrations at and for the three months ended March 31:

 

    2018     2017  
    (unaudited)     (unaudited)  
    % of Revenue     % of Accounts Receivable     % of Revenue     % of Accounts Receivable  
                         
Patient payment     58 %     58 %     59 %     59 %
Medicare payment     19 %     19 %     19 %     19 %
Insurance payment     23 %     23 %     22 %     22 %

 

Note 4 – Accounts Receivable

 

Accounts receivable consisted of the following at March 31, 2018 (unaudited) and December 31, 2017:

 

    2018     2017  
    (unaudited)        
             
Gross accounts receivable   $ 698,884     $ 545,482  
Less: allowance for doubtful accounts and contractual adjustments     477,382       362,418  
Accounts receivable, net   $ 221,502     $ 183,064  

 

  F- 60  

 

 

IMAC Regeneration Center of St. Louis, LLC

Notes to the Condensed Financial Statements (Unaudited)

 

Note 5 – Property and Equipment

 

Property and equipment consisted of the following at March 31, 2018 (unaudited) and December 31, 2017:

 

    Estimated            
    Useful Life in Years   2018     2017  
        (unaudited)        
                 
Computers   3   $ 5,713     $ 5,713  
Machinery and equipment   5     296,086       294,320  
Office furniture and fixtures   5     10,828       10,828  
Signs   5     20,260       20,260  
Leasehold improvements   Shorter of asset or lease term     758,882       752,943  
Total property and equipment         1,091,769       1,084,064  
Less: accumulated depreciation         (244,578 )     (205,543 )
Total property and equipment, net       $ 847,191     $ 878,521  

 

Depreciation and amortization was $39,036 (unaudited) and $27,104 (unaudited) for the three months ended March 31, 2018 and 2017, respectively.

 

Note 6 – Operating Leases

 

The Company has certain cancelable and non-cancelable operating leases for facilities used in the treatment of patients, which expire on various dates through 2026. Certain leases contain renewal options.

 

Rent expense for the operating leases was $65,376 (unaudited) and $53,874 (unaudited) during the three months ended March 31, 2018 and 2017, respectively.

 

The required future minimum lease payments under the remaining non-cancelable operating leases consists of the following at March 31, 2018 (unaudited):

 

  F- 61  

 

 

IMAC Regeneration Center of St. Louis, LLC

Notes to the Condensed Financial Statements (Unaudited)

 

Years Ending December 31,   Amount  
       
2018 (9 months)   $ 191,150  
2019     254,866  
2020     254,866  
2021     260,341  
2022     253,565  
Thereafter     753,360  
Total   $ 1,968,148  

 

Note 7 – Lines of Credit

 

IMAC St. Louis, LLC has a $150,000 line of credit with a financial institution that matures on November 15, 2018. The line bears interest at 4.25% per annum (The LOC has a $150,000 balance at March 31, 2018). The line is secured by substantially all of the Company’s assets and personally guaranteed by the members.

 

  F- 62  

 

 

IMAC Regeneration Center of St. Louis, LLC

Notes to the Condensed Financial Statements (Unaudited)

 

Note 8 – Notes Payable

 

Notes payable consisted of the following at March 31, 2018 (unaudited) and December 31, 2017:

 

    2018     2017  
    (unaudited)        
             
Note payable to a financial institution in the amount of $131,400 dated August 1, 2016. The note requires 120 monthly installments of $1,394 including principal and interest at 5%. The note matures on July 1, 2026, and is secured by a letter of credit.   $ 113,789     $ 116,525  
                 
Note payable to a financial institution in the amount of $200,000 dated May 4, 2016. The note requires 60 monthly installments of $3,881 including principal and interest at 4.25%. The note matures on May 4, 2021, and is secured by the equipment and personal guarantees of the Company’s members.     137,755       147,863  
      251,544       264,388  
Less: current portion:     (52,814 )     (52,236 )
    $ 198,730     $ 212,152  

 

Principal maturities of notes payable at March 31, 2018 (unaudited) are as follows:

 

Years Ending December 31,   Amount  
       
2018 (9 months)   $ 39,392  
2019     54,587  
2020     57,047  
2021     32,143  
2022     13,615  
Thereafter     54,760  
Total   $ 251,544  

 

Note 9 – Related Party Transactions

 

From time to time, the Company advances funds to, and receives funds from, entities with common ownership.

 

At March 31, 2018 and December 31, 2017, the amounts owed to related parties was $128,593 (unaudited) and $4,331, respectively.

 

Note 10 – Members’ Equity

 

Pursuant to its operating agreement, the Company has issued 100 member units, and has 100 units issued and outstanding.

 

The Company maintains separate capital accounts for each member and is credited for capital contributions and each member’s share of profits and is debited for distributions and each member’s share of losses. The allocation of profit and losses is allocated to the members in accordance with their respective percentage interest in each entity.

 

  F- 63  

 

 

IMAC Regeneration Center of St. Louis, LLC

Notes to the Condensed Financial Statements (Unaudited)

 

Note 11 – Retirement Plan

 

The Company offers a 401(k) plan that covers eligible employees. The plan provides for voluntary salary deferrals for eligible employees. Additionally, the Company is required to make matching contributions of 50% of up to 6% of total compensation for those employees making salary deferrals. The Company made contributions of $2,709 (unaudited) and $0 (unaudited) during the three months ended March 31, 2018 and 2017, respectively.

 

Note 12 – Commitments and Contingencies

 

From time to time, the Company is subject to threatened and asserted claims in the ordinary course of business. Because litigation and arbitration are subject to inherent uncertainties and the outcome of such matters cannot be predicted with certainty, future developments could cause any one or more of these matters to have a material impact on the Company’s future financial condition, results of operations or liquidity.

 

The Company is subject to extensive regulation, including health insurance regulations directed at ascertaining the appropriateness of reimbursement, preventing fraud and abuse and otherwise regulating reimbursement. To ensure compliance, various insurance providers often conduct audits and request patient records and other documents to support claims submitted by the Company for payment of services rendered to customers. In the event that an audit results in discrepancies in the records provided, insurance providers may be entitled to extrapolate the results of the audit to make overpayment demands based on a wider population of claims than those examined in the audit.

 

  F- 64  

 

 

IMAC Holdings, LLC

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

 

 

In June 2018, IMAC Holdings, LLC (the “Company”) entered into transactions for the acquisition of the assets of Integrated Medicine and Chiropractic Regeneration Center PSC (“IMAC Kentucky”) for cash and stock consideration of approximately $5 million, and the acquisition of IMAC of St. Louis, LLC (“IMAC St. Louis”) for combined cash and stock consideration of approximately $1.6 million. The Company also entered into a transaction to purchase the outside minority ownership interest in IMAC Tennessee for approximately $0.7 million. Funding for these transactions are to be provided through an underwritten public offering of [*] shares of common stock at $[*] per share, before underwriting discounts resulting in estimated net proceeds of $13.5 million after deducting $1.5 million of estimated underwriting commissions and issuance costs. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2017, and six months ended June 30, 2018 give effect to the acquisitions and the issuances of common stock referred to above as if they occurred on January 1, 2017. The pro forma adjustments are based on available information and certain assumptions that we believe are reasonable. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed consolidated financial statements. The pro forma adjustments reflected herein are based on management’s expectations regarding the acquisition and the issuances of common stock transactions discussed above. The acquisition will be accounted for under the purchase method of accounting, which involves determining the fair values of assets acquired and liabilities assumed. The purchase price allocation included in the unaudited pro forma financial statements is preliminary and based on management’s best estimates. The preliminary purchase price allocation is subject to change based on numerous factors, including the final adjusted purchase price and the final estimated fair value of the assets acquired and liabilities assumed. Any such adjustments to the preliminary estimates of fair value reflected in the accompanying unaudited pro forma consolidated financial statements could be material. The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and do not purport to indicate the financial condition or results of operations of future periods or the financial condition or results of operations that actually would have been realized had the transactions been consummated on the dates or for the periods presented.

 

  F- 65  

 

 

“IMAC Group” represent IMAC Holdings, Inc. on an unaudited pro forma basis, assuming that the business transactions resulting in the consolidation of “Integrated Medicine and Chiropractic Regeneration Center PSC,” “IMAC of St. Louis, LLC” and “IMAC Regeneration Management of Nashville, LLC.” were effective as of January 1, 2017.

 

IMAC Group

Unaudited Pro Forma Condensed Consolidated Statements of Operations

For the Six Months Ended June 30, 2018  

 

 

                            Six Months Ended June 30, 2018  
    IMAC     IMAC     IMAC     Pro-Forma     Group  
    Holdings     Kentucky     St. Louis     Adjustments     Pro Forma  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)     (unaudited)  
                               
Patient revenues   $ 1,947,331     $ 6,231,482     $ 3,600,246 [vi]   $ (589,935 )   $ 11,189,124  
Contractual adjustments     (1,108,775 )     (4,055,385 )     (2,457,695 )[vi]     395,166       (7,226,689 )
Total patient revenue, net     838,556       2,176,097       1,142,551               3,962,435  
Management fees     64,000       -       - [iii]     (64,000 )     -  
Total Revenue     902,556       2,176,097       1,142,551               3,962,435  
                                         
Operating expenses:                                        
Patient expenses     85,716       376,942       135,155 [vi]     (29,153 )     568,660  
Salaries and related expenses     1,035,265       1,086,625       730,359 [vi]     (110,608 )     2,741,641  
Share-based compensation: consulting fees     7,499       -       -               7,499  
Advertising and marketing     178,511       75,257       136,877 [vi]     (14,532 )     376,113  
General and administrative     976,832       471,634       382,566 [iii]     (64,000 )     1,706,028  
                      [vi]     (61,004 )        
Depreciation and amortization     120,504       117,532       122,280 [i]     233,850       948,745  
      -       -       - [ii]     411,799          
      -       -       - [vi]     (57,220 )     -  
Total operating expenses     2,404,327       2,127,990       1,507,237               6,348,686  
                                         
Operating loss     (1,501,771 )     48,107       (364,686 )             (2,386,251 )
                                         
Other income (expenses):                                        
Interest income     5,429       -       - [iii]     (5,429 )     -  
Other income     18,356       -       -               18,356  
Interest expense     (56,280 )     (4,778 )     (18,640 )[iii]     5,429       (70,368 )
      -       -       - [vi]     3,901       -  
Total other income (expenses)     (32,495 )     (4,778 )     (18,640 )             (52,012 )
                                         
Earnings (loss) before equity in (loss) of non-consolidated affiliates     (1,534,266 )     43,329       (383,326 )             (2,438,263 )
                                         
Equity in (loss) of non-consolidated affiliate     (105,550 )     -       - [iv]     105,550       -  
                                         
Net earnings (loss)     (1,639,816 )     43,329       (383,326 )             (2,438,263 )
                                         
Net loss attributable to the non-controlling interest     503,200       -       - [v]     (503,200 )     -  
                                         
Net earnings (loss) attributable to the IMAC Holdings, Inc. stockholders     (1,136,616 )     43,329       (383,326 )             (2,438,263 )

 

Footnotes

 

  [i] To record amortization resulting from purchase accounting of IMAC Kentucky
  [ii] To record additional amortization resulting from purchase accounting of IMAC St. Louis
  [iii] To eliminate inter-company income and expense for interest and management fees
  [iv] To eliminate redundancy of equity in earnings of IMAC St. Louis
  [v] To eliminate allocation of net loss to non-controlling interest
  [vi] To eliminate one month of IMAC St. Louis which is included in IMAC Holdings

 

  F- 66  

 

 

IMAC Group

Unaudited Pro Forma Condensed Consolidated Statements of Operations

For the Year Ended December 31, 2017  

 

 

                            2017  
          IMAC     IMAC     Pro-Forma     Group  
    Holdings     Kentucky     St. Louis     Adjustments     Pro Forma  
                               
Patient revenues   $ 1,378,313     $ 13,258,419     $ 8,073,943             $ 22,710,675  
Contractual adjustments     (723,688 )     (8,298,287 )     (5,364,015 )             (14,385,990 )
Total patient revenue, net     654,625       4,960,132       2,709,928               8,324,685  
Management fees     131,400       -       - [iii]     (131,400 )     -  
Total Revenue     786,025       4,960,132       2,709,928               8,324,685  
                                         
Operating expenses:                                        
Patient expenses     63,216       648,479       309,927               1,021,622  
Salaries and related expenses     967,627       2,334,770       1,327,526               4,629,923  
Share-based compensation: consulting fees     18,747       -       -               18,747  
Advertising and marketing     119,867       142,642       202,541               465,050  
General and administrative     465,740       885,273       679,596 [iii]     (131,400 )     1,899,209  
Depreciation and amortization     65,895       197,945       134,563 [i]     467,700       1,689,700  
      -       -       - [ii]     823,597       -  
Total operating expenses     1,701,092       4,209,109       2,654,153               9,724,251  
                                         
Operating loss     (915,067 )     751,023       55,775               (1,399,566 )
                                         
Other income (expenses):                                        
Interest income     14,821       -       2,670 [iii]     (14,855 )     2,636  
Interest expense     (27,151 )     (37,229 )     (43,836 )[iii]     14,855       (93,361 )
Loss on disposal of assets     (2,744 )     (569,617 )     -               (572,361 )
Total other income (expenses)     (15,074 )     (606,846 )     (41,166 )             (663,086 )
                                         
Earnings (loss) before equity in earnings of non-consolidated affiliates     (930,141 )     144,177       14,609               (2,062,652 )
                                         
Equity in earnings of non-consolidated affiliate     13,609       -       - [iv]     (13,609 )     -  
                                         
Net earnings (loss)     (916,532 )     144,177       14,609               (2,062,652 )
                                         
Net loss attributable to the non-controlling interest     859,351       -       - [v]     (859,351 )     -  
                                         
Net earnings (loss) attributable to the IMAC Holdings, Inc. stockholders     (57,181 )     144,177       14,609               (2,062,652 )

 

Footnotes

 

  [i] To record amortization resulting from purchase accounting of IMAC Kentucky
  [ii] To record additional amortization resulting from purchase accounting of IMAC St. Louis
  [iii] To eliminate inter-company income and expense for interest and management fees
  [iv] To eliminate redundancy of equity in earnings of IMAC St. Louis
  [v] To eliminate allocation of net loss to non-controlling interest

 

  F- 67  

 

 

 

 

[●] Shares

 

 

IMAC HOLDINGS, INC.

 

Common Stock

 

 

PROSPECTUS

 

CUTTONE & CO., LLC

 

[●] , 2018

 

 

Until [ ● ], 2018 (25 days after the date of this prospectus), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

 

 

     

 

 

PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

ITEM 13. Other Expenses of Issuance and Distribution

 

The following table sets forth all expenses and costs expected to be paid by us, other than estimated underwriting discounts and commissions, in connection with this offering. All amounts shown are estimates except for the SEC registration fee, the Financial Industry Regulatory Authority (FINRA) filing fee and The NASDAQ Capital Market listing fee:

 

    Amount to
be Paid
 
SEC registration fee   $ 2,251  
FINRA filing fee     3,212  
Nasdaq listing fee     5,000  
Blue Sky fees and expenses     *  
Printing and engraving expenses     *  
Legal fees and expenses     *  
Accounting fees and expenses     *  
Transfer agent and registrar fees     *  
Miscellaneous     *  
Total   $ *  

 

  * To be provided by amendment.

 

Each of the amounts set forth above, other than the registration fee and the FINRA filing fee, is an estimate.

 

ITEM 14. Indemnification of Directors and Officers

 

Effective as of May 31, 2018, we converted from a Kentucky limited liability company into a Delaware corporation and changed our name to IMAC Holdings, Inc. In connection with this conversion, we adopted a certificate of incorporation and bylaws and are now governed by the Delaware General Corporation Law, or the DGCL. Section 145(a) 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, 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 or enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she 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 cause to believe his or her 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 he or she acted under similar standards, except that no indemnification may 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 in which such action or suit was brought shall determine that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to be indemnified for such expenses which the court shall deem proper.

 

Section 145 of the DGCL further provides that: (i) to the extent that a former or present director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) and (b) 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 him or her in connection therewith; (ii) indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and (iii) the corporation may purchase and maintain insurance on behalf of any present or former director, officer, employee or agent of the corporation or any person who at the request of the corporation was serving in such capacity for another entity against any liability asserted against such person and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liabilities under Section 145.

 

  II- 1  

 

 

In addition, the proposed form of Underwriting Agreement (to be filed by amendment) is expected to provide for indemnification of our directors and officers by the underwriter against certain liabilities.

 

Article VI of our certificate of incorporation authorizes us to provide for the indemnification of officers, directors and third parties acting on our behalf to the fullest extent permissible under Delaware law.

 

We intend to enter into indemnification agreements with our directors, executive officers and others, in addition to indemnification provided for in our bylaws, and intend to enter into indemnification agreements with any new directors and executive officers in the future.

 

We have purchased and intend to 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.

 

See also the undertakings set forth in response to Item 17 herein.

 

ITEM 15. Recent Sales of Unregistered Securities

 

Effective June 1, 2018, we converted from a Kentucky limited liability company into a Delaware corporation. In connection with the conversion, all of our outstanding membership interests were exchanged on a proportional basis into shares of common stock. The issuance of shares of common stock to our members in the conversion was exempt from registration under the Securities Act by virtue of the exemption contained in Section 4(a)(2) of the Securities Act on the basis that the transactions did not involve a public offering. No underwriters were involved in the issuances.

 

ITEM 16. Exhibits and Financial Statement Schedules

 

Exhibit
Number
  Description
1.1*   Form of Underwriting Agreement.
     
3.1   Certificate of Incorporation of IMAC Holdings, Inc.
     
3.2   Bylaws of IMAC Holdings, Inc.
     
4.1   Specimen Common Stock Certificate.
     
5.1*   Opinion of Olshan Frome Wolosky LLP, as to the legality of the common stock.
     
10.1†   2018 Incentive Compensation Plan (to be effective upon the closing of this offering).
     
10.2   Form of Indemnification Agreement.
     
10.3   Form of Securities Purchase Agreement between IMAC Holdings, LLC and investors listed therein.
     
10.4   Management Services Agreement between IMAC Holdings, LLC and Integrated Medicine and Chiropractic Regeneration Center PSC.
     
10.5   Unit Purchase Agreement among IMAC Holdings, Inc., IMAC of St. Louis, LLC and certain unitholders of IMAC of St. Louis LLC.
     
10.6   Promissory Note for $200,000, dated November 15, 2017, to Pinnacle Bank.
     
10.7   Promissory Note for $101,096, dated March 8, 2017, to Tommy West.
     
10.8   Promissory Note for $133,555.39, dated September 17, 2014, to Independence Bank of Kentucky.
     
10.9   Promissory Note for $1,232,500, dated March 29, 2018, to Independence Bank of Kentucky.
     
10.10   Commercial Line of Credit Agreement, dated July 9, 2017, between Integrated Medicine and Chiropractic Regeneration Center PSC and Independence Bank of Kentucky.
     
10.11   Promissory Note for $150,000, dated November 15, 2017, to Pinnacle Bank.
     
10.12   Commercial Line of Credit Agreement, dated May 1, 2018, between Integrated Medicine and Chiropractic Regeneration Center of St. Louis, LLC and Independence Bank of Kentucky.
     
10.13   Promissory Note, dated May 4, 2016, to Independence Bank of Kentucky.
     
10.14   Promissory Note for $500,000, dated December 1, 2016, to Edward S. Bredniak Revocable Trust U/A Dated August 14, 2015.
     
10.15   Promissory Note for $2,000,000, dated June 1, 2018, to Edward S. Bredniak Revocable Trust U/A Dated August 14, 2015.
     
14.1   Code of Ethics and Business Conduct.
     
14.2   Code of Ethics for the CEO and Senior Financial Officers.
     
21.1   List of subsidiaries.

 

  II- 2  

 

 

Exhibit
Number
  Description
     
23.1*   Consent of Olshan Frome Wolosky LLP (included in the opinion filed as Exhibit 5.1).
     
23.2   Consent of Daszkal Bolton LLP, independent registered public accountants.
     
23.3   Consent of David Ellwanger.
     
23.4   Consent of George Hampton.
     
23.5   Consent of Dean Weiland.
     
24.1   Power of Attorney (set forth on signature page of the registration statement).

 

 

Unless otherwise indicated, exhibit has been previously filed.

 

Compensatory plan or agreement.
   
* To be filed by amendment.
   
(b) Financial Statement Schedules

 

All financial statement schedules are omitted because the information called for is not required or is shown either in the consolidated financial statements or in the notes thereto.

 

ITEM 17. Undertakings

 

The undersigned Registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

 

Insofar as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 14 or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities 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 Securities Act and will be governed by the final adjudication of such issue.

 

The undersigned Registrant hereby undertakes that:

 

(1) For purposes of determining any liability under the Securities Act, 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)(l) 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, 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.

 

  II- 3  

 

 

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 Brentwood, State of Tennessee, on the 17th day of September 2018.

 

  IMAC HOLDINGS, INC.
   
  By: /s/ Jeffrey S. Ervin
    Jeffrey S. Ervin
    Chief Executive Officer

 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jeffrey S. Ervin and D. Anthony Bond, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462 promulgated under the Securities Act of 1933, 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 and necessary to be done in connection therewith and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their 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 and on the dates indicated:

 

Signature   Title   Date
         
/s/ Jeffrey S. Ervin   Chief Executive Officer (principal executive    
Jeffrey S. Ervin   officer) and Director   September 17, 2018
         
/s/ Matthew C. Wallis, DC        
Matthew C. Wallis, DC   Chief Operating Officer and Director   September 17, 2018
         
         
/s/ D. Anthony Bond, CPA   Chief Financial Officer (principal financial and   September 17, 2018
D. Anthony Bond, CPA   accounting officer)    
         
/s/ Edward S. Bredniak        
Edward S. Bredniak   Director   September 17, 2018

 

  II- 4  

 

 

EXHIBIT 3.1

 

State of Delaware    
Secretary of State    
Division of Corporations Certificate of Incorporation  
Delivered 05:45 PM 05/23/2018    
FILED 05:45 PM 05/23/2018 of  
SR 20184250192 – File Number 6898979    
     
  IMAC HOLDINGS, INC.  

 

Pursuant to §102 of the General Corporation Law of the State of Delaware

 

THE UNDERSIGNED, for the purpose of organizing a corporation for conducting the business and promoting the purposes hereinafter stated, under the provisions and subject to the requirements of the laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the acts amendatory thereof and supplemental thereto, and known, identified and referred to as the Delaware General Corporation Law), hereby certifies that:

 

ARTICLE I

 

The name of the corporation is IMAC Holdings, Inc. (the “ Corporation ”).

 

ARTICLE II

 

The registered office of the Corporation in the State of Delaware is to be located at 160 Greentree Drive, Suite 101, Dover, Delaware 19904, County of Kent. The registered agent at such address in charge thereof shall be National Registered Agents, 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, as amended (the “ DGCL ”).

 

ARTICLE IV

 

4.1        Authorized Capital Stock . The aggregate number of shares of capital stock that the Corporation is authorized to issue is Thirty-Five Million (35,000,000), of which Thirty Million (30,000,000) shares are common stock having a par value of $0.001 per share (the “ Common Stock ”), and Five Million (5,000,000) shares are preferred stock having a par value of $0.001 per share (the “ Preferred Stock ”).

 

4.2         Increase or Decrease in Authorized Capital Stock . The number of authorized shares of Preferred Stock or Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled to vote generally in the election of directors, irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto), voting together as a single class, without a separate vote of the holders of the class or classes the number of authorized shares of which are being increased or decreased, unless a vote by any holders of one or more series of Preferred Stock is required by the express terms of any series of Preferred Stock as provided for or fixed pursuant to the provisions of Section 4.3 of this Article IV.

 

     
 

 

4.3        Preferred Stock .

 

(A)       The Board of Directors of the Corporation (the “ Board ”) is hereby authorized, subject to any limitations prescribed by law, to provide for the issuance of shares of Preferred Stock from time to time in one or more series pursuant to a resolution or resolutions providing for such issuance duly adopted by the Board. The Board is further authorized, subject to limitations prescribed by law, to file a certificate of designation pursuant to the applicable law of the State of Delaware (any such certificate, a “ Preferred Stock Designation ”), to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights of the shares of each such series and the qualifications, limitations, and restrictions thereof. The authority of the Board with respect to each series shall include, but shall not be limited to and shall not require (unless otherwise required by applicable law), determination of the following:

 

(i)       The designation of the series, which may be by distinguishing number, letter, or title;

 

(ii)       The number of shares of the series, which number the Board may thereafter (except where otherwise provided in the applicable Preferred Stock Designation) increase or decrease (but not below the number of shares thereof then outstanding);

 

(iii)       The amounts payable on, and the preferences, if any, of, shares of the series in respect of dividends, and whether such dividends, if any, shall be cumulative or noncumulative;

 

(iv)       The dates on which dividends, if any, shall be payable;

 

(v)       The redemption rights and price or prices, if any, for shares of the series;

(vi)       The terms and amount of any sinking fund provided for the purchase or redemption of shares of the series;

 

(vii)       The amounts payable on, and the preferences, if any, of, shares of the series in the event of any voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Corporation;

 

(viii)       Whether the shares of the series shall be convertible into or exchangeable for shares of any other class or series, or any other security, of the Corporation or any other corporation, and, if so, the specification of such other class or series or such other security, the conversion or exchange price or prices or rate or rates, any adjustments thereto, the date or dates at which such shares shall be convertible or exchangeable, and all other terms and conditions upon which such conversion or exchange may be made;

 

(ix)       Restrictions on the issuance of shares of the same series or of any other class or series; and

(x)       The voting rights, if any, of the holders of shares of the series.

 

(B)       Except as may otherwise be provided in this Certificate of Incorporation, in a Preferred Stock Designation, or by applicable law, only shares of Common Stock shall be voted in elections of directors and for all other purposes and shares of Preferred Stock shall not entitle the holder thereof to vote at or receive notice of any meeting of the stockholders of the Corporation.

 

    Page 2
 

 

4.4        Common Stock .

 

(A)       Common Stock shall be subject to the express terms of any series of Preferred Stock. Each holder of Common Stock shall be entitled to one vote for each such share of Common Stock so held upon each matter properly submitted to a vote of the stockholders.

 

(B)       Subject to the rights of the holders of Preferred Stock, the holders of shares of Common Stock shall be entitled to receive such dividends and other distributions (payable in cash, property or capital stock of the Corporation) when, as and if declared thereon by the Board from time to time out of any assets or funds of the Corporation legally available therefor and shall share equally on a per share basis in such dividends and distributions.

 

(C)       In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation, and subject to the rights of the holders of Preferred Stock in respect thereof, the holders of shares of Common Stock shall be entitled to such amounts as provided under applicable law.

 

4.5        No Preemptive Rights . No share of Common Stock or Preferred Stock shall entitle any holder thereof any preemptive right to subscribe for any shares of any class or series of stock of the Corporation whether now or hereafter authorized.

 

ARTICLE V

 

Provisions for the management of the business and for the conduct of the affairs of the Corporation and provisions creating, defining, limiting, and regulating the powers of the Corporation, the Board, and the stockholders are as follows:

 

5.1        General Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board. In addition to the powers and authority herein or by statute expressly conferred upon it, the Board is hereby expressly empowered to exercise all such powers and to do all such acts and things as may be exercised or done by the Corporation; subject, nevertheless, to the provisions of the statutes of the State of Delaware and of this Certificate of Incorporation as they may be amended, altered, or changed from time to time, and to any bylaws from time to time made by the Board or stockholders; provided , however , that no bylaw so made shall invalidate any prior act of the Board that would have been valid if such bylaw had not been made.

 

5.2        Number of Directors; Election; Term .

 

(A)       Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the total number of authorized directors constituting the Board shall be fixed solely by resolution of the Board.

 

(C)       Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, each director shall serve until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal.

 

    Page 3
 

 

(D)       Election of directors of the Corporation need not be by written ballot unless the bylaws so provide.

 

(E)       No stockholder will be permitted to cumulate votes at any election of directors.

 

5.4        Vacancies and Newly Created Directorships . Subject to the rights of holders of any series of Preferred Stock, and except as otherwise provided in the DGCL, vacancies occurring on the Board for any reason and newly created directorships resulting from any increase in the authorized number of directors shall be filled only by vote of a majority of the remaining members of the Board, although less than a quorum, or by a sole remaining director, at any meeting of the Board. A person so elected by the Board to fill a vacancy or newly created directorship shall hold office until his or her successor shall be duly elected and qualified, or until such Director’s earlier death, resignation, or removal.

 

5.5        No Action by Written Consent . Subject to the rights of the holders of any series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of the stockholders of the Corporation and may not be effected by any consent in writing by the stockholders.

 

5.6        Advance Notice . Advance notice of stockholder nominations for election of directors and other business to be brought by stockholders at any meeting of stockholders shall be given in the manner provided in the bylaws.

 

5.7        Special Meetings . Except as otherwise expressly provided by the terms of any series of Preferred Stock or applicable law, special meetings of stockholders of the Corporation may be called by the Board, the Chairman of the Board, the Chief Executive Officer and shall be called by the Corporation if requested by one or more record stockholders representing ownership of at least thirty-three and one-third percent (33-1/3%) of the outstanding shares of the Corporation’s stock entitled to vote and who has complied with the requirements set forth in the bylaws. A special meeting of stockholders may not be called by any other person.

 

5.8        Amendments to the Bylaws . In furtherance and not in limitation of the powers conferred by statute, the Board is hereby expressly authorized to adopt, alter, amend or repeal the bylaws of the Corporation without the assent or vote of the stockholders, including without limitation the power to fix, from time to time, the number of directors that shall constitute the whole Board, subject to the right of the stockholders to alter, amend, or repeal the bylaws made by the Board.

 

5.9        Submission of Contracts to Stockholder Vote . The Board in its discretion may submit any contract or act for approval or ratification at any annual meeting of the stockholders or at any meeting of the stockholders called for the purpose of considering any such contract or act, and any contract or act that shall be approved or be ratified by the vote of the holders of a majority of the stock of the Corporation that is represented in person or by proxy at such meeting and entitled to vote thereat ( provided that a lawful quorum of stockholders be there represented in person or by proxy) shall be as valid and as binding upon the Corporation and upon all the stockholders as though it had been approved or ratified by every stockholder of the Corporation, whether or not the contract or act would otherwise be open to legal attack because of directors’ interest or for any other reason.

 

    Page 4
 

 

ARTICLE VI

 

6.1        Limitation of Personal Liability . To the fullest extent permitted by the DGCL, as the same exists or may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the DGCL is amended after the effective date hereof to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended. Any repeal or modification of this Article VI by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification or with respect to events occurring prior to such time.

 

6.2        Indemnification .

 

(A)       Each person who was or is made a party to, or is threatened to be made a party to, or is involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter, a “ proceeding ”), by reason of the fact that he or she is or was a director or officer of the Corporation or 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, or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as such director, officer, employee, or agent, or in any other capacity while serving as such director, officer, employee, or agent, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than the DGCL permitted the Corporation to provide prior to such amendment), against all expense, liability, and loss (including attorneys’ fees, judgments, fines, other expenses and losses, amounts paid or to be paid in settlement, and excise taxes or penalties arising under the Employee Retirement Income Security Act of 1974) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee, or agent, and shall inure to the benefit of his or her heirs, executors, and administrators; provided , however , that, except as provided in paragraph (B) hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board. The right to indemnification conferred in this Article VI shall be a contract right and shall include the right of a director or officer to be paid by the Corporation the expenses (including attorneys’ fees) incurred in defending any such proceeding in advance of its final disposition; provided , however , that the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking, which undertaking shall itself be sufficient without the need for further evaluation of any credit aspects of the undertaking or with respect to such advancement, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined by a final, non-appealable order of a court of competent jurisdiction that such director or officer is not entitled to be indemnified under this Article VI or otherwise.

 

    Page 5
 

 

(B)       If a claim under paragraph (A) of this Article VI is not paid in full by the Corporation within sixty (60) days after a written claim, together with reasonable evidence as to the amount of such claim, has been received by the Corporation, except in the case of a claim for advancement of expenses (including attorneys’ fees), in which case the applicable period shall be twenty (20) days, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense, including attorneys’ fees, of prosecuting such suit. It shall be a defense to any such suit, other than a suit brought to enforce a claim for expenses (including attorneys’ fees) incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation, that the claimant has not met the standards of conduct that make it permissible under the DGCL for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including the Board or a committee thereof, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including the Board or a committee thereof, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the suit or create a presumption that the claimant has not met the applicable standard of conduct. In any suit brought by an indemnitee to enforce a right to indemnification or to advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to such indemnification, or to such advancement of expenses, under this Article VII or otherwise shall be on the Corporation.

 

(C)       The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article VI shall not be exclusive of any other right that any person may have or hereafter acquire under any statute, provision of the certificate of incorporation, bylaw, agreement, or vote of stockholders or disinterested directors, or otherwise.

 

(D)       The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of the Corporation or another corporation, partnership, joint venture, trust, or other enterprise against any such expense, liability, or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability, or loss under the DGCL.

 

(E)       In the case of a claim for indemnification or advancement of expenses against the Corporation under this Article VI arising out of acts, events, or circumstances for which the claimant, who was at the relevant time serving as a director, officer, employee, or agent of any other entity at the request of the Corporation, may be entitled to indemnification or advancement of expenses pursuant to such other entity’s certificate of incorporation, bylaws, or other governing document, or a contractual agreement between the claimant and such entity, the claimant seeking indemnification or advancement of expenses hereunder shall first seek indemnification or advancement of expenses pursuant to any such governing document or agreement. To the extent that amounts to be paid in indemnification or advancement to a claimant hereunder are paid by such other entity, the claimant’s right to indemnification and advancement of expenses hereunder shall be reduced.

 

(F)       Neither any amendment nor repeal of this Article VI, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article VI, shall eliminate or reduce the effect of this Article VI in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VI, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

 

    Page 6
 

 

ARTICLE VII

 

Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under §291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under §279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.

 

ARTICLE VIII

 

Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (A) any derivative action or proceeding brought on behalf of the Corporation, (B) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (C) any action asserting a claim arising pursuant to any provision of the DGCL, or (D) any action asserting a claim governed by the internal affairs doctrine as such doctrine exists under the law of the State of Delaware.

 

ARTICLE IX

 

The Corporation reserves the right to restate this Certificate of Incorporation and to amend, alter, change, or repeal any provision contained in this Certificate of Incorporation (including any rights, preferences or other designations of Preferred Stock) in the manner now or hereafter prescribed by law, and all rights and powers conferred herein on stockholders, directors, and officers are subject to this reserved power. Notwithstanding any other provision of this Certificate of Incorporation, and in addition to any other vote that may be required by law or the terms of any series of Preferred Stock, the affirmative vote of the holders of at least 66-2/3% of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend, alter or repeal, or adopt any provision of this Certificate of Incorporation inconsistent with the purpose and intent of, Section 4.3 of Article IV, Article V, Article VI or this Article IX (including, without limitation, any such Article as renumbered as a result of any amendment, alteration, change, repeal or adoption of any other Article).

 

    Page 7
 

 

IN WITNESS WHEREOF, I, the undersigned, for the purpose of forming a corporation pursuant to the Delaware General Corporation Law, do hereby declare and certify that the facts herein stated are true, and accordingly have hereunto set my hand this 23rd day of May 2018.

 

  /s/ Jeffrey S. Ervin  
  Jeffrey S. Ervin
  Sole Incorporator
  1605 Westgate Circle
  Brentwood, TN 37027

 

    Page 8
 

 

 

EXHIBIT 3.2

 

Bylaws

of

IMAC HOLDINGS, INC.

 

A Delaware corporation


( Adopted as of May 23, 2018)

 

TABLE OF CONTENTS

 

Article 1. Offices    
     
Section 1.1.   Registered Office
Section 1.2.   Other Offices
     
Article 2. Stockholders’ Meetings
     
Section 2.1.   Annual Meeting
Section 2.2.   Special Meetings
Section 2.3.   Notice of Stockholder Business and Nominations
Section 2.4.   Notice of Meetings
Section 2.5.   Record Date
Section 2.6.   List of Stockholders
Section 2.7.   Voting
Section 2.8.   No Action by Written Consent
Section 2.9.   Proxies
Section 2.10.   Quorum
Section 2.11.   Adjournment
Section 2.12.   Organization of Meetings
Section 2.13.   Conduct of Meetings
Section 2.14.   Joint Owners of Stock
     
Article 3. Board of Directors
     
Section 3.1.   Number
Section 3.2.   Resignations and Vacancies
Section 3.3.   Meetings
Section 3.4.   Action Without a Meeting
Section 3.5.   Quorum
Section 3.6.   Vote Necessary to Act and Participation by Conference Telephone
Section 3.7.   Fees and Compensation of Directors
Section 3.8.   Executive and Other Committees
Section 3.9.   Indemnification
Section 3.10.   Removal
Section 3.11.   Chairman

 

     
 

 

Article 4. Officers
     
Section 4.1.   Officers Generally
Section 4.2.   Duties of Officers
Section 4.3.   Authority to Sign
Section 4.4   Voting of Securities Owned by the Corporation
     
Article 5. Stock
     
Section 5.1.   Certificates
Section 5.2.   Lost, Stolen, or Destroyed Stock Certificates; Issuance of New Certificates
Section 5.3.   Transfers
Section 5.4.   Registered Stockholders
     
Article 6. DIVIDENDS
     
Section 6.1.   Declaration of Dividends
Section 6.2   Dividend Reserve
     
Article 7. GENERAL MATTERS
     
Section 7.1.   Seal
Section 7.2.   Fiscal Year
Section 7.3.   Waiver of Notice Meetings of Stockholders, Directors, and Committees
Section 7.4.   Amendments to the Bylaws
     
Article 8. Construction and Defined Terms
     
Section 8.1.   Construction
Section 8.2.   Defined Terms

 

    Page  ii
 

 

Bylaws

of

IMAC HOLDINGS, INC.

 

A Delaware corporation

 

Article 1
Offices

 

Section 1.1. Registered Office. The address of the registered office of the Corporation in Delaware shall be 160 Greentree Drive, Suite 101, Dover, Delaware 19904, County of Kent. The registered agent at such address in charge thereof shall be National Registered Agents, Inc., all of which shall be subject to change from time to time as permitted by law.

 

Section 1.2. Other Offices. The Corporation may also have an office or offices or place or places of business within or without the State of Delaware as the Board may from time to time designate.

 

Article 2
Meetings OF STOCKHOLDERS

 

Section 2.1. Annual Meeting. The annual meeting of the stockholders shall be held at the principal place of business of the Corporation or at such other place within or outside of Delaware (or may not be held at any place, but may instead be held solely by means of remote communication if so decided by the Board in its sole discretion), on such date and at such time as shall be determined from time to time by the Board, for the purpose of electing directors and for transacting other proper business.

 

Section 2.2. Special Meetings.

 

(a) Special meetings of the stockholders for any purpose or purposes, other than those required by statute, may be called at any time by the Board, the Chairman of the Board, or the Chief Executive Officer and shall be called by the Corporation upon the request of the stockholders as set forth in Section 2.2(b) below. Except as set forth in this Section 2.2, no other person may call a special meeting of stockholders. Special meetings of the stockholders shall be held at the principal place of business of the Corporation or at such other place within or outside of Delaware (or may not be held at any place, but may instead be held solely by means of remote communication if so decided by the Board in its sole discretion), on such date and at such time as shall be determined from time to time by the Board, for the purpose set forth in the Corporations notice of meeting.

 

    Page  1
 

 

(b) A special meeting of the stockholders shall be called by the Corporation following the receipt by the Secretary of a written request for a special meeting of the stockholders (a “Special Meeting Request”) from one or more record stockholders representing ownership of at least thirty-three and one-third percent (33-1/3%) of the outstanding shares of the Corporation’s stock entitled to vote (the “Requisite Holders”) if such Special Meeting Request complies with the requirements set forth in this Section 2.2(b). A Special Meeting Request shall only be valid if it is signed and dated by each of the Requisite Holders (or their duly authorized agents) and if such request sets forth all information required in Section 2.3(a)(2). If a Special Meeting Request complies with this Section 2.2, the Board may fix a record date (in accordance with Section 2.5 herein), which shall not precede and shall not be more than ten (10) days after the close of business on the date on which the resolution fixing the record date is adopted by the Board. If the Board, within ten (10) days after the date on which a valid Special Meeting Request is received, fails to adopt a resolution fixing the record date, the record date shall be the close of business on the tenth (10 th ) day after the first date on which the Special Meeting Request is received by the Secretary. The Board shall also establish the place (if any), date and time of the special meeting of stockholders requested in such Special Meeting Request. The date of any such special meeting shall not be more than ninety (90) days after the Secretary’s receipt of the properly submitted Special Meeting Request; provided , however , that in the event that a Special Meeting Request is received after the expiration of the advance notice period set forth in Section 2.3(a)(2), but before the annual meeting of stockholders, the Board may use its discretion to set the date of a special meeting no more than ten (10) days following the annual meeting of stockholders. Only matters that are stated in the Special Meeting Request shall be brought before and acted upon during the special meeting of stockholders called according to the Special Meeting Request; provided , however , that nothing herein shall prohibit the Board from submitting any matters to the stockholders at any special meeting of stockholders called by the stockholders pursuant to this Section 2.2(b). Requisite Holders may revoke a Special Meeting Request by written revocation delivered to the Corporation at any time prior to the special meeting of stockholders; provided , however , the Board shall have the sole discretion to determine whether to proceed with the special meeting of stockholders following such written revocation. Additionally, a Requisite Holder whose signature (or authorized agent’s signature) appears on a Special Meeting Request may revoke such Requisite Holder’s participation in a Special Meeting Request at any time by written revocation delivered to the Secretary in the same manner as the Special Meeting Request and if, following any such revocation, the remaining Requisite Holders participating in the Special Meeting Request do not represent at least the Requisite Percentage, the Special Meeting Request shall be deemed revoked. Likewise, any reduction in percentage stock ownership of the Requisite Holders below the Requisite Percentage following delivery of the Special Meeting Request to the Secretary shall be deemed to be a revocation of the Special Meeting Request. If written revocations of requests for the special meeting have been delivered to the Secretary and the result is that stockholders (or their agents duly authorized in writing), as of the date of the Special Meeting Request, entitled to cast less than the Requisite Percentage have delivered, and not revoked, requests for a special meeting to the Secretary, the Secretary shall refrain from mailing the notice of the meeting and send to all requesting stockholders who have not revoked such requests a written notice of any revocation of a reqiest for the special meeting or, if the notice of meeting has been mailed, the Secretary shall send to all requesting stockholders who have not revoked requests for a special meeting a written notice of any revocation of a request for the special meeting and of the Secretary’s intention to revoke the notice of the meeting, and shall there thereafter revoke the notice of the meeting at any time before ten days before the commencement of the meeting. Any request for a special meeting received after a revocation by the Secretary of a notice of a meeting shall be considered a request for a new special meeting. A Special Meeting Request shall not be valid (and thus the special meeting of stockholders requested pursuant to the Special Meeting Request will not be held) if (i) the Special Meeting Request relates to an item of business that is not a proper subject for stockholder action under applicable law; or (ii) the Special Meeting Request was made in a manner that involved a violation of Section 14(a) under the Exchange Act and the rules and regulations thereunder. In addition, if none of the Requisite Holders appears or sends a representative to present the business or nomination submitted by the stockholders in the Special Meeting Request to be conducted at the special meeting of stockholders, the Corporation need not conduct any such business or nomination for a vote at such special meeting of stockholders.

 

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Section 2.3. Notice of Stockholder Business and Nominations.

 

(a) Annual Meetings of Stockholders .

 

(1) At an annual meeting of stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting of stockholders, nominations of persons for election to the Board of the Corporation and the proposal of other business must be brought (A) pursuant to the Corporation’s notice of meeting (or any supplement thereto), (B) by or at the direction of the Board or any committee thereof, or (C) by any stockholder of the Corporation who is a stockholder of record at the time the notice provided for in this Section 2.3(a) is delivered to the Secretary of the Corporation and on the record date for the determination of stockholders entitled to vote at the annual meeting, who is entitled to vote at the meeting, and who complies with the notice procedures set forth in this Section 2.3(a). For the avoidance of doubt, clause (C) above shall be the exclusive means for a stockholder to make nominations and submit other business (other than matters properly included in the Corporation’s notice of meeting of stockholders an proxy statement under Rule 14a-8 of the Exchange Act) before an annual meeting of stockholders.

 

(2) For any nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (C) of paragraph (a)(1) of this Section 2.3, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation at the Corporation’s principal executive offices, and any such proposed business (other than the nominations of persons for election to the Board) must constitute a proper matter for stockholder action at such meeting. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day, nor earlier than the close of business on the one hundred twentieth (120th) day, prior to the first anniversary of the preceding year’s annual meeting; provided , however , that in the event that the date of the annual meeting is advanced or delayed by more than thirty (30) days prior to such anniversary date, notice by the stockholder must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above. Such stockholder’s notice shall set forth (A) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of such nominee, (ii) the principal occupation or employment of such nominee, (iii) the class or series and number of shares of stock that are owned beneficially and of record by such nominee as well as any derivative or synthetic instrument, convertible security, put, option, stock appreciation right, swap or similar contract, agreement, arrangement or understanding the value of or return on which is based on or linked to the value of or return on any shares of stock, (iv) a description of any agreement, arrangement, or understanding (including any derivative or short positions, profit interests, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the stockholder’s notice by, or on behalf of, such nominee, whether or not such instrument or right shall be subject to settlement in underlying shares of stock, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such nominee with respect to securities of the Corporation, (v) all information relating to such nominee that is required to be disclosed in solicitations of proxies for election of directors in an election contest (even if an election contest is not involved), or is otherwise required, in each case pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder, and (vi) such nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (B) as to any other business that the stockholder proposes to bring before the meeting, (i) a brief description of the business desired to be brought before the meeting, (ii) the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend the Bylaws, the language of the proposed amendment), (iii) the reasons for conducting such business at the meeting, and (iv) any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and any beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, (ii) the class or series and number of shares of stock that are owned beneficially and of record by such stockholder and such beneficial owner as well as any derivative or synthetic instrument, convertible security, put, option, stock appreciation right, swap or similar contract, agreement, arrangement or understanding the value of or return on which is based on or linked to the value of or return on any shares of stock, (iii) a description of any agreement, arrangement, or understanding with respect to the nomination or proposal between or among such stockholder and/or such beneficial owner, any of their respective affiliates or associates, and any others acting in concert with any of the foregoing, including, in the case of a nomination, the nominee, (iv) a description of any agreement, arrangement, or understanding (including any derivative or short positions, profit interests, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the stockholder’s notice by, or on behalf of, such stockholder and such beneficial owners, whether or not such instrument or right shall be subject to settlement in underlying shares of stock, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or such beneficial owner, with respect to securities of the Corporation, (v) a representation that the stockholder is a holder of record of stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination, (vi) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group that intends (I) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the outstanding stock required to approve or adopt the proposal or elect the nominee and/or (II) otherwise to solicit proxies or votes from stockholders in support of such proposal or nomination, and (vii) any other information relating to such stockholder and beneficial owner, if any, required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in an election contest pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder.

 

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(3) At the request of the Board, any person nominated by a stockholder for election or reelection as a director must furnish to the Secretary of the Corporation (A) that information required to be set forth in the stockholder’s notice of nomination of such person as a director as of a date subsequent to the date on which the notice of such person’s nomination was given and (B) such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director or audit committee financial expert of the corporation under applicable law, securities exchange rule or regulation, or any publicly-disclosed corporate governance guideline or committee charter of the Corporation and (C) that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee; in the absence of the furnishing of such information if requested, such stockholder’s nomination shall not be considered in proper form pursuant to this Section 2.3.

 

(4) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 2.3 to the contrary, in the event that the number of directors to be elected to the Board of the Corporation at the annual meeting is increased effective after the time period for which nominations would otherwise be due under paragraph (a)(2) of this Section 2.3, and there is no public announcement by the Corporation naming the nominees for the additional directorships at least one hundred (100) days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section 2.3 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.

 

(b)  Special Meetings of Stockholders .

 

(1) Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (A) by or at the direction of the Board or (B) provided that the Board has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time the notice provided for in this Section 2.3(b) is delivered to the Secretary of the Corporation and on the record date for the determination of stockholders entitled to vote at the special meeting , who is entitled to vote at the meeting and upon such election and who complies with the notice procedures set forth in this Section 2.3(b).

 

(2) In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors, any such stockholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder delivers a notice in the form as is required by paragraph (a)(2) of this Section 2.3 to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred twentieth (120th) day prior to such special meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such special meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

 

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(c)  General .

 

(1) Except as otherwise expressly provided in any applicable rule or regulation promulgated under the Exchange Act, only such persons who are nominated in accordance with the procedures set forth in this Section 2.3 shall be eligible to be elected at an annual or special meeting of stockholders to serve as directors, and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.3. Except as otherwise provided by law, the chairman of the meeting shall have the power and duty (A) to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 2.3, and (B) if any proposed nomination or business was not made or proposed in compliance with this Section 2.3, to declare that such nomination shall be disregarded or that such proposed business shall not be transacted. Notwithstanding the foregoing provisions of this Section 2.3, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders to present a nomination or proposed business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 2.3, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders, and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.

 

(2) A stockholder providing written notice required by this Section 2.3 shall update and supplement such notice in writing, if necessary, so that the information provided or required to be provided in such notice is true and correct in all material respects as of (i) the record date for the meeting and (ii) the date that is ten (10) business days prior to the meeting and, in the event of any adjournment or postponement thereof, ten (10) business days prior to such adjourned or postponed meeting. In the case of an update and supplement pursuant to clause (i) of this Section 2.3(c)(2), such update and supplement shall be received by the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting. In the case of an update and supplement pursuant to clause (ii) of this Section 2.3(c)(2), such update and supplement shall be received by the Secretary at the principal executive offices of the Corporation not later than five (5) business days prior to the date for the meeting, and, in the event of any adjournment or postponement thereof, five (5) business days prior to such adjourned or postponed meeting.

 

(3) For purposes of this Section 2.3, “ public announcement ” shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press, or other national news service, or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14, or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.

 

(4) Notwithstanding the foregoing provisions of this Section 2.3, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder with respect to the matters set forth in this Section 2.3; provided , however , that any references in these Bylaws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this Section 2.3, and compliance with this Section 2.3 shall be the exclusive means for a stockholder to make nominations or submit other business (other than, as provided in the last sentence of (a)(1), business other than nominations brought properly under and in compliance with Rule 14a-8 of the Exchange Act, as may be amended from time to time). Nothing in this Section 2.3 shall be deemed to affect any rights (A) of stockholders to request inclusion of proposals or nominations in the Corporation’s proxy statement pursuant to applicable rules and regulations promulgated under the Exchange Act, or (B) of the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of the certificate of incorporation

 

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Section 2.4. Notice of Meetings. Notice of all stockholders’ meetings shall be given in writing by the Secretary or another officer of the Corporation authorized to give such notice, or (b) in case of a special meeting duly requested by stockholders pursuant to Section 2.2 and for which the Secretary has refused to give notice, by the stockholders entitled to call such meeting. Notice of any stockholders’ meeting shall state the date and hour when and the place where it is to be held, if any (or, the means of remote communication, if any, by which stockholders may be deemed to be present in person and vote at such meeting), the record date for determining the stockholders entitled to vote at such meeting if such date is different from the record date for determining the stockholders entitled to notice of such meeting, and, in the case of a special meeting, the purpose or purposes for which such meeting is called. Subject to Section 7.3, and unless otherwise required by law, not more than sixty (60) nor less than ten (10) days prior to any such meeting, such notice shall be given to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting, directed by United States mail, postage prepaid, to such stockholder’s address as it appears upon the records of the Corporation.

 

Section 2.5. Record Date. The Board may fix a date, which date shall not precede the date upon which the resolution fixing such date is adopted by the Board and shall not be more than sixty (60) nor less than ten (10) days preceding any meeting of stockholders, as the record date for the determination of the stockholders entitled to notice of such meeting. If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on or before the date of such meeting shall be the date for making such determination. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which such meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided , however , that the Board may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the provisions of Section 213 of the DGCL and this Section 2.5 at the adjourned meeting. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

 

Section 2.6. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting; provided , however , that if the record date for determining the stockholders entitled to vote is less than ten (10) days before the meeting date, the list shall reflect the stockholders entitled to vote as of the tenth (10th) day before the meeting date, arranged in alphabetical order, and showing the address of each stockholder and the number of shares of stock registered in the name of each stockholder. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least ten (10) days prior to the meeting, during ordinary business hours, at the principal place of business of the Corporation. A list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place, if any, of the meeting during the whole time thereof and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to vote in person or by proxy at any meeting of stockholders.

 

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Section 2.7. Voting. Except as may be otherwise required by law, the Certificate of Incorporation, or these Bylaws, (a) every stockholder of record shall be entitled to one (1) vote for each share of stock held of record by such stockholder on the record date for determining the stockholders entitled to vote or act by written consent; (b) in all matters other than a contested election of directors, the affirmative vote of the majority of shares of stock present in person or represented by proxy at a stockholders’ meeting having a quorum and entitled to vote on the subject matter shall be the act of the stockholders; and (c) in a contested election of directors, directors shall be elected by a plurality of the votes of the shares of stock present in person or represented by proxy at a stockholders’ meeting having a quorum and entitled to vote on the election of directors. No stockholder will be permitted to cumulate votes at any election of directors.

 

Section 2.8. No Action by Written Consent . Subject to the rights of the holders of any series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of the stockholders of the Corporation and may not be effected by any consent in writing by the stockholders.

 

Section 2.9. Proxies. At any meeting of the stockholders, any stockholder entitled to vote thereat may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by transmission permitted by law filed in accordance with the procedure established for the meeting, but no proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL. A written proxy may be in the form of a telegram, cablegram, or other means of electronic transmission which sets forth or is submitted with information from which it can be determined that the telegram, cablegram, or other means of electronic transmission was authorized by the person.

 

Section 2.10. Quorum. Except as may be otherwise required by law or the Certificate of Incorporation, at any meeting of the stockholders, the presence in person or by proxy of the holders of record of shares of stock that would constitute a majority of the votes if all the issued and outstanding shares of stock entitled to vote at such meeting were present and voted shall be necessary to constitute a quorum; provided , however , that, where a separate vote by a class or series of stock is required, a quorum shall consist of the presence in person or by proxy of the holders of record of shares of stock that would constitute a majority of the votes of such class or series if all issued and outstanding shares of stock of such class or series entitled to vote at such meeting were present and voted. In the absence of a quorum and until a quorum is secured, either the chairman of the meeting or a majority of the votes cast at the meeting by stockholders who are present in person or by proxy may adjourn the meeting, from time to time, without further notice if the time and place of the adjourned meeting are announced at the meeting at which the adjournment is taken. No business shall be transacted at any such adjourned meeting except such as might have been lawfully transacted at the original meeting.

 

Section 2.11. Adjournment. Any meeting of stockholders may be adjourned at the meeting from time to time, either by the chairman of the meeting, for an announced proper purpose, or by the stockholders, for any purpose, to reconvene at a later time and at the same or some other place, if any, and by the same or other means of remote communication, if any, and, unless otherwise required by law, notice need not be given of any such adjourned meeting if the time and place, if any, or the means of remote communication, if any, thereof are announced at the meeting at which the adjournment is taken. If the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the Board shall fix a new record date for notice of such adjourned meeting in accordance with the DGCL and section 2.5 herein and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting. No business shall be transacted at any such adjourned meeting except such as might have been lawfully transacted at the original meeting.

 

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Section 2.12. Organization of Meetings. Meetings of stockholders shall be presided over by the chairman of the meeting, who shall be one of the following, here listed in the order of preference: (a) the Chairman of the Board; or (b) in the Chairman’s absence, the Chief Executive Officer; or (c) in the Chief Executive Officer’s absence, the President; or (d) in the President’s absence, a Vice President; or (d) in the absence of the foregoing officers, a chairman chosen by the stockholders at the meeting. The Secretary shall act as secretary of the meeting, but in such officer’s absence, the chairman of the meeting shall appoint a secretary of the meeting.

 

Section 2.13. Conduct of Meetings. Subject to and to the extent permitted by law, the Board may adopt by resolution such rules and regulations for the conduct of meetings of stockholders as it shall deem appropriate. Except to the extent inconsistent with law or such rules and regulations as adopted by the Board, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations, and procedures, and to do all such acts, as in the judgment of such chairman are appropriate for the proper conduct of the meeting. Such rules, regulations, or procedures, whether adopted by the Board or prescribed by the chairman of the meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting and announcement of the date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting; (b) rules and procedures for maintaining order at the meeting and the safety of those present; (c) limitations on attendance at or participation in the meeting to stockholders, their duly authorized proxies, or such other persons as the chairman of the meeting shall determine; (d) restrictions on entry to the meeting after the time fixed for the commencement thereof; (e) limitations on the time allotted to questions or comments by participants; and (f) appointment of inspectors of election and other voting procedures, including those procedures set out in Section 231 of the DGCL. Unless and to the extent determined otherwise by the Board or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

 

Section 2.14. Joint Owners Of Stock . If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in Section 217(b) of the DGCL. If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest.

 

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Article 3
Board of Directors

 

Section 3.1. Number. Except as may be otherwise provided in the Certificate of Incorporation and subject to the rights of holders of any series of Preferred Stock, the entire Board shall consist of one (1) or more directors, the total number thereof shall be authorized first by the incorporator of the Corporation and thereafter from time to time solely by resolution of the Board. Each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation, or removal. Directors need not be stockholders of the Corporation.

 

Section 3.2. Resignations and Vacancies.

 

(a) Any director may resign at any time upon notice given in writing or by electronic transmission to the Corporation; provided , however , that if such notice is given by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the director. A resignation is effective when the resignation is delivered unless the resignation specifies a later effective date or an effective date determined upon the happening of an event or events. Acceptance of such resignation shall not be necessary to make it effective. A resignation which is conditioned upon the director failing to receive a specified vote for reelection as a director may provide that it is irrevocable. Unless otherwise provided in the Certificate of Incorporation or these Bylaws, when one or more directors resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective.

 

(b) Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, and except as otherwise provided in the DGCL, vacancies occurring on the Board for any reason and newly created directorships resulting from an increase in the authorized number of directors shall be filled only by vote of a majority of the remaining members of the Board, although less than a quorum, or by a sole remaining director, at any meeting of the Board. A person so elected by the Board to fill a vacancy or newly created directorship shall hold office until the next election of the class for which such director shall have been assigned by the Board and until his or her successor shall be duly elected and qualified, or until such director’s earlier death, resignation, or removal.

 

Section 3.3. Meetings. The Board may by resolution provide for regular meetings to be held at such times and places as it may determine, and such meetings may be held without further notice. Special meetings of the Board may be called by the Chairman, the Chief Executive Officer, the President, or by not less than a majority of the directors then in office. Subject to Section 7.3, notice of the time and place of such meeting shall be given by or at the direction of the person or persons calling the meeting, and shall be delivered personally, telephoned, or sent by electronic mail or facsimile, to each director at least twenty-four (24) hours prior to the time of the meeting, or sent by First Class United States mail, postage prepaid, to each director at such director’s address as shown on the records of the Corporation, in which case such notice shall be deposited in the United States mail no later than the fourth (4th) business day preceding the day of the meeting. Unless otherwise specified in the notice of a special meeting, any and all business may be transacted at such meeting. Meetings of the Board, both regular and special, may be held either within or outside the State of Delaware. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the board of directors, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

 

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Section 3.4. Action Without a Meeting. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all the directors or all members of the committee, as the case may be, consent thereto in writing or by electronic transmission, and such writings or electronic transmissions are filed with the minutes of proceedings of the Board or committee, as the case may be.

 

Section 3.5. Quorum. At any meeting of the Board, the presence of (a) a majority of the directors then in office or (b) one-third (1/3) of the total number of directors, whichever is greater, shall be necessary to constitute a quorum for the transaction of business. Notwithstanding the foregoing, if at any meeting of the Board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time without further notice if the time and place of the adjourned meeting are announced at the meeting at which the adjournment is taken.

 

Section 3.6. Vote Necessary to Act and Participation by Conference Telephone. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board, except as may otherwise be provided by law, the Certificate of Incorporation, or these Bylaws. Participation in a meeting by conference telephone or similar means by which all participating directors can hear each other shall constitute presence in person at such meeting.

 

Section 3.7 Fees and Compensation of Directors . Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board shall have the authority to fix the compensation of directors.

 

Section 3.8. Executive and Other Committees.

 

(a) The Board may by resolution designate an Executive Committee and/or one or more other committees, each committee to consist of two (2) or more directors, except that the Executive Committee, if any, shall consist of not less than (3) directors. Any such committee, to the extent provided in such resolution or in these Bylaws, shall have and may exercise the powers and authority of the Board in the management of the business and affairs of the Corporation, except in reference to powers or authority expressly forbidden such committee by law, and may authorize the seal of the corporation to be fixed to all papers that may require it.

 

(b) During the intervals between meetings of the Board, the Executive Committee, unless restricted by resolution of the Board, shall possess and may exercise, under the control and direction of the Board, all of the powers of the Board in the management and control of the business of the Corporation to the fullest extent permitted by law. All action taken by the Executive Committee shall be reported to the Board at its first meeting thereafter and shall be subject to revision or rescission by the Board; provided , however , that rights of third parties shall not be affected by any such action by the Board.

 

(c) If any member of any such committee other than the Executive Committee is absent or disqualified, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member.

 

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(d) Any such committee shall meet at stated times or on notice to all of its own number. It shall fix its own rules of procedure. A majority shall constitute a quorum, but the affirmative vote of a majority of the whole committee shall be necessary to act in every case.

 

Section 3.9. Indemnification.

 

(a) Each person who was or is made a party to, or is threatened to be made a party to, or is involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter, a “ proceeding ”), by reason of the fact that he or she is or was a director or officer of the Corporation or 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, or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as such director, officer, employee, or agent, or in any other capacity while serving as such director, officer, employee, or agent, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than the DGCL permitted the Corporation to provide prior to such amendment), against all expense, liability, and loss (including attorneys’ fees, judgments, fines, other expenses and losses, amounts paid or to be paid in settlement, and excise taxes or penalties arising under the Employee Retirement Income Security Act of 1974) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee, or agent, and shall inure to the benefit of his or her heirs, executors, and administrators; provided , however , that, except as provided in paragraph (b) hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board. The right to indemnification conferred in this Section 3.9 shall be a contract right and shall include the right of a director or officer to be paid by the Corporation the expenses (including attorneys’ fees) incurred in defending any such proceeding in advance of its final disposition; provided , however , that the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking, which undertaking shall itself be sufficient without the need for further evaluation of any credit aspects of the undertaking or with respect to such advancement, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined by a final, non-appealable order of a court of competent jurisdiction that such director or officer is not entitled to be indemnified under this Section 3.9 or otherwise.

 

(b) If a claim under Section 3.9(a) is not paid in full by the Corporation within sixty (60) days after a written claim, together with reasonable evidence as to the amount of such claim, has been received by the Corporation, except in the case of a claim for advancement of expenses (including attorneys’ fees), in which case the applicable period shall be twenty (20) days, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense, including attorneys’ fees, of prosecuting such suit. It shall be a defense to any such suit, other than a suit brought to enforce a claim for expenses (including attorneys’ fees) incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation, that the claimant has not met the standards of conduct that make it permissible under the DGCL for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including the Board or a committee thereof, independent legal counsel, or the stockholders) to have made a determination prior to the commencement of such suit that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including the Board or a committee thereof, independent legal counsel, or the stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the suit or create a presumption that the claimant has not met the applicable standard of conduct. In any suit brought by an indemnitee to enforce a right to indemnification or to advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to such indemnification, or to such advancement of expenses, under this Section 3.9 or otherwise shall be on the Corporation.

 

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(c) The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section 3.9 shall not be exclusive of any other right that any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, or vote of stockholders or disinterested directors, or otherwise.

 

(d) The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of the Corporation or another corporation, partnership, joint venture, trust, or other enterprise against any such expense, liability, or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability, or loss under the DGCL.

 

(e) In the case of a claim for indemnification or advancement of expenses against the Corporation under this Section 3.9 arising out of acts, events, or circumstances for which the claimant, who was at the relevant time serving as a director, officer, employee, or agent of any other entity at the request of the Corporation, may be entitled to indemnification or advancement of expenses pursuant to such other entity’s certificate of incorporation, bylaws, or other governing document, or a contractual agreement between the claimant and such entity, the claimant seeking indemnification or advancement of expenses hereunder shall first seek indemnification or advancement of expenses pursuant to any such governing document or agreement. To the extent that amounts to be paid in indemnification or advancement to a claimant hereunder are paid by such other entity, the claimant’s right to indemnification and advancement of expenses hereunder shall be reduced .

 

Section 3.10. Removal. Except as may be otherwise provided in the Certificate of Incorporation and subject to the rights of holders of any series of Preferred Stock, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors.

 

Section 3.11. Chairman. The Board shall elect a Chairman from among the directors. The Chairman shall preside at all meetings of the Board and shall perform such other duties as may be directed by resolution of the Board or as otherwise set forth in these Bylaws.

 

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Article 4
Officers

 

Section 4.1. Officers Generally. The Corporation shall have the Chief Executive Officer, the President, the Chief Financial Officer, Chief Operating Officer, the Secretary, the Treasurer and one or more Vice Presidents, all of whom shall be chosen by the Board. The Corporation may also have one or more Assistant Secretaries, Assistant Treasurers, and other officers and agents as the Board may deem advisable, all of whom shall be chosen by the Board. The Board may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the Corporation at any one time unless specifically prohibited therefrom by law. All officers shall hold office for one (1) year and until their successors are selected and qualified, unless otherwise specified by the Board; provided , however , that any officer shall be subject to removal at any time by Board and the Board may fill any vacant officer position. The officers shall have such powers and shall perform such duties, executive or otherwise, as from time to time may be assigned to them by the Board and, to the extent not so assigned, as generally pertain to their respective offices, subject to the control of the Board. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board.

 

Section 4.2. Duties of Officers.

 

(a) Chief Executive Officer. The Chief Executive Officer shall preside at all meetings of the stockholders and at all meetings of the Board, unless the Chairman of the Board has been appointed and is present. Unless an officer has been appointed Chief Executive Officer of the Corporation, the President shall be the chief executive officer of the Corporation and shall, subject to the control of the Board, have general supervision, direction and control of the business and officers of the Corporation. To the extent that a Chief Executive Officer has been appointed and no President has been appointed, all references in these Bylaws to the President shall be deemed references to the Chief Executive Officer. The Chief Executive Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board shall designate from time to time.

 

(b) President . The President shall preside at all meetings of the stockholders and at all meetings of the Board (if a director), unless the Chairman of the Board or the Chief Executive Officer has been appointed and is present. Unless another officer has been appointed Chief Executive Officer of the corporation, the President shall be the chief executive officer of the Corporation and shall, subject to the control of the Board, have general supervision, direction and control of the business and officers of the Corporation. The President shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board shall designate from time to time.

 

(c) Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the Corporation in a thorough and proper manner and shall render statements of the financial affairs of the Corporation in such form and as often as required by the Board or the President. The Chief Financial Officer, subject to the order of the Board, shall have the custody of all funds and securities of the Corporation. The Chief Financial Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board or the President shall designate from time to time. To the extent that a Chief Financial Officer has been appointed and no Treasurer has been appointed, all references in these Bylaws to the Treasurer shall be deemed references to the Chief Financial Officer. The President may direct the Treasurer, if any, or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board or the President shall designate from time to time.

 

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(d) Chief Operating Officer . The Chief Operating Officer shall preside at all meetings of the stockholders and at all meetings of the Board (if a director), unless the Chairman of the Board, the Chief Executive Officer or the President has been appointed and is present. The Chief Operating Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board, Chief Executive Officer or President shall designate from time to time.

 

(e) Secretary . The Secretary shall attend all meetings of the stockholders and of the Board and shall record all acts and proceedings thereof in the minute book of the Corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board and any committee thereof requiring notice. The Secretary shall perform all other duties provided for in these Bylaws and other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board shall designate from time to time. The President may direct any Assistant Secretary or other officer to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board or the President shall designate from time to time.

 

(f) Treasurer . Unless another officer has been appointed Chief Financial Officer of the Corporation, the Treasurer shall be the chief financial officer of the Corporation and shall keep or cause to be kept the books of account of the Corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board, the Chief Executive Officer or the President, and, subject to the order of the Board, shall have the custody of all funds and securities of the Corporation. The Treasurer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board, the Chief Executive Officer or the President shall designate from time to time.

 

(g) Vice Presidents . The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board or the Chief Executive Officer, or, if the Chief Executive Officer has not been appointed or is absent, the President shall designate from time to time.

 

(h) Other Officers . Other officers of the Corporation shall have such powers and shall perform such duties as may be assigned by the Board.

 

Section 4.3. Authority to Sign. The Board may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the Corporation any corporate instrument or document, or to sign on behalf of the Corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the Corporation. All checks and drafts drawn on banks or other depositaries on funds to the credit of the Corporation or in special accounts of the Corporation shall be signed by such person or persons as the Board shall authorize so to do. Unless authorized or ratified by the Board or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

 

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Section 4.4. Voting Of Securities Owned By The Corporation . All stock and other securities of other corporations owned or held by the Corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board, or, in the absence of such authorization, by the Chairman of the Board, the Chief Executive Officer, the President, or any Vice President.

 

Article 5
Stock

 

Section 5.1. Certificates. Shares of stock shall be represented by certificates, provided that the Board may provide by resolution that some or all of any or all classes or series of stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Every holder of record of stock represented by certificates shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman, the Chief Executive Officer, the President, the Chief Financial Officer, the Chief Operating Officer or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, certifying the number of shares of stock owned by such holder. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue.

 

Section 5.2. Lost, Stolen, or Destroyed Stock Certificates; Issuance of New Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owner’s legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.

 

Section 5.3. Transfers . Transfers of record of shares of stock of the Corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and, in the case of stock represented by certificate, upon the surrender of a properly endorsed certificate or certificates for a like number of shares. The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.

 

Section 5.4. Registered Stockholders . The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

 

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ARTICLE 6
DIVIDENDS

 

Section 6.1. Declaration Of Dividends . Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law.

 

Section 6.2. Dividend Reserve . Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board shall think conducive to the interests of the corporation, and the Board may modify or abolish any such reserve in the manner in which it was created.

 

Article 7
GENERAL MATTERS

 

Section 7.1. Seal. The corporate seal shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board.

 

Section 7.2. Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board.

 

Section 7.3. Waiver of Notice of Meetings of Stockholders, Directors, and Committees. Any waiver of notice given by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, and does object, at the beginning of such meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of the Board need be specified in a waiver of notice.

 

Section 7.4. Amendments to the Bylaws . Subject to the provisions of the Certificate of Incorporation, the Board is expressly empowered to adopt, amend or repeal the Bylaws of the Corporation. The stockholders also shall 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 law or by the Certificate of Incorporation, any amendment or modification of Section 2.2, Section 2.3, Section 2.7, Section 2.8, Section 3.1, Section 3.2, Section 3.9, Section 3.10 and this Section 7.4 shall require the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class.

 

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Article 8
Construction and Defined Terms

 

Section 8.1. Construction. As appropriate in context, whenever the singular number is used in these Bylaws, the same includes the plural, and whenever the plural number is used in these Bylaws, the same includes the singular. As used in these Bylaws, each of the neuter, masculine, and feminine genders includes the other two genders. As used in these Bylaws, “include,” “includes,” and “including” shall be deemed to be followed by “without limitation”.

 

Section 8.2. Defined Terms. As used in these Bylaws,

 

Affiliates ” and “ associates ” shall have the meanings set forth in Rule 405 under the Securities Act.

 

Board means the board of directors of the Corporation.

 

Bylaws means these bylaws of the Corporation, as the same may be amended from time to time.

 

Certificate of Incorporation means the Certificate of Incorporation of the Corporation, as the same may be amended from time to time.

 

Common Stock means the common stock of the Corporation, par value $0.001 per share.

 

Corporation means IMAC Holdings, Inc.

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

DGCL means the General Corporation Law of the State of Delaware, as the same may be amended from time to time.

 

Securities Act means the Securities Act of 1933, as amended.

 

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No. ______ Incorporated under the Laws of the State of Delaware _________ SHARES

 

IMAC HOLDINGS, INC.

AUTHORIZED CAPITAL, 30,000,000 SHARES COMMON STOCK, PAR VALUE $0.001 PER SHARE

SEE REVERSE FOR CERTAIN DEFINITIONS

 

THIS CERTIFIES THAT ___________________________________________________________________ IS THE OWNER OF

 

_______________________________________________________________________________ fully-paid and non-assessable Shares of the above Corporation, transferable only on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of this Certificate properly endorsed.

 

In Witness Whereof, the said Corporation has caused this Certificate to be signed by its duly authorized officers and to be sealed with the Seal of the Corporation.

 

Dated: ____________________

 

     
____________, President   _____________, Secretary

 

 
 

 

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations. Additional abbreviations may also be used though not in the list.

 

TEN COM   as tenants in common   Unif Gift Min Act -   ________ Custodian __________ (Minor)
TEN ENT   tenants by the entireties       Under Uniform Gifts to Minors Act: _______ (State)

JT TEN

 

as joint tenants with right of survivorship and not as tenants in common

  Unif Trf Min Act -  

________ Custodian __________ (Minor)

Under _______ (State) Uniform Transfers to Minors Act

 

For value received, the undersigned hereby sells, assigns and transfers unto

 

    _______________________  
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)   PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE

 

as joint tenants with right of survivorship and not as tenants in common

 

 

Shares represented by the within Certificate, and hereby irrevocably constitutes and appoints _____________________________ Attorney, to transfer the said shares on the books of the within named Corporation with full power of substitution in the premises.

 

Dated __________________   By: _________________________________________  
     
In presence of      

 

By: _______________________________________________

      

 

NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

 

 

 
 

 

 

EXHIBIT 10.1

   

 

 

IMAC HOLDINGS, INC.

 

2018 INCENTIVE COMPENSATION PLAN

 

 

 

     
 

 

IMAC HOLDINGS, INC.

2018 INCENTIVE COMPENSATION PLAN

 

1. Purpose . IMAC Holdings, Inc., a Delaware corporation (the “ Company ”), hereby establishes the IMAC HOLDINGS, INC. 2018 INCENTIVE COMPENSATION PLAN (the “ Plan ”). The purpose of the Plan is to assist the Company and its Related Entities (as hereinafter defined) in attracting, motivating, retaining and rewarding high-quality executives and other employees, officers, directors, consultants and other persons who provide services to the Company or its Related Entities by enabling such persons to acquire or increase a proprietary interest in the Company in order to strengthen the mutuality of interests between such persons and the Company’s shareholders, and providing such persons with performance incentives to expend their maximum efforts in the creation of shareholder value.

 

2. Definitions . For purposes of the Plan, the following terms shall be defined as set forth below, in addition to such terms defined in Section 1 hereof.

 

(a) “ Award ” means any Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award, Deferred Stock Award, Share granted as a bonus or in lieu of another award, Dividend Equivalent, Other Stock-Based Award or Performance Award, together with any other right or interest, granted to a Participant under the Plan.

 

(b) “ Award Agreement ” means any written agreement, contract or other instrument or document evidencing any Award granted by the Committee hereunder.

 

(c) “ Beneficiary ” means the person, persons, trust or trusts that have been designated by a Participant in his or her most recent written beneficiary designation filed with the Committee to receive the benefits specified under the Plan upon such Participant’s death or to which Awards or other rights are transferred if and to the extent permitted under Section 10(b) hereof. If, upon a Participant’s death, there is no designated Beneficiary or surviving designated Beneficiary, then the term Beneficiary means the person, persons, trust or trusts entitled by will or the laws of descent and distribution to receive such benefits.

 

(d) “ Beneficial Owner ” shall have the meaning ascribed to such term in Rule 13d-3 under the Exchange Act and any successor to such Rule.

 

(e) “ Board ” means the Company’s Board of Directors.

 

(f) “ Cause ” shall, with respect to any Participant have the meaning specified in the Award Agreement. In the absence of any definition in the Award Agreement, “Cause” shall have the equivalent meaning or the same meaning as “cause” or “for cause” set forth in any employment, consulting, or other agreement for the performance of services between the Participant and the Company or a Related Entity or, in the absence of any such agreement or any such definition in such agreement, such term shall mean (i) the failure by the Participant to perform, in a reasonable manner, his or her duties as assigned by the Company or a Related Entity, (ii) any violation or breach by the Participant of his or her employment, consulting or other similar agreement with the Company or a Related Entity, if any, (iii) any violation or breach by the Participant of any non-competition, non-solicitation, non-disclosure and/or other similar agreement with the Company or a Related Entity, (iv) any act by the Participant of dishonesty or bad faith with respect to the Company or a Related Entity, (v) use of alcohol, drugs or other similar substances in a manner that adversely affects the Participant’s work performance, or (vi) the commission by the Participant of any act, misdemeanor, or crime reflecting unfavorably upon the Participant or the Company or any Related Entity. The good faith determination by the Committee of whether the Participant’s Continuous Service was terminated by the Company for “Cause” shall be final and binding for all purposes hereunder.

 

     
 

 

(g) “ Change in Control ” means a Change in Control as defined with related terms in Section 9(b) of the Plan.

 

(h) “ Code ” means the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and successor provisions and regulations thereto.

 

(i) “ Committee ” means a committee designated by the Board to administer the Plan; provided , however , that if the Board fails to designate a committee or if there are no longer any members on the committee so designated by the Board, then the Board shall serve as the Committee. The Committee shall consist of at least two directors, and each member of the Committee shall be (i) a “non-employee director” within the meaning of Rule 16b-3 (or any successor rule) under the Exchange Act, unless administration of the Plan by “non-employee directors” is not then required in order for exemptions under Rule 16b-3 to apply to transactions under the Plan and (ii) an “independent director” under the NASDAQ listing requirements, or any similar rule or listing requirement that may be applicable to the Company from time to time.

 

(j) “ Consultant ” means any person (other than an Employee or a Director, solely with respect to rendering services in such person’s capacity as a director) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity.

 

(k) “ Continuous Service ” means the uninterrupted provision of services to the Company or any Related Entity in any capacity of Employee, Director, Consultant or other service provider. Continuous Service shall not be considered to be interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any Related Entities, or any successor entities, in any capacity of Employee, Director, Consultant or other service provider, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director, Consultant or other service provider (except as otherwise provided in the Award Agreement). An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave. For purposes of each Incentive Stock Option granted under the Plan, if such leave exceeds three (3) months, and reemployment upon expiration of such leave is not guaranteed by statute or contract, then the Incentive Stock Option shall be treated as a Non-Qualified Stock Option on the day three (3) months and one (1) day following the expiration of such three (3) month period.

 

(l) “ Deferred Stock ” means a right to receive Shares, including Restricted Stock, cash or a combination thereof, at the end of a specified deferral period.

 

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(m) “ Deferred Stock Award ” means an Award of Deferred Stock granted to a Participant under Section 6(e) hereof.

 

(n) “ Director ” means a member of the Board or the board of directors of any Related Entity.

 

(o) “ Disability ” means a permanent and total disability (within the meaning of Section 22(e) of the Code), as determined by a medical doctor satisfactory to the Committee. Notwithstanding the foregoing, for Awards subject to Section 409A of the Code, Disability shall mean that a Participant is disabled under Section 409A(a)(2)(C)(i) or (ii) of the Code.

 

(p) “ Dividend Equivalent ” means a right, granted to a Participant under Section 6(g) hereof, to receive cash, Shares, other Awards or other property equal in value to dividends paid with respect to a specified number of Shares, or other periodic payments.

 

(q) “ Effective Date ” has the meaning set forth in Section 10(s).

 

(r) “ Eligible Person ” means each officer, Director, Employee, Consultant and other person who provides services to the Company or any Related Entity. The foregoing notwithstanding, only Employees of the Company, or any parent corporation or subsidiary corporation of the Company (as those terms are defined in Sections 424(e) and (f) of the Code, respectively), shall be Eligible Persons for purposes of receiving any Incentive Stock Options. An Employee on leave of absence may be considered as still in the employ of the Company or a Related Entity for purposes of eligibility for participation in the Plan.

 

(s) “ Employee ” means any person, including an officer or Director, who is an employee of the Company or any Related Entity. The payment of a director’s fee by the Company or a Related Entity shall not be sufficient to constitute “employment” by the Company.

 

(t) “ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time, including rules thereunder and successor provisions and rules thereto.

 

(u) “ Fair Market Value ” or “ FMV ” means, as of any date, the value of a Share determined as follows:

 

(i) If the Share is listed on one or more established stock exchanges or national market systems, including without limitation, The NASDAQ Global Select Market, The NASDAQ Global Market or The NASDAQ Capital Market of The NASDAQ Stock Market LLC, its Fair Market Value shall be the closing sales price for such Share (or the closing bid, if no sales were reported) as quoted on the principal exchange or system on which the Share is listed (as determined by the Committee) on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last immediately preceding trading date such closing sales price or closing bid was reported), as reported in The Wall Street Journal or such other source as the Committee deems reliable;

 

(ii) If the Share is regularly quoted on an automated quotation system (including a marketplace operated by the OTC Markets Group, Inc.) or by a recognized securities dealer, its Fair Market Value shall be the closing sales price for such Share as quoted on such system or by such securities dealer on the date of determination, but if selling prices are not reported, the Fair Market Value of a Share shall be the mean between the high bid and low asked prices for the Share on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall Street Journal or such other source as the Committee deems reliable; or

 

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(iii) In the absence of an established market for the Share of the type described in (i) and (ii), above, the Fair Market Value thereof shall be determined by the Committee in good faith using any reasonable method of valuation, which method may be set forth with greater specificity in the Award Agreement, (and, to the extent necessary or advisable, in a manner consistent with Section 409A of the Code and Section 422 of the Code for Incentive Stock Options), which determination shall be conclusive and binding on all interested parties. Such reasonable method may be determined by reference to (i) the placing price of the latest private placement of the Shares and the development of the Company’s business operations and the general economic and market conditions since such latest private placement; (ii) other third party transactions involving the Shares and the development of the Company’s business operation and the general economic and market conditions since such sale; (iii) an independent valuation of the Shares (by a qualified valuation expert) or (iv) such other methodologies or information as the Committee determines to be indicative of Fair Market Value.

 

(v) “ Good Reason ” shall, with respect to any Participant, have the meaning specified in the Award Agreement. In the absence of any definition in the Award Agreement, “Good Reason” shall have the equivalent meaning or the same meaning as “good reason” or “for good reason” set forth in any employment, consulting or other agreement for the performance of services between the Participant and the Company or a Related Entity or, in the absence of any such agreement or any such definition in such agreement, such term shall mean (i) the assignment to the Participant of any duties inconsistent in any material respect with the Participant’s position, authority, duties or responsibilities as assigned by the Company or a Related Entity, or any other action by the Company or a Related Entity which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose any action not taken in bad faith and which is remedied by the Company or a Related Entity promptly after receipt of notice thereof given by the Participant, or any action taken with the consent of the Participant; or (ii) any material failure by the Company or a Related Entity to comply with its obligations to the Participant as agreed upon, other than any failure not occurring in bad faith and which is remedied by the Company or a Related Entity promptly after receipt of notice thereof given by the Participant.

 

(w) “ Incentive Stock Option ” means any Option intended to be designated as an “incentive stock option” within the meaning of Section 422 of the Code or any successor provision thereto and that meets the requirements set out in the Plan.

 

(x) “ Independent ,” when referring to either the Board or members of the Committee, shall have the same meaning as used in the rules of NASDAQ or any national securities exchange on which any securities of the Company are listed for trading and, if not quoted or listed for trading, by the rules of NASDAQ.

 

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(y) “ Incumbent Board ” means the Incumbent Board as defined in Section 9(b)(ii) of the Plan.

 

(z) “ Non-Qualified Stock Option ” means an Option that, by its terms, does not qualify or is not intended to qualify as an Incentive Stock Option.

 

(aa) “ Option ” means a right granted to a Participant under Section 6(b) hereof, to purchase Shares or other Awards at a specified price during specified time periods.

 

(bb) “ Optionee ” means a person to whom an Option is granted under this Plan or any person who succeeds to the rights of such person under this Plan.

 

(cc) “ Other Stock-Based Awards ” means Awards granted to a Participant under Section 6(i) hereof.

 

(dd) “ Outside Director ” means a member of the Board who is not an Employee.

 

(ee) “ Participant ” means a person who has been granted an Award under the Plan which remains outstanding, including a person who is no longer an Eligible Person.

 

(ff) “ Performance Award ” shall mean any Award of Performance Shares or Performance Units granted pursuant to Section 6(h).

 

(gg) “ Performance Period ” means that period established by the Committee at the time any Performance Award is granted or at any time thereafter during which any performance goals specified by the Committee with respect to such Award are to be measured.

 

(hh) “ Performance Share ” means any grant pursuant to Section 6(h) of a unit valued by reference to a designated number of Shares, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including cash, Shares, other property, or any combination thereof, upon achievement of such performance goals during the Performance Period as the Committee shall establish at the time of such grant or thereafter.

 

(ii) “ Performance Unit ” means any grant pursuant to Section 6(h) of a unit valued by reference to a designated amount of property (including cash) other than Shares, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including cash, Shares, other property, or any combination thereof, upon achievement of such performance goals during the Performance Period as the Committee shall establish at the time of such grant or thereafter.

 

(jj) “ Person ” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, and shall include a “group” as defined in Section 13(d) thereof.

 

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(kk) “ Related Entity ” means any Subsidiary, and any business, corporation, partnership, limited liability company or other entity designated by Board in which the Company or a Subsidiary holds a substantial ownership interest, directly or indirectly.

 

(ll) “ Restricted Stock ” means any Share issued with the restriction that the holder may not sell, transfer, pledge or assign such Share and with such risks of forfeiture and other restrictions as the Committee, in its sole discretion, may impose (including any restriction on the right to vote such Share and the right to receive any dividends), which restrictions may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate.

 

(mm) “ Restricted Stock Award ” means an Award granted to a Participant under Section 6(d) hereof.

 

(nn) “ Restricted Stock Unit ” means an Award granted to a Participant under Section 6(d) hereof.

 

(oo) “ Rule 16b-3 ” means Rule 16b-3, as from time to time in effect and applicable to the Plan and Participants, promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act.

 

(pp) “ Shares ” means the shares of common stock of the Company, par value $.001 per share, and such other securities as may be substituted (or resubstituted) for Shares pursuant to Section 10(c) hereof.

 

(qq) “ Stock Appreciation Right ” means a right granted to a Participant under Section 6(c) hereof.

 

(rr) “ Subsidiary ” means any corporation or other entity in which the Company has a direct or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities or interests of such corporation or other entity entitled to vote generally in the election of directors or in which the Company has the right to receive 50% or more of the distribution of profits or 50% or more of the assets on liquidation or dissolution.

 

(ss) “ Substitute Awards ” shall mean Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, by a company acquired by the Company or any Related Entity or with which the Company or any Related Entity combines.

 

3. Administration .

 

(a) Authority of the Committee . The Plan shall be administered by the Committee, except to the extent the Board elects to administer the Plan, in which case the Plan shall be administered by only those directors who are Independent Directors, in which case references herein to the “Committee” shall be deemed to include references to the Independent members of the Board. The Committee shall have full and final authority, subject to and consistent with the provisions of the Plan, to select Eligible Persons to become Participants, grant Awards, determine the type, number and other terms and conditions of, and all other matters relating to, Awards, prescribe Award Agreements (which need not be identical for each Participant) and rules and regulations for the administration of the Plan, construe and interpret the Plan and Award Agreements and correct defects, supply omissions or reconcile inconsistencies therein, and to make all other decisions and determinations as the Committee may deem necessary or advisable for the administration of the Plan. In exercising any discretion granted to the Committee under the Plan or pursuant to any Award, the Committee shall not be required to follow past practices, act in a manner consistent with past practices, or treat any Eligible Person or Participant in a manner consistent with the treatment of other Eligible Persons or Participants.

 

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(b) Manner of Exercise of Committee Authority . The Committee, and not the Board, shall exercise sole and exclusive discretion on any matter relating to a Participant then subject to Section 16 of the Exchange Act with respect to the Company to the extent necessary in order that transactions by such Participant shall be exempt under Rule 16b-3 under the Exchange Act. Any action of the Committee shall be final, conclusive and binding on all persons, including the Company, its Related Entities, Participants, Beneficiaries, transferees under Section 10(b) hereof or other persons claiming rights from or through a Participant, and shareholders. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may delegate to officers or managers of the Company or any Related Entity, or committees thereof, the authority, subject to such terms as the Committee shall determine, to perform such functions, including administrative functions as the Committee may determine to the extent that such delegation will not result in the loss of an exemption under Rule 16b-3(d)(1) for Awards granted to Participants subject to Section 16 of the Exchange Act in respect of the Company. The Committee may appoint agents to assist it in administering the Plan.

 

(c) Limitation of Liability . The Committee and the Board, and each member thereof, shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any officer or Employee, the Company’s independent auditors, Consultants or any other agents assisting in the administration of the Plan. Members of the Committee and the Board, and any officer or Employee acting at the direction or on behalf of the Committee or the Board, shall not be personally liable for any action or determination taken or made in good faith with respect to the Plan, and shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action or determination.

 

4. Shares Subject to Plan .

 

(a) Limitation on Overall Number of Shares Available for Delivery Under Plan . Subject to adjustment as provided in Section 10(c) hereof, the total number of Shares reserved and available for delivery under the Plan shall be 1,000,000, all of which may be Incentive Stock Options. Any Shares delivered under the Plan may consist, in whole or in part, of authorized and unissued shares or treasury shares.

 

(b) Application of Limitation to Grants of Award . No Award may be granted if the number of Shares to be delivered in connection with such an Award or, in the case of an Award relating to Shares but settled only in cash (such as cash-only Stock Appreciation Rights), the number of Shares to which such Award relates, exceeds the number of Shares remaining available for delivery under the Plan, minus the number of Shares deliverable in settlement of or relating to then outstanding Awards. The Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid double counting (as, for example, in the case of tandem or substitute awards) and make adjustments if the number of Shares actually delivered differs from the number of Shares previously counted in connection with an Award.

 

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(c) Share Accounting. Without limiting the discretion of the Committee under this section, the following rules will apply for purposes of the determination of the number of Shares available for grant under the Plan or compliance with the foregoing limits:

 

(i) If an outstanding Award for any reason expires or is terminated or canceled without having been exercised or settled in full, or if Shares acquired pursuant to an Award subject to forfeiture are forfeited under the terms of the Plan or the relevant Award, the Shares allocable to the terminated portion of such Award or such forfeited Shares shall again be available for issuance under the Plan.

 

(ii) Shares shall not be deemed to have been issued pursuant to the Plan with respect to any portion of an Award that is settled in cash, other than an Option.

 

(iii) If the exercise price of an Option is paid by tender to the Company, or attestation to the ownership, of Shares owned by the Participant, or an Option is settled without the payment of the exercise price, or the payment of taxes with respect to any Award is settled by a net exercise, the number of shares available for issuance under the Plan shall be reduced by the gross number of shares for which the Option is exercised or other Awards that have vested.

 

(iv) Substitute Awards shall not reduce the Shares authorized for grant under the Plan or authorized for grant to a Participant in any period. Additionally, in the event that a company acquired by the Company or any Related Entity or with which the Company or any Related Entity combines has shares available under a pre-existing plan approved by shareholders and not adopted in contemplation of such acquisition or combination, the shares available for delivery pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for delivery under the Plan; provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not Employees or Directors prior to such acquisition or combination.

 

(v) Any Shares that again become available for delivery pursuant to this Section 4(c) shall be added back as one (1) Share.

 

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(vi) Notwithstanding anything in this Section 4(c) to the contrary and solely for purposes of determining whether Shares are available for the delivery of Incentive Stock Options, the maximum aggregate number of shares that may be granted under this Plan shall be determined without regard to any Shares restored pursuant to this Section 4(c) that, if taken into account, would cause the Plan to fail the requirement under Code Section 422 that the Plan designate a maximum aggregate number of shares that may be issued.

 

(d) Limitation on Number of Shares Granted to Outside Directors. Notwithstanding any provision in the Plan to the contrary, the sum of the grant date Fair Market Value of equity-based Awards and the amount of any cash-based Awards granted to an Outside Director during any calendar year shall not exceed [five hundred thousand dollars ($500,000)].

 

5. Eligibility and Participation. Individuals eligible to participate in the Plan include all Employees, Directors, and all Consultants and advisers to the Company and Related Entities, as determined by the Committee. Subject to the provisions of the Plan, the Committee may, from time to time, select from all Eligible Persons, those to whom Awards shall be granted and shall determine, in its sole discretion, the nature of, any and all terms permissible by law, and the amount of each Award. In making this determination, the Committee may consider any factors it deems relevant, including without limitation, the office or position held by a Participant or the Participant’s relationship to the Company, the Participant’s degree of responsibility for and contribution to the growth and success of the Company or any Related Entity, the Participant’s length of service, promotions and potential.

 

6. Specific Terms of Awards .

 

(a) General . Awards may be granted on the terms and conditions set forth in this Section 6. In addition, the Committee may impose on any Award or the exercise thereof, at the date of grant or thereafter (subject to Section 10(e)), such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine, including terms requiring forfeiture of Awards in the event of termination of the Participant’s Continuous Service and terms permitting a Participant to make elections relating to his or her Award. The Committee shall retain full power and discretion to accelerate, waive or modify, at any time, any term or condition of an Award that is not mandatory under the Plan. Except in cases in which the Committee is authorized to require other forms of consideration under the Plan, or to the extent other forms of consideration must be paid to satisfy the requirements of applicable law, no consideration other than services may be required for the grant (but not the exercise) of any Award.

 

(b) Options . The Committee is authorized to grant Options to any Eligible Person on the following terms and conditions:

 

(i) Exercise Price . Other than in connection with Substitute Awards, the exercise price per Share purchasable under an Option shall be determined by the Committee, provided that such exercise price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of the Option and shall not, in any event, be less than the par value of a Share on the date of grant of the Option. If an Employee owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company (or any parent corporation or subsidiary corporation of the Company, as those terms are defined in Sections 424(e) and (f) of the Code, respectively) and an Incentive Stock Option is granted to such employee, the exercise price of such Incentive Stock Option (to the extent required by the Code at the time of grant) shall be no less than 110% of the Fair Market Value a Share on the date such Incentive Stock Option is granted.

 

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(ii) Time and Method of Exercise . The Committee shall determine the time or times at which or the circumstances under which an Option may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the time or times at which Options shall cease to be or become exercisable following termination of Continuous Service or upon other conditions, the methods by which the exercise price may be paid or deemed to be paid (including in the discretion of the Committee a cashless exercise procedure), the form of such payment, including, without limitation, cash, Shares, other Awards or awards granted under other plans of the Company or a Related Entity, or other property (including notes or other contractual obligations of Participants to make payment on a deferred basis provided that such deferred payments are not in violation of Section 409A of the Code, or any rule or regulation adopted thereunder or any other applicable law), and the methods by or forms in which Shares will be delivered or deemed to be delivered to Participants.

 

(iii) Incentive Stock Options . The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code. If an Option is intended to be an Incentive Stock Option, and if, for any reason, such Option (or any portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such nonqualification, such Option (or portion thereof) shall be regarded as a Non-Qualified Stock Option appropriately granted under the Plan; provided that such Option (or portion thereof) otherwise complies with the Plan’s requirements relating to Non-Qualified Stock Options. Anything in the Plan to the contrary notwithstanding, no term of the Plan relating to Incentive Stock Options (including any Stock Appreciation Right issued in tandem therewith) shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify either the Plan or any Incentive Stock Option under Section 422 of the Code, unless the Participant has first requested, or consents to, the change that will result in such disqualification. Thus, if and to the extent required to comply with Section 422 of the Code, Options granted as Incentive Stock Options shall be subject to the following special terms and conditions:

 

(A) an Incentive Stock Option shall not be exercisable more than ten years after the date such Incentive Stock Option is granted; provided , however , that if a Participant owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company (or any parent corporation or subsidiary corporation of the Company, as those terms are defined in Sections 424(e) and (f) of the Code, respectively) and the Incentive Stock Option is granted to such Participant, the term of the Incentive Stock Option shall be (to the extent required by the Code at the time of the grant) for no more than five years from the date of grant; and

 

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(B) The aggregate Fair Market Value (determined as of the date the Incentive Stock Option is granted) of the Shares with respect to which Incentive Stock Options granted under the Plan and all other option plans of the Company (and any parent corporation or subsidiary corporation of the Company, as those terms are defined in Sections 424(e) and (f) of the Code, respectively) during any calendar year exercisable for the first time by the Participant during any calendar year shall not (to the extent required by the Code at the time of the grant) exceed $100,000. To the extent that Incentive Stock Options are first exercisable by a Participant in excess of such limitation, the excess shall be considered Non-Qualified Stock Options.

 

(C) Each person exercising any Incentive Stock Option granted under the Plan shall be deemed to have covenanted with the Company to report to the Company any disposition of such Shares prior to the expiration of the holding periods specified by Section 422(a)(1) of the Code and, if and to the extent that the realization of income in such a disposition imposes upon the Company federal, state, local or other withholding tax requirements, or any such withholding is required to secure for the Company an otherwise available tax deduction, to remit to the Company an amount in cash sufficient to satisfy those requirements.

 

(c) Stock Appreciation Rights . The Committee may grant Stock Appreciation Rights to any Eligible Person in conjunction with all or part of any Option granted under the Plan or at any subsequent time during the term of such Option (a “ Tandem Stock Appreciation Right ”), or without regard to any Option (a “ Freestanding Stock Appreciation Right ”), in each case upon such terms and conditions as the Committee may establish in its sole discretion, not inconsistent with the provisions of the Plan, including the following:

 

(i) Right to Payment . A Stock Appreciation Right shall confer on the Participant to whom it is granted a right to receive, upon exercise thereof, the excess of (A) the Fair Market Value of one Share on the date of exercise over (B) the grant price of the Stock Appreciation Right as determined by the Committee. The grant price of a Stock Appreciation Right shall not be less than 100% of the Fair Market Value of a Share on the date of grant, in the case of a Freestanding Stock Appreciation Right, or less than the associated Option exercise price, in the case of a Tandem Stock Appreciation Right.

 

(ii) Other Terms . The Committee shall determine at the date of grant or thereafter, the time or times at which and the circumstances under which a Stock Appreciation Right may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the time or times at which Stock Appreciation Rights shall cease to be or become exercisable following termination of Continuous Service or upon other conditions, the method of exercise, method of settlement, form of consideration payable in settlement, method by or forms in which Shares will be delivered or deemed to be delivered to Participants, whether or not a Stock Appreciation Right shall be in tandem or in combination with any other Award, and any other terms and conditions of any Stock Appreciation Right.

 

(iii) Tandem Stock Appreciation Rights . Any Tandem Stock Appreciation Right may be granted at the same time as the related Option is granted or, for Options that are not Incentive Stock Options, at any time thereafter before exercise or expiration of such Option. Any Tandem Stock Appreciation Right related to an Option may be exercised only when the related Option would be exercisable and the Fair Market Value of the Shares subject to the related Option exceeds the exercise price at which Shares can be acquired pursuant to the Option. In addition, if a Tandem Stock Appreciation Right exists with respect to less than the full number of Shares covered by a related Option, then an exercise or termination of such Option shall not reduce the number of Shares to which the Tandem Stock Appreciation Right applies until the number of Shares then exercisable under such Option equals the number of Shares to which the Tandem Stock Appreciation Right applies. Any Option related to a Tandem Stock Appreciation Right shall no longer be exercisable to the extent the Tandem Stock Appreciation Right has been exercised, and any Tandem Stock Appreciation Right shall no longer be exercisable to the extent the related Option has been exercised.

 

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(d) Restricted Stock Awards . The Committee is authorized to grant Restricted Stock Awards to any Eligible Person on the following terms and conditions:

 

(i) Grant and Restrictions . Restricted Stock Awards shall be subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Committee may impose, or as otherwise provided in this Plan, covering a period of time specified by the Committee (the “ Restriction Period ”). The terms of any Restricted Stock Award granted under the Plan shall be set forth in a written Award Agreement which shall contain provisions determined by the Committee and not inconsistent with the Plan. The restrictions may lapse separately or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements), in such installments or otherwise, as the Committee may determine at the date of grant or thereafter. Except to the extent restricted under the terms of the Plan and any Award Agreement relating to a Restricted Stock Award, a Participant granted Restricted Stock shall have all of the rights of a shareholder, including the right to vote the Restricted Stock and the right to receive dividends thereon (subject to any mandatory reinvestment or other requirement imposed by the Committee). During the Restriction Period, subject to Section 10(b) below, the Restricted Stock may not be sold, transferred, pledged, hypothecated, margined or otherwise encumbered by the Participant.

 

(ii) Forfeiture . Except as otherwise determined by the Committee, upon termination of a Participant’s Continuous Service during the applicable Restriction Period, the Participant’s Restricted Stock that is at that time subject to a risk of forfeiture that has not lapsed or otherwise been satisfied shall be forfeited and reacquired by the Company; provided that the Committee may provide, by rule or regulation or in any Award Agreement, or may determine in any individual case, that forfeiture conditions relating to Restricted Stock Awards shall be waived in whole or in part in the event of terminations resulting from specified causes.

 

(iii) Certificates for Stock . Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing Restricted Stock are registered in the name of the Participant, the Committee may require that such certificates bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock, that the Company retain physical possession of the certificates, and that the Participant deliver a stock power to the Company, endorsed in blank, relating to the Restricted Stock.

 

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(iv) Dividends and Splits . As a condition to the grant of a Restricted Stock Award, the Committee may require or permit a Participant to elect that any cash dividends paid on a Share of Restricted Stock be automatically reinvested in additional Shares of Restricted Stock or applied to the purchase of additional Awards under the Plan. Unless otherwise determined by the Committee, Shares distributed in connection with a stock split or stock dividend, and other property distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which such Shares or other property have been distributed.

 

(v) Restricted Stock Units . In lieu of or in addition to Restricted Stock, the Committee is authorized to grant Restricted Stock Units to any Eligible Person. Restricted Stock Units shall be subject to the same terms and conditions under this Plan as Restricted Stock except as otherwise provided in this Plan or as otherwise provided by the Committee. Except as otherwise provided by the Committee, the award shall be settled and paid out promptly upon vesting (to the extent permitted by Section 409A of the Code), and the Participant holding such Restricted Stock Units shall receive, as determined by the Committee, Shares (or cash equal to the Fair Market Value of the number of Shares as of the date the Award becomes payable) equal to the number of such Restricted Stock Units. Restricted Stock Units shall not be transferable, shall have no voting rights, and, unless otherwise determined by the Committee, shall not receive dividends or Dividend Equivalents (which in any event shall only be paid out to the extent that the Restricted Stock Units vest).

 

(e) Deferred Stock Award . The Committee is authorized to grant Deferred Stock Awards to any Eligible Person on the following terms and conditions:

 

(i) Award and Restrictions . Satisfaction of a Deferred Stock Award shall occur upon expiration of the deferral period specified for such Deferred Stock Award by the Committee (or, if permitted by the Committee, as elected by the Participant). In addition, a Deferred Stock Award shall be subject to such restrictions (which may include a risk of forfeiture) as the Committee may impose, if any, which restrictions may lapse at the expiration of the deferral period or at earlier specified times (including based on achievement of performance goals and/or future service requirements), separately or in combination, in installments or otherwise, as the Committee may determine. A Deferred Stock Award may be satisfied by delivery of Shares, cash equal to the Fair Market Value of the specified number of Shares covered by the Deferred Stock, or a combination thereof, as determined by the Committee at the date of grant or thereafter. Prior to satisfaction of a Deferred Stock Award, a Deferred Stock Award carries no voting or dividend or other rights associated with Share ownership.

 

(ii) Forfeiture . Except as otherwise determined by the Committee, upon termination of a Participant’s Continuous Service during the applicable deferral period or portion thereof to which forfeiture conditions apply (as provided in the Award Agreement evidencing the Deferred Stock Award), the Participant’s Deferred Stock Award that is at that time subject to a risk of forfeiture that has not lapsed or otherwise been satisfied shall be forfeited; provided that the Committee may provide, by rule or regulation or in any Award Agreement, or may determine in any individual case, that forfeiture conditions relating to a Deferred Stock Award shall be waived in whole or in part in the event of terminations resulting from specified causes, and the Committee may in other cases waive in whole or in part the forfeiture of any Deferred Stock Award.

 

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(f) Bonus Stock and Awards in Lieu of Obligations . The Committee is authorized to grant Shares to any Eligible Persons as a bonus, or to grant Shares or other Awards in lieu of obligations to pay cash or deliver other property under the Plan or under other plans or compensatory arrangements, provided that, in the case of Eligible Persons subject to Section 16 of the Exchange Act, the amount of such grants remains within the discretion of the Committee to the extent necessary to ensure that acquisitions of Shares or other Awards are exempt from liability under Section 16(b) of the Exchange Act. Shares or Awards granted hereunder shall be subject to such other terms as shall be determined by the Committee.

 

(g) Dividend Equivalents . The Committee is authorized to grant Dividend Equivalents to any Eligible Person entitling the Eligible Person to receive cash, Shares, other Awards, or other property equal in value to the dividends paid with respect to a specified number of Shares, or other periodic payments. Dividend Equivalents may be awarded on a free-standing basis or in connection with another Award. The Committee may provide that Dividend Equivalents shall be paid or distributed when accrued or shall be deemed to have been reinvested in additional Shares, Awards, or other investment vehicles, and subject to such restrictions on transferability and risks of forfeiture, as the Committee may specify. Unless otherwise determined by the Committee at date of grant, any Dividend Equivalents that are granted with respect to any Deferred Stock Award shall be either (A) paid with respect to such Deferred Stock Award at the dividend payment date in cash or in Shares of unrestricted stock having a Fair Market Value equal to the amount of such dividends, or (B) deferred with respect to such Deferred Stock Award and the amount or value thereof automatically deemed reinvested in additional Deferred Stock, other Awards or other investment vehicles, as the Committee shall determine or permit the Participant to elect.

 

(h) Performance Awards . The Committee is authorized to grant Performance Awards to any Eligible Person payable in cash, Shares, or other Awards, on terms and conditions established by the Committee. The performance criteria to be achieved during any Performance Period and the length of the Performance Period shall be determined by the Committee upon the grant of each Performance Award. Except as provided in Section 9 or as may be provided in an Award Agreement, Performance Awards will be distributed only after the end of the relevant Performance Period. The performance goals to be achieved for each Performance Period shall be conclusively determined by the Committee and may be based on any criteria that the Committee, in its sole discretion, shall determine should be used for that purpose. The amount of the Award to be distributed shall be conclusively determined by the Committee. Performance Awards may be paid in a lump sum or in installments following the close of the Performance Period or, in accordance with procedures established by the Committee, on a deferred basis.

 

(i) Other Stock-Based Awards . The Committee is authorized, subject to limitations under applicable law, to grant to any Eligible Person such other Awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Shares, as deemed by the Committee to be consistent with the purposes of the Plan. Other Stock-Based Awards may be granted to Participants either alone or in addition to other Awards granted under the Plan, and such Other Stock-Based Awards shall also be available as a form of payment in the settlement of other Awards granted under the Plan. The Committee shall determine the terms and conditions of such Awards. Payment pursuant to an Award granted under this Section 6(i) shall be made at such times, by such methods and in such forms, including, without limitation, cash, Shares, other Awards or other property, as the Committee shall determine.

 

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7. Certain Provisions Applicable to Awards .

 

(a) Stand-Alone, Additional, Tandem and Substitute Awards . Awards granted under the Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award or any award granted under another plan of the Company, any Related Entity, or any business entity to be acquired by the Company or a Related Entity, or any other right of a Participant to receive payment from the Company or any Related Entity. Such additional, tandem, and substitute or exchange Awards may be granted at any time. If an Award is granted in substitution or exchange for another Award or award, the Committee shall require the surrender of such other Award or award in consideration for the grant of the new Award. In addition, Awards may be granted in lieu of cash compensation, including in lieu of cash amounts payable under other plans of the Company or any Related Entity, in which the value of Shares subject to the Award is equivalent in value to the cash compensation, or in which the exercise price, grant price or purchase price of the Award in the nature of a right that may be exercised is equal to the Fair Market Value of the underlying Shares minus the value of the cash compensation surrendered. Awards granted pursuant to the preceding sentence shall be designed, awarded and settled in a manner that does not result in additional taxes under Section 409A of the Code.

 

(b) Term of Awards . The term of each Award shall be for such period as may be determined by the Committee; provided that in no event shall the term of any Option or Stock Appreciation Right exceed a period of ten years (or in the case of an Incentive Stock Option such shorter term as may be required under Section 422 of the Code).

 

(c) Form and Timing of Payment Under Awards; Deferrals . Subject to the terms of the Plan and any applicable Award Agreement, payments to be made by the Company or a Related Entity upon the exercise of an Option or other Award or settlement of an Award may be made in such forms as the Committee shall determine, including, without limitation, cash, Shares, other Awards or other property, and may be made in a single payment or transfer, in installments, or on a deferred basis. Any installment or deferral provided for in the preceding sentence shall, however, be subject to the Company’s compliance with the provisions of Section 409A of the Code and other applicable law, rules and regulations adopted by the Securities and Exchange Commission, and all applicable rules of any national securities exchange on which the Company’s securities are listed for trading and, if not listed for trading on a national securities exchange, then the rules of the NASDAQ Stock Market. The settlement of any Award may be accelerated, and cash paid in lieu of Shares in connection with such settlement, in the discretion of the Committee or upon occurrence of one or more specified events (in addition to a Change in Control), subject to compliance with the provisions of Section 409A of the Code. Installment or deferred payments may be required by the Committee (subject to Section 10(e) of the Plan, including the consent provisions thereof in the case of any deferral of an outstanding Award not provided for in the original Award Agreement) or permitted at the election of the Participant on terms and conditions established by the Committee. Payments may include, without limitation, provisions for the payment or crediting of a reasonable interest rate on installment or deferred payments or the grant or crediting of Dividend Equivalents or other amounts in respect of installment or deferred payments denominated in Shares.

 

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(d) Exemptions from Section 16(b) Liability . It is the intent of the Company that the grant of any Awards to or other transaction by a Participant who is subject to Section 16 of the Exchange Act shall be exempt from Section 16 pursuant to an applicable exemption (except for transactions acknowledged in writing to be non-exempt by such Participant). Accordingly, if any provision of this Plan or any Award Agreement does not comply with the requirements of Rule 16b-3 then applicable to any such transaction, such provision shall be construed or deemed amended to the extent necessary to conform to the applicable requirements of Rule 16b-3 so that such Participant shall avoid liability under Section 16(b).

 

8. Successors . All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.

 

9. Change in Control .

 

(a) Effect of “Change in Control.” Subject to Section 9(a)(iv), and if and only to the extent provided in the Award Agreement, or to the extent otherwise determined by the Committee, upon the occurrence of a “Change in Control,” as defined in Section 9(b):

 

(i) Any Option or Stock Appreciation Right that was not previously vested and exercisable as of the time of the Change in Control, shall become immediately vested and exercisable, subject to applicable restrictions set forth in Section 10(a) hereof.

 

(ii) Any restrictions, deferral of settlement, and forfeiture conditions applicable to a Restricted Stock Award, Restricted Stock Unit Award, Deferred Stock Award or an Other Stock-Based Award subject only to future service requirements granted under the Plan shall lapse and such Awards shall be deemed fully vested as of the time of the Change in Control, except to the extent of any waiver by the Participant and subject to applicable restrictions set forth in Section 10(a) hereof.

 

(iii) With respect to any outstanding Award subject to achievement of performance goals and conditions under the Plan, the Committee may, in its discretion, deem such performance goals and conditions as having been met as of the date of the Change in Control.

 

(iv) Notwithstanding the foregoing, if in the event of a Change in Control the successor company assumes or substitutes for an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award, Deferred Stock Award or Other Stock-Based Award, then each outstanding Option, Stock Appreciation Right, Restricted Stock Award, Deferred Stock Award or Other Stock-Based Award shall not be accelerated as described in Sections 9(a)(i), (ii) and (iii). For the purposes of this Section 9(a)(iv), an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award, Deferred Stock Award or Other Stock-Based Award shall be considered assumed or substituted for if following the Change in Control the award confers the right to purchase or receive, for each Share subject to the Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award, Deferred Stock Award or Other Stock-Based Award immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) received in the transaction constituting a Change in Control by holders of Shares for each Share held on the effective date of such transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided , however , that if such consideration received in the transaction constituting a Change in Control is not solely common stock of the successor company or its parent or subsidiary, the Committee may, with the consent of the successor company or its parent or subsidiary, provide that the consideration to be received upon the exercise or vesting of an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award, Deferred Stock Award or Other Stock-Based Award, for each Share subject thereto, will be solely common stock of the successor company or its parent or subsidiary substantially equal in fair market value to the per share consideration received by holders of Shares in the transaction constituting a Change in Control. The determination of such substantial equality of value of consideration shall be made by the Committee in its sole discretion and its determination shall be conclusive and binding.

 

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(b) Definition of “Change in Control.” Unless otherwise specified in an Award Agreement, a “Change in Control” shall mean the occurrence of any of the following:

 

(i) The acquisition by any Person of Beneficial Ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than fifty percent (50%) of either (A) the then outstanding shares of common stock of the Company (the “ Outstanding Company Common Stock ”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “ Outstanding Company Voting Securities ”) (the foregoing Beneficial Ownership hereinafter being referred to as a “ Controlling Interest ”); provided , however , that for purposes of this Section 9(b), the following acquisitions shall not constitute or result in a Change of Control: (v) any acquisition directly from the Company; (w) any acquisition by the Company; (x) any acquisition by any Person that as of the Effective Date owns Beneficial Ownership of a Controlling Interest; (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary; or (z) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) below; or

 

(ii) During any period of two (2) consecutive years (not including any period prior to the Effective Date) individuals who constitute the Board on the Effective Date (the “ Incumbent Board ”) cease for any reason to constitute at least a majority of the Board; provided , however , that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

 

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(iii) Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Company or any of its Subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its Subsidiaries (each a “ Business Combination ”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination or any Person that as of the Effective Date owns Beneficial Ownership of a Controlling Interest) beneficially owns, directly or indirectly, fifty percent (50%) or more of the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the Board of Directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

 

(iv) Approval by the shareholders of the Company of a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

 

Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or any portion of an Award) that provides for the deferral of compensation that is subject to Section 409A of the Code, to the extent required to avoid the imposition of additional taxes under Section 409A of the Code, the transaction or event described in subsection (i) (ii), (iii) or (iv) with respect to such Award (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).

 

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10. General Provisions .

 

(a) Compliance With Legal and Other Requirements . The Company may, to the extent deemed necessary or advisable by the Committee, postpone the issuance or delivery of Shares or payment of other benefits under any Award until completion of such registration or qualification of such Shares or other required action under any federal or state law, rule or regulation, listing or other required action with respect to any stock exchange or automated quotation system upon which the Shares or other Company securities are listed or quoted, or compliance with any other obligation of the Company, as the Committee, may consider appropriate, and may require any Participant to make such representations, furnish such information and comply with or be subject to such other conditions as it may consider appropriate in connection with the issuance or delivery of Shares or payment of other benefits in compliance with applicable laws, rules, and regulations, listing requirements, or other obligations.

 

(b) Limits on Transferability; Beneficiaries . No Award or other right or interest granted under the Plan shall be pledged, hypothecated or otherwise encumbered or subject to any lien, obligation or liability of such Participant to any party, or assigned or transferred by such Participant otherwise than by will or the laws of descent and distribution or to a Beneficiary upon the death of a Participant, and such Awards or rights that may be exercisable shall be exercised during the lifetime of the Participant only by the Participant or his or her guardian or legal representative, except that Awards and other rights (other than Incentive Stock Options and Stock Appreciation Rights in tandem therewith) may be transferred to one or more Beneficiaries or other transferees during the lifetime of the Participant, and may be exercised by such transferees in accordance with the terms of such Award, but only if and to the extent such transfers are permitted by the Committee pursuant to the express terms of an Award Agreement (subject to any terms and conditions which the Committee may impose thereon). A Beneficiary, transferee, or other person claiming any rights under the Plan from or through any Participant shall be subject to all terms and conditions of the Plan and any Award Agreement applicable to such Participant, except as otherwise determined by the Committee, and to any additional terms and conditions deemed necessary or appropriate by the Committee.

 

(c) Adjustments .

 

(i) Adjustments to Awards . In the event that any extraordinary dividend or other distribution (whether in the form of cash, Shares, or other property), recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, share exchange, liquidation, dissolution or other similar corporate transaction or event affects the Shares and/or such other securities of the Company or any other issuer such that a substitution, exchange, or adjustment is determined by the Committee to be appropriate, then the Committee shall, in such manner as it may deem equitable, substitute, exchange or adjust any or all of (A) the number and kind of Shares which may be delivered in connection with Awards granted thereafter, (B) the number and kind of Shares subject to or deliverable in respect of outstanding Awards, (C) the exercise price, grant price or purchase price relating to any Award and/or make provision for payment of cash or other property in respect of any outstanding Award, and (D) any other aspect of any Award that the Committee determines to be appropriate.

 

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(ii) Adjustments in Case of Certain Corporate Transactions . In the event of any merger, consolidation or other reorganization in which the Company does not survive, or in the event of any Change in Control, any outstanding Awards may be dealt with in accordance with any of the following approaches, as determined by the agreement effectuating the transaction or, if and to the extent not so determined, as determined by the Committee: (a) the continuation of the outstanding Awards by the Company, if the Company is a surviving corporation, (b) the assumption or substitution for, as those terms are defined in Section 9(b)(iv) hereof, the outstanding Awards by the surviving corporation or its parent or subsidiary, (c) full exercisability or vesting and accelerated expiration of the outstanding Awards, or (d) settlement of the value of the outstanding Awards in cash or cash equivalents or other property followed by cancellation of such Awards (which value, in the case of Options or Stock Appreciation Rights, shall be measured by the amount, if any, by which the Fair Market Value of a Share exceeds the exercise or grant price of the Option or Stock Appreciation Right as of the effective date of the transaction). The Committee shall give written notice of any proposed transaction referred to in this Section 10(c)(ii) a reasonable period of time prior to the closing date for such transaction (which notice may be given either before or after the approval of such transaction), in order that Participants may have a reasonable period of time prior to the closing date of such transaction within which to exercise any Awards that are then exercisable (including any Awards that may become exercisable upon the closing date of such transaction). A Participant may condition his exercise of any Awards upon the consummation of the transaction.

 

(iii) Other Adjustments . The Committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards (including Performance Awards, or performance goals relating thereto) in recognition of unusual or nonrecurring events (including, without limitation, acquisitions and dispositions of businesses and assets) affecting the Company, any Related Entity or any business unit, or the financial statements of the Company or any Related Entity, or in response to changes in applicable laws, regulations, accounting principles, tax rates and regulations or business conditions or in view of the Committee’s assessment of the business strategy of the Company, any Related Entity or business unit thereof, performance of comparable organizations, economic and business conditions, personal performance of a Participant, and any other circumstances deemed relevant.

 

(d) Taxes . The Company and any Related Entity are authorized to withhold from any Award granted any payment relating to an Award under the Plan, including from a distribution of Shares, or any payroll or other payment to a Participant, amounts of withholding and other taxes due or potentially payable in connection with any transaction involving an Award, and to take such other action as the Committee may deem advisable to enable the Company or any Related Entity and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include authority to withhold or receive Shares or other property and to make cash payments in respect thereof in satisfaction of a Participant’s tax obligations, either on a mandatory or elective basis in the discretion of the Committee. The withholding of taxes is intended to comply with the requirements of Rule 10b5-1(c)(1)(i)(B) of the Exchange Act to the extent permitted by law.

 

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(e) Changes to the Plan and Awards . The Board may amend, alter, suspend, discontinue or terminate the Plan, or the Committee’s authority to grant Awards under the Plan, without the consent of shareholders or Participants, except that any amendment or alteration to the Plan shall be subject to the approval of the Company’s shareholders not later than the annual meeting next following such Board action if such shareholder approval is required by any federal or state law or regulation (including, without limitation, Rule 16b-3 or Section 422 of the Code) or the rules of any stock exchange or automated quotation system on which the Shares may then be listed or quoted), and the Board may otherwise, in its discretion, determine to submit other such changes to the Plan to shareholders for approval; provided that, without the consent of an affected Participant, no such Board action may materially and adversely affect the rights of such Participant under any previously granted and outstanding Award. The Committee may waive any conditions or rights under, or amend, alter, suspend, discontinue or terminate any Award theretofore granted and any Award Agreement relating thereto, except as otherwise provided in the Plan; provided that, without the consent of an affected Participant, no such Committee or the Board action may materially and adversely affect the rights of such Participant under such Award.

 

(f) Limitation on Rights Conferred Under Plan . Neither the Plan nor any action taken hereunder shall be construed as (i) giving any Eligible Person or Participant the right to continue as an Eligible Person or Participant or in the employ or service of the Company or a Related Entity; (ii) interfering in any way with the right of the Company or a Related Entity to terminate any Eligible Person’s or Participant’s Continuous Service at any time, (iii) giving an Eligible Person or Participant any claim to be granted any Award under the Plan or to be treated uniformly with other Participants and Employees, or (iv) conferring on a Participant any of the rights of a shareholder of the Company unless and until the Participant is duly issued or transferred Shares in accordance with the terms of an Award.

 

(g) Unfunded Status of Awards; Creation of Trusts . The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant or obligation to deliver Shares pursuant to an Award, nothing contained in the Plan or any Award shall give any such Participant any rights that are greater than those of a general creditor of the Company; provided that the Committee may authorize the creation of trusts and deposit therein cash, Shares, other Awards or other property, or make other arrangements to meet the Company’s obligations under the Plan. Such trusts or other arrangements shall be consistent with the “unfunded” status of the Plan unless the Committee otherwise determines with the consent of each affected Participant. The trustee of such trusts may be authorized to dispose of trust assets and reinvest the proceeds in alternative investments, subject to such terms and conditions as the Committee may specify and in accordance with applicable law.

 

(h) Code Section 409A . It is intended that all Awards issued under the Plan be in a form and administered in a manner that will comply with the requirements of Section 409A of the Code, or the requirements of an exception to Section 409A of the Code, and the Award Agreement and this Plan will be construed and administered in a manner that is consistent with and gives effect to such intent. The Committee is authorized to adopt rules or regulations deemed necessary or appropriate to qualify for an exception from or to comply with the requirements of Section 409A of the Code. With respect to an Award that constitutes a deferral of compensation subject to Section 409A of the Code: (i) if any amount is payable under such Award upon a termination of service, a termination of service will be treated as having occurred only at such time the Participant has experienced a “separation from service” as such term is defined for purposes of Section 409A of the Code; (ii) if any amount is payable under such Award upon a disability, a disability will be treated as having occurred only at such time the Participant has experienced a “disability” as such term is defined for purposes of Section 409A of the Code; (iii) if any amount is payable under such Award on account of the occurrence of a Change in Control, a Change in Control will be treated as having occurred only at such time a “change in the ownership or effective control of the corporation or in the ownership of a substantial portion of the assets of the corporation” has occurred as such terms are defined for purposes of Section 409A of the Code, (iv) if any amount becomes payable under such Award on account of a Participant’s separation from service at such time as the Participant is a “specified employee” within the meaning of Section 409A of the Code, then no payment shall be made, except as permitted under Section 409A of the Code, prior to the first business day after the earlier of (y) the date that is six months after the date of the Participant’s separation from service or (z) the Participant’s death, (v) any right to receive any installment payments under this Plan shall be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder shall at all times be considered a separate and distinct payment, and (vi) no amendment to or payment under such Award will be made except and only to the extent permitted under Section 409A of the Code.

 

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Notwithstanding the foregoing, the tax treatment of the benefits provided under the Plan or any Award Agreement is not warranted or guaranteed, and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Participant on account of non-compliance with Section 409A of the Code.

 

(i) Nonexclusivity of the Plan . Neither the adoption of the Plan by the Board nor its submission to the shareholders of the Company for approval shall be construed as creating any limitations on the power of the Board or a committee thereof to adopt such other incentive arrangements as it may deem desirable including incentive arrangements and awards which do not qualify under Section 162(m) of the Code.

 

(j) Payments in the Event of Forfeitures; Fractional Shares . Unless otherwise determined by the Committee, in the event of a forfeiture of an Award with respect to which a Participant paid cash or other consideration, the Participant shall be repaid the amount of such cash or other consideration. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash, other Awards or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.

 

(k) Investment Representations . The Company shall be under no obligation to issue any Shares covered by any Award unless the Shares to be issued pursuant to Awards granted under the Plan have been effectively registered under the Securities Act of 1933, as amended, or the Participant shall have made such written representations to the Company (upon which the Company believes it may reasonably rely) as the Company may deem necessary or appropriate for purposes of confirming that the issuance of such Shares will be exempt from the registration requirements of that Act and any applicable state securities laws and otherwise in compliance with all applicable laws, rules and regulations, including but not limited to that the Participant is acquiring the Shares for his or her own account for the purpose of investment and not with a view to, or for sale in connection with, the distribution of any such Shares.

 

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(l) Registration . If the Company shall deem it necessary or desirable to register under the Securities Act of 1933, as amended, or other applicable statutes any Shares issued or to be issued pursuant to Awards granted under the Plan, or to qualify any such Shares for exemption from the Securities Act of 1933, as amended, or other applicable statutes, then the Company shall take such action at its own expense. The Company may require from each recipient of an Award, or each holder of Shares acquired pursuant to the Plan, such information in writing for use in any registration statement, prospectus, preliminary prospectus or offering circular as is reasonably necessary for that purpose and may require reasonable indemnity to the Company and its officers and directors from that holder against all losses, claims, damage and liabilities arising from use of the information so furnished and caused by any untrue statement of any material fact therein or caused by the omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. In addition, the Company may require of any such person that he or she agree that, without the prior written consent of the Company or the managing underwriter in any public offering of Shares, he or she will not sell, make any short sale of, loan, grant any option for the purchase of, pledge or otherwise encumber, or otherwise dispose of, any Shares during the 180 day period commencing on the effective date of the registration statement relating to the underwritten public offering of securities. Without limiting the generality of the foregoing provisions of this Section 10(l), if in connection with any underwritten public offering of securities of the Company the managing underwriter of such offering requires that the Company’s directors and officers enter into a lock-up agreement containing provisions that are more restrictive than the provisions set forth in the preceding sentence, then (a) each holder of Shares acquired pursuant to the Plan (regardless of whether such person has complied or complies with the provisions of clause (b) below) shall be bound by, and shall be deemed to have agreed to, the same lock-up terms as those to which the Company’s directors and officers are required to adhere; and (b) at the request of the Company or such managing underwriter, each such person shall execute and deliver a lock-up agreement in form and substance equivalent to that which is required to be executed by the Company’s directors and officers.

 

(m) Placement of Legends; Stop Orders; etc . Each Share to be issued pursuant to Awards granted under the Plan may bear a reference to the investment representation made in accordance with Section 10(k) in addition to any other applicable restriction under the Plan, the terms of the Award and to the fact that no registration statement has been filed with the Securities and Exchange Commission in respect to such Share. All Shares or other securities delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of any stock exchange upon which the Share is then listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any certificates or recorded in connection with book-entry accounts representing the shares to make appropriate reference to such restrictions.

 

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(n) Uncertificated Shares . To the extent that the Plan provides for issuance of certificates to reflect the transfer of Shares, the transfer of such Shares may be effected on a noncertificated basis, to the extent not prohibited by applicable law.

 

(o) Governing Law . The validity, construction and effect of the Plan, any rules and regulations under the Plan, and any Award Agreement shall be determined in accordance with the laws of the State of Delaware without giving effect to principles of conflict of laws, and applicable federal law.

 

(p) Elections and Notices . Notwithstanding anything to the contrary contained in this Plan, all elections and notices of every kind shall be made on forms prepared by the Company or the General Counsel, Secretary or Assistant Secretary, or their respective delegates or shall be made in such other manner as permitted or required by the Company or the General Counsel, Secretary or Assistant Secretary, or their respective delegates, including but not limited to elections or notices through electronic means, over the Internet or otherwise. An election shall be deemed made when received by the Company (or its designated agent, but only in cases where the designated agent has been appointed for the purpose of receiving such election), which may waive any defects in form. The Company may limit the time an election may be made in advance of any deadline.

 

Where any notice or filing required or permitted to be given to the Company under the Plan, it shall be delivered to the principal office of the Company, directed to the attention of the General Counsel of the Company or his or her successor. Such notice shall be deemed given on the date of delivery.

 

Notice to the Participant shall be deemed given when mailed (or sent by telecopy) to the Participant’s work or home address as shown on the records of the Company or, at the option of the Company, to the Participant’s e-mail address as shown on the records of the Company.

 

It is the Participant’s responsibility to ensure that the Participant’s addresses are kept up to date on the records of the Company. In the case of notices affecting multiple Participants, the notices may be given by general distribution at the Participants’ work locations.

 

(q) Non-U .S. Laws. The Committee shall have the authority to adopt such modifications, procedures, and subplans as may be necessary or desirable to comply with provisions of the laws of foreign countries in which the Company or its Subsidiaries may operate to assure the viability of the benefits from Awards granted to Participants performing services in such countries and to meet the objectives of the Plan.

 

(r) Venue . The Company and the Participant to whom an award under this Plan is granted, for themselves and their successors and assigns, irrevocably submit to the exclusive and sole jurisdiction and venue of the state or federal courts of Delaware with respect to any and all disputes arising out of or relating to this Plan, the subject matter of this Plan or any awards under this Plan, including but not limited to any disputes arising out of or relating to the interpretation and enforceability of any awards or the terms and conditions of this Plan. To achieve certainty regarding the appropriate forum in which to prosecute and defend actions arising out of or relating to this Plan, and to ensure consistency in application and interpretation of the Governing Law to the Plan, the parties agree that (a) sole and exclusive appropriate venue for any such action shall be an appropriate federal or state court in Delaware, and no other, (b) all claims with respect to any such action shall be heard and determined exclusively in such Delaware court, and no other, (c) such Delaware court shall have sole and exclusive jurisdiction over the person of such parties and over the subject matter of any dispute relating hereto and (d) that the parties waive any and all objections and defenses to bringing any such action before such Delaware court, including but not limited to those relating to lack of personal jurisdiction, improper venue or forum non conveniens.

 

(s) Plan Effective Date and Shareholder Approval; Termination of Plan . The Plan shall become effective on __________, 2018 (“ Effective Date ”), subject to subsequent approval, within 12 months of its adoption by the Board, by shareholders of the Company eligible to vote in the election of directors, by a vote sufficient to meet the requirements of Section 422 of the Code, Rule 16b-3 under the Exchange Act (if applicable), applicable requirements under the rules of any stock exchange or automated quotation system on which the Shares may be listed or quoted, and other laws, regulations, and obligations of the Company applicable to the Plan. Awards may be granted subject to shareholder approval, but may not be exercised or otherwise settled in the event the shareholder approval is not obtained. The Plan shall terminate at the earliest of (a) such time as no Shares remain available for issuance under the Plan, (b) termination of this Plan by the Board, or (c) the tenth anniversary of the Effective Date. Awards outstanding upon expiration of the Plan shall remain in effect until they have been exercised or terminated, or have expired.

 

Adopted ______________, 2018

 

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EXHIBIT 10.2

 

IMAC HOLDINGS, INC.

INDEMNIFICATION AGREEMENT

 

This Indemnification Agreement (this “ Agreement ”) is dated as of [ insert date ], and is between IMAC Holdings, Inc., a Delaware corporation (the “ Company ”), and [ insert name of indemnitee ] (“ Indemnitee ”).

 

RECITALS

 

A. Indemnitee’s service to the Company substantially benefits the Company.

 

B. Individuals are reluctant to serve as directors or officers of corporations or in certain other capacities unless they are provided with adequate protection through insurance or indemnification against the risks of claims and actions against them arising out of such service.

 

C. Indemnitee does not regard the protection currently provided by applicable law, the Company’s governing documents and any insurance as adequate under the present circumstances, and Indemnitee may not be willing to serve as a director or officer without additional protection.

 

D. In order to induce Indemnitee to continue to provide services to the Company, it is reasonable, prudent and necessary for the Company to contractually obligate itself to indemnify, and to advance expenses on behalf of, Indemnitee as permitted by applicable law.

 

E. This Agreement is a supplement to and in furtherance of the indemnification provided in the Company’s certificate of incorporation and bylaws, and any resolutions adopted pursuant thereto, and this Agreement shall not be deemed a substitute therefor, nor shall this Agreement be deemed to limit, diminish or abrogate any rights of Indemnitee thereunder.

 

The parties therefore agree as follows:

 

1. Definitions.

 

(a) A “ Change in Control ” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

 

(i) Acquisition of Stock by Third Party. Any Person (as defined below) becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Company’s then outstanding securities;

 

(ii) Change in Board Composition. During any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Company’s board of directors, and any new directors (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 1(a)(i), 1(a)(iii) or 1(a)(iv)) whose election by the board of directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Company’s board of directors;

 

     
 

 

(iii) Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity;

 

(iv) Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; and

 

(v) Other Events. Any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended, whether or not the Company is then subject to such reporting requirement, except the completion of the Company’s initial public offering shall not be considered a Change in Control.

 

For purposes of this Section 1(a), the following terms shall have the following meanings:

 

(1) “ Person ” shall have the meaning as set forth in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended; provided , however , that “ Person ” shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

 

(2) “ Beneficial Owner ” shall have the meaning given to such term in Rule 13d-3 under the Securities Exchange Act of 1934, as amended; provided , however , that “ Beneficial Owner ” shall exclude any Person otherwise becoming a Beneficial Owner by reason of (i) the stockholders of the Company approving a merger of the Company with another entity or (ii) the Company’s board of directors approving a sale of securities by the Company to such Person.

 

(b) “ Corporate Status ” describes the status of a person who is or was a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of the Company or any other Enterprise.

 

(c) “ DGCL ” means the General Corporation Law of the State of Delaware.

 

(d) “ Disinterested Director ” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

 

(e) “ Enterprise ” means the Company and any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary.

 

(f) “ Expenses ” include all reasonable and actually incurred attorneys’ fees, retainers, court costs, transcript costs, fees and costs of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also include (i) Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond or other appeal bond or their equivalent, and (ii) for purposes of Section 12(d), Expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

 

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(g) “ Independent Counsel ” means a law firm, or a partner or member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent (i) the Company or Indemnitee in any matter material to either such party (other than as Independent Counsel with respect to matters concerning Indemnitee under this Agreement, or other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “ Independent Counsel ” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

 

(h) “ Proceeding ” means any threatened, pending or completed action, suit, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, including any appeal therefrom and including without limitation any such Proceeding pending as of the date of this Agreement, in which Indemnitee was, is or will be involved as a party, a potential party, a non-party witness or otherwise by reason of (i) the fact that Indemnitee is or was a director or officer of the Company, (ii) any action taken by Indemnitee or any action or inaction on Indemnitee’s part while acting as a director or officer of the Company, or (iii) the fact that he or she is or was serving at the request of the Company as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of the Company or any other Enterprise, in each case whether or not serving in such capacity at the time any liability or Expense is incurred for which indemnification or advancement of expenses can be provided under this Agreement.

 

(i) Reference to “ other enterprises ” shall include employee benefit plans; references to “ fines ” shall include any excise taxes assessed on a person with respect to any employee benefit plan; references to “ serving at the request of the Company ” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “ not opposed to the best interests of the Company ” as referred to in this Agreement.

 

2. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 2 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 2, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was unlawful.

 

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3. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 3 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged by a court of competent jurisdiction to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery or any court in which the Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court of Chancery or such other court shall deem proper.

 

4. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. To the extent that Indemnitee is a party to or a participant in and is successful (on the merits or otherwise) in defense of any Proceeding or any claim, issue or matter therein, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith. For purposes of this section, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

 

5. Indemnification for Expenses of a Witness. To the extent that Indemnitee is, by reason of his or her Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, Indemnitee shall be indemnified to the extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith.

 

6. Additional Indemnification.

 

(a) Notwithstanding any limitation in Sections 2, 3 or 4, the Company shall indemnify Indemnitee to the fullest extent permitted by applicable law if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with the Proceeding or any claim, issue or matter therein.

 

(b) For purposes of Section 6(a), the meaning of the phrase “ to the fullest extent permitted by applicable law ” shall include, but not be limited to:

 

(i) the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL; and

 

(ii) the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.

 

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7. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any Proceeding (or any part of any Proceeding):

 

(a) for which payment has actually been made to or on behalf of Indemnitee under any statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any excess beyond the amount paid;

 

(b) for an accounting or disgorgement of profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of federal, state or local statutory law or common law, if Indemnitee is held liable therefor (including pursuant to any settlement arrangements);

 

(c) for any reimbursement of the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Securities Exchange Act of 1934, as amended (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”), or Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act), if Indemnitee is held liable therefor (including pursuant to any settlement arrangements);

 

(d) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees, agents or other indemnitees, unless (i) the Company’s board of directors authorized the Proceeding (or the relevant part of the Proceeding) prior to its initiation, (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law, (iii) otherwise authorized in Section 12(d) or (iv) otherwise required by applicable law; or

 

(e) if prohibited by applicable law.

 

8. Advances of Expenses. The Company shall advance the Expenses incurred by Indemnitee in connection with any Proceeding prior to its final disposition, and such advancement shall be made as soon as reasonably practicable, but in any event no later than 30 days, after the receipt by the Company of a written statement or statements requesting such advances from time to time (which shall include invoices received by Indemnitee in connection with such Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditure made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be included with the invoice). Advances shall be unsecured and interest free and made without regard to Indemnitee’s ability to repay such advances. Indemnitee hereby undertakes to repay any advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. This Section 8 shall not apply to the extent advancement is prohibited by law and shall not apply to any Proceeding (or any part of any Proceeding) for which indemnity is not permitted under this Agreement, but shall apply to any Proceeding (or any part of any Proceeding) referenced in Section 7(b) or 7(c) prior to a determination that Indemnitee is not entitled to be indemnified by the Company.

 

9. Procedures for Notification and Defense of Claim.

 

(a) Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification or advancement of Expenses as soon as reasonably practicable following the receipt by Indemnitee of notice thereof. The written notification to the Company shall include, in reasonable detail, a description of the nature of the Proceeding and the facts underlying the Proceeding. The failure by Indemnitee to notify the Company will not relieve the Company from any liability which it may have to Indemnitee hereunder or otherwise than under this Agreement, and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights, except to the extent that such failure or delay materially prejudices the Company.

 

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(b) If, at the time of the receipt of a notice of a Proceeding pursuant to the terms hereof, the Company has directors’ and officers’ liability insurance in effect that may be applicable to the Proceeding, the Company shall give prompt notice of the commencement of the Proceeding to the insurers in accordance with the procedures set forth in the applicable policies. The Company shall thereafter take all commercially-reasonable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

 

(c) In the event the Company may be obligated to make any indemnity in connection with a Proceeding, the Company shall be entitled to assume the defense of such Proceeding with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, conditioned or delayed, upon the delivery to Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee for any fees or expenses of counsel subsequently incurred by Indemnitee with respect to the same Proceeding. Notwithstanding the Company’s assumption of the defense of any such Proceeding, the Company shall be obligated to pay the fees and expenses of Indemnitee’s separate counsel to the extent (i) the employment of separate counsel by Indemnitee is authorized by the Company, (ii) counsel for the Company or Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of any such defense such that Indemnitee needs to be separately represented, (iii) the Company is not financially or legally able to perform its indemnification obligations or (iv) the Company shall not have retained, or shall not continue to retain, counsel to defend such Proceeding. Regardless of any provision in this Agreement, Indemnitee shall have the right to employ counsel in any Proceeding at Indemnitee’s personal expense. The Company shall not be entitled, without the consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Company.

 

(d) Indemnitee shall give the Company such information and cooperation in connection with the Proceeding as may be reasonably appropriate.

 

(e) The Company shall not be liable to indemnify Indemnitee for any settlement of any Proceeding (or any part thereof) without the Company’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed.

 

(f) The Company shall not settle any Proceeding (or any part thereof) in a manner that imposes any penalty or liability on Indemnitee without Indemnitee’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed.

 

10. Procedures upon Application for Indemnification.

 

(a) To obtain indemnification, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and as is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of the Proceeding. The Company shall, as soon as reasonably practicable after receipt of such a request for indemnification, advise the board of directors that Indemnitee has requested indemnification. Any delay in providing the request will not relieve the Company from its obligations under this Agreement, except to the extent such failure is prejudicial.

 

(b) Upon written request by Indemnitee for indemnification pursuant to Section 10(a), a determination with respect to Indemnitee’s entitlement thereto shall be made in the specific case (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Company’s board of directors, a copy of which shall be delivered to Indemnitee or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Company’s board of directors, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Company’s board of directors, (C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Company’s board of directors, a copy of which shall be delivered to Indemnitee or (D) if so directed by the Company’s board of directors, by the stockholders of the Company. If it is determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within 30 days after such determination. Indemnitee shall cooperate with the person, persons or entity making the determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information that is not privileged or otherwise protected from disclosure and that is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys’ fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company, to the extent permitted by applicable law.

 

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(c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(b), the Independent Counsel shall be selected as provided in this Section 10(c). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Company’s board of directors, and the Company shall give written notice to Indemnitee advising him or her of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Company’s board of directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “ Independent Counsel ” as defined in Section 1 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 10(a) hereof and (ii) the final disposition of the Proceeding, the parties have not agreed upon an Independent Counsel, either the Company or Indemnitee may petition the Delaware Court of Chancery for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 10(b) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, the Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

 

(d) The Company agrees to pay the reasonable fees and expenses of any Independent Counsel.

 

11. Presumptions and Effect of Certain Proceedings.

 

(a) In making a determination with respect to entitlement to indemnification hereunder, the person, persons or entity making such determination shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this Agreement, and the Company shall, to the fullest extent not prohibited by law, have the burden of proof to overcome that presumption.

 

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(b) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.

 

(c) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith to the extent Indemnitee relied in good faith on (i) the records or books of account of the Enterprise, including financial statements, (ii) information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, (iii) the advice of legal counsel for the Enterprise or its board of directors or counsel selected by any committee of the board of directors or (iv) information or records given or reports made to the Enterprise by an independent certified public accountant, an appraiser, investment banker or other expert selected with reasonable care by the Enterprise or its board of directors or any committee of the board of directors. The provisions of this Section 11(c) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.

 

(d) Neither the knowledge, actions nor failure to act of any other director, officer, agent or employee of the Enterprise shall be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

 

12. Remedies of Indemnitee.

 

(a) Subject to Section 12(e), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 or 12(d) of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10 of this Agreement within 90 days after the later of the receipt by the Company of the request for indemnification or the final disposition of the Proceeding, (iv) payment of indemnification pursuant to this Agreement is not made (A) within 20 days after a determination has been made that Indemnitee is entitled to indemnification or (B) with respect to indemnification pursuant to Sections 4, 5 and 12(d) of this Agreement, within 30 days after receipt by the Company of a written request therefor, or (v) the Company or any other person or entity takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, Indemnitee shall be entitled to an adjudication by the Delaware Court of Chancery of his or her entitlement to such indemnification or advancement of Expenses. The Company shall not oppose Indemnitee’s right to seek any such adjudication in accordance with this Agreement.

 

(b) Neither (i) the failure of the Company, its board of directors, any committee or subgroup of the board of directors, Independent Counsel or stockholders to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor (ii) an actual determination by the Company, its board of directors, any committee or subgroup of the board of directors, Independent Counsel or stockholders that Indemnitee has not met the applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. In the event that a determination shall have been made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 12 shall be conducted in all respects as a de novo trial, on the merits, and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding commenced pursuant to this Section 12, the Company shall, to the fullest extent not prohibited by law, have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.

 

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(c) To the fullest extent not prohibited by law, the Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement. If a determination shall have been made pursuant to Section 10 of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 12, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statements not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

 

(d) To the extent not prohibited by law, the Company shall indemnify Indemnitee against all Expenses that are incurred by Indemnitee in connection with any action for indemnification or advancement of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company to the extent Indemnitee is successful in such action, and, if requested by Indemnitee, shall (as soon as reasonably practicable, but in any event no later than 30 days, after receipt by the Company of a written request therefor) advance such Expenses to Indemnitee, subject to the provisions of Section 8.

 

(e) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification shall be required to be made prior to the final disposition of the Proceeding.

 

13. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amounts incurred by Indemnitee, whether for Expenses, judgments, fines or amounts paid or to be paid in settlement, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the events and transactions giving rise to such Proceeding; and (ii) the relative fault of Indemnitee and the Company (and its other directors, officers, employees and agents) in connection with such events and transactions.

 

14. Non-exclusivity. The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Company’s certificate of incorporation or bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Company’s certificate of incorporation and bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change, subject to the restrictions expressly set forth herein or therein. Except as expressly set forth herein, no right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. Except as expressly set forth herein, the assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

 

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15. Primary Responsibility. The Company acknowledges that Indemnitee may have certain rights to indemnification and advancement of expenses provided by third parties (collectively, the “ Secondary Indemnitor ”). The Company agrees that, as between the Company and the Secondary Indemnitors, the Company is primarily responsible for amounts required to be indemnified or advanced under the Company’s certificate of incorporation or bylaws or this Agreement and any obligation of the Secondary Indemnitors to provide indemnification or advancement for the same amounts is secondary to those Company obligations. To the extent not in contravention of any insurance policy or policies providing liability or other insurance for the Company or any director, trustee, general partner, managing member, officer, employee, agent or fiduciary of the Company or any other Enterprise, the Company waives any right of contribution or subrogation against the Secondary Indemnitors with respect to the liabilities for which the Company is primarily responsible under this Section 15. In the event of any payment by the Secondary Indemnitors of amounts otherwise required to be indemnified or advanced by the Company under the Company’s certificate of incorporation or bylaws or this Agreement, the Secondary Indemnitors shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee for indemnification or advancement of expenses under the Company’s certificate of incorporation or bylaws or this Agreement or, to the extent such subrogation is unavailable and contribution is found to be the applicable remedy, shall have a right of contribution with respect to the amounts paid; provided , however , that the foregoing sentence will be deemed void if and to the extent that it would violate any applicable insurance policy. The Secondary Indemnitors are express third-party beneficiaries of the terms of this Section 15.

 

16. No Duplication of Payments. Subject to any subrogation rights set forth in Section 15, the Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received payment for such amounts under any insurance policy, contract, agreement or otherwise.

 

17. Insurance. To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, trustees, general partners, managing members, officers, employees, agents or fiduciaries of the Company or any other Enterprise, Indemnitee shall be covered by such policy or policies to the same extent as the most favorably-insured persons under such policy or policies in a comparable position.

 

18. Subrogation. In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

 

19. Services to the Company. Indemnitee agrees to serve as a director or officer of the Company or, at the request of the Company, as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of another Enterprise, for so long as Indemnitee is duly elected or appointed or until Indemnitee tenders his or her resignation or is removed from such position. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law). This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee. Indemnitee specifically acknowledges that any employment with the Company (or any of its subsidiaries or any Enterprise) is at will, and Indemnitee may be discharged at any time for any reason, with or without cause, with or without notice, except as may be otherwise expressly provided in any executed, written employment contract between Indemnitee and the Company (or any of its subsidiaries or any Enterprise), any existing formal severance policies adopted by the Company’s board of directors or, with respect to service as a director or officer of the Company, the Company’s certificate of incorporation or bylaws or the DGCL. No such document shall be subject to any oral modification thereof.

 

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20. Duration. This Agreement shall continue until and terminate upon the later of (a) ten years after the date that Indemnitee shall have ceased to serve as a director or officer of the Company or as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of any other Enterprise, as applicable; or (b) for as long as Indemnitee may be subject to any Proceeding, even after Indemnitee has ceased to serve as a director or officer of the Company or as a director, trustee, general partner, managing member, officer, employee, agent or fiduciary of any other Enterprise, as applicable.

 

21. Successors. This Agreement shall be binding upon the Company and its successors and assigns, including any direct or indirect successor, by purchase, merger, consolidation or otherwise, to all or substantially all of the business or assets of the Company, and shall inure to the benefit of Indemnitee and Indemnitee’s heirs, executors and administrators. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

 

22. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company’s inability, pursuant to court order or other applicable law, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (ii) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (iii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

 

23. Enforcement. The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.

 

24. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided , however , that this Agreement is a supplement to and in furtherance of the Company’s certificate of incorporation and bylaws and applicable law.

 

25. Modification and Waiver. No supplement, modification or amendment to this Agreement shall be binding unless executed in writing by the parties hereto. No amendment, alteration or repeal of this Agreement shall adversely affect any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal. No waiver of any of the provisions of this Agreement shall constitute or be deemed a waiver of any other provision of this Agreement nor shall any waiver constitute a continuing waiver.

 

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26. Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by electronic mail or otherwise delivered by hand, messenger or courier service addressed:

 

(a) if to Indemnitee, to Indemnitee’s address or electronic mail address as shown on the signature page of this Agreement or in the Company’s records, as may be updated in accordance with the provisions hereof; or

 

(b) if to the Company, to the attention of the General Counsel of the Company at IMAC Holdings, Inc., 2725 James Sanders Blvd., Paducah, Kentucky 42001, or at such other current address as the Company shall have furnished to Indemnitee, with a copy (which shall not constitute notice) to Spencer G. Feldman at Olshan Frome Wolosky LLP, 1325 Avenue of the Americas, 15 th Floor, New York, New York 10019.

 

Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered (or if sent via a nationally-recognized overnight courier service, freight prepaid, specifying next-business-day delivery, one business day after deposit with the courier), or (ii) if sent via mail, at the earlier of its receipt or five days after the same has been deposited in a regularly-maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or (iii) if sent via electronic mail, upon confirmation of delivery when directed to the relevant electronic mail address, if sent during normal business hours of the recipient, or if not sent during normal business hours of the recipient, then on the recipient’s next business day.

 

27. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court of Chancery, and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court of Chancery for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, National Registered Agents, Inc. as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court of Chancery, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court of Chancery has been brought in an improper or inconvenient forum.

 

28. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

 

29. Captions. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

 

(signature page follows)

 

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The parties are signing this Indemnification Agreement as of the date stated in the introductory sentence.

 

  IMAC HOLDINGS, INC.
   
   
 

(Signature)

 

   
 

(Print name)

 

   
  (Title)
   
  [ INSERT INDEMNITEE NAME ]
   
   
 

(Signature)

 

   
 

(Print name)

 

   
 

(Street address)

 

   
  (City, State and ZIP)

 

   
 

 

EXHIBIT 10.3

 

IMAC Holdings, LLC

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “ Agreement ”) is made and entered into by and between IMAC Holdings, LLC, a Kentucky limited liability company that intends to convert, prior to a proposed Regulation A+ initial public offering, into a corporation pursuant to a statutory conversion and change its name to IMAC Regeneration Centers, Inc., with its principal executive offices located at 2725 James Sanders Blvd., Paducah, KY 42001 (as applicable, the “ Company ”), and each of the purchasers listed on Schedule A hereto (the “ Purchasers ”), and is dated with respect to each of the Purchasers as of the date noted on each such Purchaser’s counterpart signature page.

 

WHEREAS , the Company and the Purchasers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the rules and regulations as promulgated by the United States Securities and Exchange Commission (the “ SEC ”) under the Securities Act of 1933, as amended (the “ Securities Act ”);

 

WHEREAS , the Purchasers, severally and not jointly, desire to purchase and the Company desires to issue and sell to the Purchasers, in each case upon the terms and subject to the conditions set forth in this Agreement, 4% convertible promissory notes of the Company, in the form attached hereto as Exhibit A , in the aggregate principal face amount of up to Two Million Dollars ($2,000,000) (together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, the “ Notes ”), convertible into shares of Common Stock of the Company (the “ Common Stock ”);

 

WHEREAS , each Purchaser wishes to purchase, upon the terms and conditions stated in this Agreement, such face value amount of Notes, as is set forth immediately next to such Purchaser’s name on Schedule A ; and

 

WHEREAS , simultaneously with the execution and delivery of this Agreement, the Purchasers are executing and delivering a Lock-Up Agreement, in the form attached hereto as Exhibit B (the “ Lock-Up Agreement ” and, collectively with this Agreement, the Term Sheet delivered to the Purchasers by the Company and the Note, the “ Transaction Documents ”).

 

NOW THEREFORE , in consideration of the foregoing and the representations, warranties, covenants and agreements herein contained, the Company and each of the Purchasers severally (and not jointly) hereby agree as follows:

 

1. Purchase and Sale of Notes .

 

(a) Purchase of Notes . On the Closing Date (as defined below), the Company shall issue and sell to each Purchaser and each Purchaser severally agrees to purchase from the Company such principal face amount of Notes as is set forth next to such Purchaser’s name on Schedule A hereto.

 

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(b) Form of Payment . On the Closing Date: (i) each Purchaser shall pay the purchase price for the Notes to be issued and sold to it at the Closing (as defined below) (the “ Purchase Price ”) by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, against delivery of the Notes with principal face amount as is set forth next to such Purchaser’s name on Schedule A hereto, and (ii) the Company shall deliver such Notes executed on behalf of the Company, to such Purchaser, against delivery of such Purchase Price. The Purchase Price will equal the principal face amount of the Notes purchased.

 

(c) Closing Date . Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Notes pursuant to this Agreement (the “ Closing Date ”) shall be 12:00 noon, Eastern time, on the date noted on the subject Purchasers’ counterpart signature pages, or such other mutually agreed upon time for Purchasers’ over $500,000. The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall occur on the Closing Date at such location as may be agreed to by the parties and may be undertaken remotely by facsimile or other electronic transmission.

 

2. Representations and Warranties of the Purchasers . Each Purchaser severally (and not jointly) represents and warrants to the Company solely as to such Purchaser that:

 

(a) Knowledge of Offering . The Purchaser learned of the Company’s private placement of the Notes exclusively through an employee or prospective investor in the offering, and not a Placement Agent.

 

(b) Investment Purpose . As of the date hereof, the Purchaser is purchasing the Notes and the shares of Common Stock issuable upon conversion thereof (the “ Conversion Shares ”), for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the Securities Act; provided , however , that by making the representations herein, the Purchaser does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act, except as otherwise provided for in the Lock-Up Agreements.

 

(c) Accredited Investor Status . The Purchaser is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act (an “ Accredited Investor ”).

 

(d) Reliance on Exemptions . The Purchaser understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire the Securities.

 

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(e) Information . The Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Purchaser or its advisors. The Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Notwithstanding the foregoing representations, neither such inquiries nor any other due diligence investigation conducted by Purchaser or any of its advisors or representatives shall modify, amend or affect Purchaser’s right to rely on the Company’s representations and warranties contained in Section 3 below.

 

(f) No Governmental Review . The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.

 

(g) Transfer or Resale . The Purchaser understands that:

 

(i) The sale or resale of all or any portion or component of the Securities has not been and is not being registered under the Securities Act or any applicable state securities laws, and the all or any portion or component of Securities may not be transferred unless:

 

(A) the Securities are sold pursuant to an effective registration statement under the Securities Act,

 

(B) the Purchaser shall have delivered to the Company, at the cost of the Company, a customary opinion of counsel that shall be in form, substance and scope reasonably acceptable to the Company, to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration,

 

(C) the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the Securities Act (or a successor rule) (“ Rule 144 ”)) of the Purchaser who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor,

 

(D) the Securities are sold pursuant to Rule 144, or

 

(E) the Securities are sold pursuant to Regulation S under the Securities Act (or a successor rule) (“ Regulation S ”),

 

and, in each case, the Purchaser shall have delivered to the Company, at the cost of the Company, a customary opinion of counsel, in form, substance and scope reasonably acceptable to the Company;

 

(ii) Any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and

 

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(iii) neither the Company nor any other person is under any obligation to register such Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.

 

Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

 

(h) Legends . The Purchaser understands that the Notes, until such time as the Conversion Shares have been registered under the Securities Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Conversion Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities):

 

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended. The securities may not be sold, transferred or assigned in the absence of an effective registration statement for the securities under said Act, or an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, that registration is not required under said Act or unless sold pursuant to Rule 144 or Regulation S under said Act.”

 

The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by applicable state securities laws: (i) such Security is registered for sale under an effective registration statement filed under the Securities Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold or (ii) such holder provides the Company with a reasonable and customary opinion of counsel to the effect that a public sale or transfer of such Security may be made without registration under the Securities Act. The Purchaser agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any.

 

(i) Authorization; Enforcement . Each Transaction Document to which the Purchaser is a party: (i) has been duly and validly authorized, (ii) has been duly executed and delivered on behalf of the Purchaser, and (iii) will constitute, upon execution and delivery by the Purchaser thereof and the Company, the valid and binding agreements of the Purchaser enforceable in accordance with their terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights and general principles of equity that restrict the availability of equitable or legal remedies.

 

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(j) Residency . The Purchaser is a resident of the jurisdiction set forth immediately below such Purchaser’s name on the signature pages hereto.

 

3. Representations and Warranties of the Company . The Company hereby represents and warrants to each Purchaser as of the date hereof (unless the context specifically indicates otherwise) that:

 

(a) Organization and Qualification . The Company is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Kentucky, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. The Company has no Subsidiaries. The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. As used in this Agreement, the term “ Material Adverse Effect ” means any material adverse effect on the business, operations, assets, financial condition or prospects of the Company, or on the transactions contemplated hereby or by the other Transaction Documents, but shall not include any change affecting economic or financial conditions generally or any change affecting the Company’s industry as a whole, provided such change does not disproportionately affect the Company. As used in this Agreement, the term “ Subsidiaries ” means any corporation or other entity or organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest or otherwise controls through contract or otherwise.

 

(b) Authorization; Enforcement . (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement and the other Transaction Documents and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement and the other Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Notes and the issuance of the Conversion Shares issuable upon conversion thereof) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its stockholders, is required, (iii) each Transaction Document has been duly executed and delivered by the Company by its authorized representative, and such authorized representative is a true and official representative with authority to sign each Transaction Document and the other documents or certificates executed in connection herewith and bind the Company accordingly, and (iv) each Transaction Document constitutes, and upon execution and delivery thereof by the Company will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights and general principles of equity that restrict the availability of equitable or legal remedies. The Company is proposing to sell Notes to certain other accredited investors pursuant to the Transaction Documents.

 

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(c) Capitalization . As of the date hereof, the membership interests of the Company are, or upon issuance of shares of Common Stock upon conversion to a Corporation will be, duly authorized, validly issued, fully paid and nonassessable. All Conversion Shares will be duly reserved for future issuance. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the stockholders of the Company or any mortgage, lien, title claim, assignment, encumbrance, security interest, adverse claim, contract of sale, restriction on use or transfer or other defect of title of any kind (each, a “ Lien ”) imposed through the actions or failure to act of the Company. Except as previously disclosed: (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company, or arrangements by which the Company is or may become bound to issue additional shares of capital stock of the Company, (ii) there are no agreements or arrangements under which the Company is obligated to register the sale of any of its or their securities under the Securities Act, and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Notes, the Conversion Shares and the Company is not currently contemplating any issuances of its debt or equity securities which would trigger the anti-dilution or price adjustment provisions contained in the Notes. The Articles of Incorporation of the Company (“ Articles of Incorporation ”), the Company’s By-laws (the “ By-laws ”), and all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto are as previously described to the Purchaser.

 

(d) Issuance of Shares . The Conversion Shares will be authorized and reserved for issuance and, upon conversion of the Notes will be validly issued, fully paid and non-assessable, and free from all taxes or Liens with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of stockholders of the Company.

 

(e) Acknowledgment of Dilution . The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Conversion Shares of the Notes. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Notes in accordance with this Agreement, the Notes are absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company.

 

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(f) No Conflicts . The execution, delivery and performance of this Agreement and the other Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares) will not: (i) conflict with or result in a violation of any provision of the Articles of Incorporation or By-laws or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to which the Company is a party, except for possible violations, conflicts or defaults as would not, individually or in the aggregate, have a Material Adverse Effect, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or by which any property or asset of the Company is bound or affected. The Company is not in violation of its Articles of Incorporation, By-laws or other organizational documents. The Company is not in default (and no event has occurred which with notice or lapse of time or both could put the Company in default) under any agreement, indenture or instrument to which the Company is a party or by which any property or assets of the Company is bound or affected, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The business of the Company is not being conducted in violation of any law, rule ordinance or regulation of any governmental entity, except for possible violations which would not, individually or in the aggregate, have a Material Adverse Effect. Except as required under the Securities Act, the Securities Exchange Act of 1934, amended (the “ Exchange Act ”), and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement or any Transaction Document in accordance with the terms hereof or thereof or to issue and sell the Notes in accordance with the terms thereof and to issue the Conversion Shares upon conversion of the Notes. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof.

 

(g) Absence of Certain Changes . Since October 31, 2017, there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations or prospects of the Company. Without limiting the foregoing, the Company has not since October 31, 2017:

 

(i) issued any stock, bonds or other corporate securities or any rights, options or warrants with respect thereto;

 

(ii) borrowed any amount or incurred or become subject to any liabilities (absolute or contingent), except for trade payables incurred in the ordinary course of business;

 

(iii) discharged or satisfied any Lien or paid any obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business consistent with past practices;

 

(iv) declared or made any payment or distribution of cash or other property to stockholders with respect to its stock, or purchased or redeemed, or made any agreements so to purchase or redeem, any shares of its capital stock;

 

(v) mortgaged or pledged any of its assets, tangible or intangible, or subjected them to any Lien, except for the anticipated purchase of a building at 2537 Larkin Rd. in Lexington, Kentucky, for the opening and operation of the Tony Delk IMAC Regeneration Center;

 

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(vi) suffered any substantial losses or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of prospective business;

 

(vii) made any changes in employee compensation in excess of $10,000;

 

(viii) adopted or amended any employee benefits or plan relating thereto;

 

(ix) made capital expenditures or commitments therefor that aggregate in excess of $50,000 for the Company, except for the commitment to purchase a building at 2537 Larkin Rd. in Lexington, Kentucky;

 

(x) entered into any other material transaction other than in the ordinary course of business;

 

(xi) made charitable contributions or pledges in excess of $5,000 in the aggregate;

 

(xii) suffered any material damage, destruction or casualty loss, whether or not covered by insurance;

 

(xiii) experienced any union organizing effort or strike problems with labor or management in connection with the terms and conditions of their employment; or

 

(xiv) effected or agreed to do any of the foregoing.

 

(h) Absence of Litigation . There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company, or its business, properties or assets or its officers or directors in their capacity as such, that would have a Material Adverse Effect.

 

(i) Intellectual Property . Other than the trademark “IMAC Regeneration Center,” trade names of the endorsed clinics, and various internet domain names, the Company has no other patents, patent applications, provisional patents, trademarks, service marks, trademark registrations, service mark registrations, copyrights, licenses, formulae, mask works, customer lists, know-how and other intellectual property, including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems, procedures or registrations or applications relating to the same (collectively, “ Intellectual Property ”). The Company owns valid title, free and clear of any Liens, or possesses the requisite valid and current licenses or rights, free and clear of any Liens, to use all Intellectual Property in connection with the conduct its business as now operated and, to the best of the Company’s knowledge, as presently contemplated to be operated in the future. There is no claim or action by any person pertaining to, or proceeding pending, or to the Company’s knowledge threatened, which challenges the right of the Company with respect to any Intellectual Property necessary to enable it to conduct its business as now operated and, to the best of the Company’s knowledge, as presently contemplated to be operated in the future. To the best of the Company’s knowledge, the Company’s current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person, and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company has not received any notice of infringement of, or conflict with, the asserted rights of others with respect to the Intellectual Property. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property.

 

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(j) No Materially Adverse Contracts, etc . The Company is not subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect. The Company is not a party to any contract or agreement which has or is reasonably expected to have a Material Adverse Effect.

 

(k) Tax Matters . The Company has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. The Company has not received notice that any of its tax returns is presently being audited by any taxing authority.

 

(l) Certain Transactions . A shareholder owning more than five percent (5%) of the company has provided a loan to the Company that is currently outstanding. There are no leases, royalty agreements or other transactions between: (i) the Company or any of its customers or suppliers, and (ii) any officer, employee, consultant or director of the Company or any person owning five percent (5%) or more of the capital stock of the Company or five percent (5%) or more of the ownership interests of the Company or any member of the immediate family of such officer, employee, consultant, director, stockholder or owner or any corporation or other entity controlled by such officer, employee, consultant, director, stockholder or owner, or a member of the immediate family of such officer, employee, consultant, director, stockholder or owner.

 

(m) Permits; Compliance . The Company is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “ Company Permits ”), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. The Company is not in default or violation of, any of the Company Permits.

 

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(n) ERISA . The Company has not made or currently makes any contributions to any employee pension benefit plan for its employees which plan is subject to the Employee Retirement Income Security Act of l974, as amended from time to time ( “ERISA” ).

 

(o) Title to Property . The Company holds no title in fee simple to any real property. The Company holds good and marketable title to all personal property owned by them which is material to the business of the Company, in each case free and clear of all Liens. Any real property and facilities held under lease by the Company are held by it under valid, subsisting and enforceable leases.

 

(p) Insurance . The Company has provided to Purchaser, upon Purchaser’s request, true and correct copies of all policies relating to directors’ and officers’ liability coverage, errors and omissions coverage, and commercial general liability coverage. The Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

 

(q) Internal Accounting Controls . The Company and has not received, orally or in writing, any adverse notification (including any “management letters”) from its auditors relating to the Company’s internal financial controls and procedures.

 

(r) Books and Records . The books of account, ledgers, order books, records and documents of the Company accurately and completely reflect all material information relating to the business of the Company, the location and collection of its assets, and the nature of all transactions giving rise to the obligations or accounts receivable of the Company.

 

(s) Subordination of Notes . The Notes will be subordinated in priority and right of payment to any senior Indebtedness of the Company, now existing or hereafter issued. The Company currently has no senior or secured Indebtedness outstanding. As used herein, the term “ Indebtedness ” means: (i) all obligations for borrowed money, (b) all obligations evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect of letters of credit or other financial products, and (c) all payment obligations (other than trade payables incurred in the ordinary course of business).

 

(t) Assumptions or Guaranties of Indebtedness of Other Persons . The Company has not assumed, guaranteed, endorsed, or otherwise become directly or contingently liable on, any Indebtedness or any other agreement of any other person.

 

(u) Disclosure . All information relating to or concerning the Company or any of its officers, directors, employees, customers or clients (including, without limitation, all information regarding the Company’s internal financial accounting controls and procedures): (i) set forth in this Agreement or any other Transaction Document and/or (ii) as provided to the Purchasers pursuant to Section 2(e) hereof, is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading.

 

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(v) No General Solicitation . Neither the Company nor any person participating on the Company’s behalf in the transactions contemplated hereby has conducted any “general solicitation,” as such term is defined in Regulation D promulgated under the Securities Act, with respect to any of the Securities being offered hereby.

 

(w) No Integrated Offering . Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the Securities Act of the issuance of the Securities to the Purchasers. The issuance of the Securities to the Purchasers will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any stockholder approval provisions applicable to the Company or its securities.

 

(x) No Brokers . The Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement or the transactions contemplated hereby.

 

4. Covenants . In addition to the other agreements and covenants set forth herein, the applicable parties hereto hereby covenant as follows:

 

(a) Stop Orders . The Company will advise each Purchaser promptly after it receives notice of issuance by the SEC, any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of the Securities, or of the suspension of the qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose.

 

(b) Form D; Blue Sky Laws . The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Purchaser promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Purchasers at the applicable closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to each Purchaser and to the Placement Agent on or prior to the Closing Date.

 

(c) Use of Proceeds . The Company shall use the proceeds from the sale of the Notes to fund the Company’s short-term working capital and capital expenditure requirements, including legal and accounting fees, marketing expenses and other costs associated with preparing for and consummating a Regulation A+ initial public offering.

 

(d) Expenses . The Company is solely responsible for all expenses incurred in connection with the preparation, execution, delivery and performance of the Transaction Documents.

 

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(e) Authorization and Reservation of Shares . The Company shall at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the full conversion or exercise of the outstanding Notes and issuance of the Conversion Shares in connection therewith (based on the conversion price of the Notes in effect from time to time) (collectively, the “ Reserved Amount ”). The Company shall not reduce the number of shares of Common Stock reserved for issuance upon conversion of the Notes. If at any time the number of shares of Common Stock authorized and reserved for issuance (“ Authorized and Reserved Shares ”) is below the Reserved Amount, the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of stockholders to authorize additional shares to meet the Company’s obligations under this Section 4(e), in the case of an insufficient number of authorized shares, obtain stockholder approval of an increase in such authorized number of shares, and voting the shares of the Company’s officers and directors in favor of an increase in the authorized shares of the Company to ensure that the number of authorized shares is sufficient to meet the Reserved Amount. The Company shall use its best efforts to obtain such stockholder approval within thirty (30) days following the date on which the number of Reserved Amount exceeds the Authorized and Reserved Shares.

 

(f) Corporate Existence . So long as a Purchaser beneficially owns any Notes, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction assumes the Company’s obligations hereunder and under the agreements and instruments entered into in connection herewith.

 

(g) Sarbanes-Oxley Matters . When required to do so, the Company will comply with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective for the Company, and any and all applicable rules and regulations promulgated by the SEC thereunder. The Company shall implement such programs and shall take such steps reasonably necessary to provide for its future compliance (not later than the relevant statutory and regulatory deadline therefor) with all provisions of Section 404 of the Sarbanes-Oxley Act that shall become applicable to the Company.

 

(h) Accounting Changes . Make any change in its accounting treatment or financial reporting practices except as required or permitted by generally accepted accounting principles in effect from time to time

 

(i) No Integration . The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the Securities Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.

 

(j) Insurance . Subsequent to the Closing, the Company will keep its assets which are of an insurable character insured by financially sound and reputable institutional insurers against loss or damage by fire, explosion and other risks customarily insured against by companies in similar business similarly situated as the Company, and the Company will maintain, with financially sound and reputable institutional insurers, insurance against other hazards and risks and liability to persons and property to the extent and in the manner which the Company reasonably believes is customary for companies in similar business similarly situated as the Company.

 

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(k) Nature of Business . For so long as the Notes remain outstanding and unpaid, or any other amount is owing to any Purchaser under any Transaction Document, without the prior written approval of a majority in interest of the Purchasers, the Company shall not materially alter the nature of the Company’s business.

 

(l) Intellectual Property . For so long as the Notes remain outstanding and unpaid, or any other amount is owing to any Purchaser under any Transaction Document, the Company shall use commercially reasonable efforts to maintain in full force and effect its existence, rights and franchises and all licenses and other rights to use Intellectual Property owned or possessed by it and reasonably deemed to be necessary to the conduct of its business.

 

(m) Properties . For so long as the Notes remain outstanding and unpaid, or any other amount is owing to any Purchaser under any Transaction Document, the Company will keep its owned or leased properties and other assets in good repair, working order and condition, reasonable or ordinary wear and tear excepted, and from time to time make all needful and proper repairs, renewals, replacements, additions and improvements thereto; and the Company will at all times comply with each provision of all leases to which it is a party or under which it occupies property if the breach of such provision could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(n) Taxes . For so long as the Notes remain outstanding and unpaid, or any other amount is owing to any Purchaser under any Transaction Document, the Company shall duly pay and discharge all taxes or other claims, which might become a lien upon any of its property except to the extent that any thereof are being in good faith appropriately contested with adequate reserves provided therefor.

 

(o) Notice of Litigation . For so long as the Notes remain outstanding and unpaid, or any other amount is owing to any Purchaser under any Transaction Document, the Company shall promptly notify the Purchasers in writing, with a reasonably detailed description thereof, of any litigation, legal proceeding or dispute, other than disputes in the ordinary course of business or, whether or not in the ordinary course of business, involving amounts in excess of Two Hundred Fifty Thousand ($250,000) Dollars, affecting the Company, whether or not fully covered by insurance, and regardless of the subject matter thereof.

 

(p) Most Favored Nation Provision . For so long as the Notes remain outstanding and unpaid, in the event that the Company issues or sells any other Indebtedness of the Company convertible into shares of Common Stock, if a Purchaser then holding outstanding Securities reasonably believes that any of the material terms and conditions appurtenant to such issuance or sale are more favorable to such investors than are the terms and conditions granted to the Purchasers hereunder, upon notice to the Company by such Purchaser within five (5) business days after disclosure of such issuance or sale, the Company shall amend the terms of this transaction as to such Purchaser only so as to give such Purchaser the benefit of such more favorable material terms or conditions. This Section 4(p) shall not apply with respect to Exceptions under Section 5.6 of the Note. The Company shall provide each Purchaser with notice of any such issuance or sale not later than ten (10) business days before such issuance or sale.

 

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5. Transfer Agent Instructions . The Company shall issue irrevocable instructions to its transfer agent (if and when it shall have engaged a transfer agent) to issue certificates, registered in the name of each Purchaser or its nominee, for the Conversion Shares in such amounts as specified from time to time by each Purchaser to the Company upon conversion of the Notes in accordance with the terms thereof (the “ Irrevocable Transfer Agent Instructions ”). Prior to registration of the Conversion Shares under the Securities Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates shall bear the restrictive legend specified in Section 2(h) of this Agreement. The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(g) hereof (in the case of the Conversion Shares, prior to registration of the Conversion Shares under the Securities Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold), will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement. Nothing in this Section shall affect in any way the Purchaser’s obligations and agreement set forth in Section 2(g) hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities. If a Purchaser provides the Company, with a customary opinion of counsel, that shall be in form, substance and scope reasonably acceptable to Company counsel, to the effect that a public sale or transfer of such Securities may be made without registration under the Securities Act and such sale or transfer is effected, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by such Purchaser. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Purchasers, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section, that the Purchasers shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.

 

6. Conditions to the Company’s Obligation to Sell . The obligation of the Company hereunder to issue and sell the Notes to a Purchaser at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

 

(a) The applicable Purchaser shall have executed this Agreement and the Lock-Up Agreement, and delivered the same to the Company.

 

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(b) The applicable Purchaser shall have delivered the Purchase Price in accordance with Section 1(b) above.

 

(c) The representations and warranties of the applicable Purchaser shall be true and correct in all material respects, and the applicable Purchaser shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the applicable Purchaser at or prior to the Closing Date.

 

(d) No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

 

7. Conditions to Each Purchaser’s Obligation to Purchase . The obligation of each Purchaser hereunder to purchase the Notes at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions, provided that these conditions are for such Purchaser’s sole benefit and may be waived by such Purchaser at any time in its sole discretion:

 

(a) The Company shall have executed this Agreement, and delivered the same to the Purchaser.

 

(b) The Company shall have delivered to such Purchaser duly executed Notes (in such denominations as the Purchaser shall request) in accordance with Section 1(b) above.

 

(c) The representations and warranties of the Company shall be true and correct in all material respects, and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date. The Purchaser shall have received a certificate or certificates, executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Purchaser including, but not limited to certificates with respect to the Company’s Articles of Incorporation, By-laws and Board of Directors’ resolutions relating to the transactions contemplated hereby.

 

(d) No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

 

(e) No event shall have occurred which would reasonably be expected to have a Material Adverse Effect on the Company.

 

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8. Governing Law; Jurisdiction; Fees; Waiver of Jury Trial .

 

(a) THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF KENTUCKY APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW.

 

(b) THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COMMONWEALTH OF KENTUCKY OR UNITED STATES FEDERAL COURTS LOCATED IN THE MIDDLE DISTRICT OF KENTUCKY WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. THE PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL IN ACCORDANCE WITH SECTION 9(e) HEREOF SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT A PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. THE PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER.

 

(c) THE PARTY OR PARTIES WHICH DO NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT PRIOR TO THE CONSUMMATION BY THE COMPANY OF ANY UNDERWRITTEN PUBLIC OFFERING OF ITS SECURITIES SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE.

 

(d) EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, ANY TRANSACTION DOCUMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY.

 

9. Miscellaneous .

 

(a) Counterparts; Signatures by Facsimile . This Agreement may be executed in one or more counterparts (with the Purchasers each executing the counterpart in the form of Annex A hereto). Each of such counterparts shall be deemed an original, and all of which shall, when taken together, constitute one and the same agreement, and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party (including in the manner described above), may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

 

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(b) Headings . The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.

 

(c) Severability . In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.

 

(d) Entire Agreement; Amendments . This Agreement, the other Transaction Documents and the instruments, documents and schedules referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the Company and a majority in interest of the Purchasers.

 

(e) Notices . Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile transmission and shall be effective five days after being placed in the mail, if mailed by regular United States mail, or upon receipt, if delivered personally or by courier (including a recognized overnight delivery service) or by facsimile transmission, with printed confirmation of receipt, in each case addressed to a party. The addresses for such communications shall be:

 

  (i) If to the Company:
     
    IMAC Holdings, LLC
    2725 James Sanders Blvd.
    Paducah, KY 42001
    Attention: Mr. Jeff Ervin, CEO
    Telephone: (615) 473-8873
     
    With a copy to:
     
    Olshan Frome Wolosky LLP
    1325 Avenue of the Americas, 15th Floor
    New York, New York 10019
    Attention: Spencer G. Feldman, Esq.
    Telephone: (212) 451-2300
    Facsimile: (212) 451-2222
     
  (ii) If to a Purchaser: To the address and fax number set forth immediately below such Purchaser’s name on the counterpart signature pages hereto.

 

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Each party shall provide notice to the other party of any change in address, telephone or facsimile number.

 

(f) Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor any Purchaser shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, but subject to the provisions of Section 2(f) hereof, any Purchaser may, without the consent of the Company, assign its rights hereunder to any person that purchases Securities in a private transaction from a Purchaser or to any of its “affiliates,” as that term is defined under the Exchange Act.

 

(g) Third Party Beneficiaries . This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and, except for the Placement Agent, who is specifically agreed to be and acknowledged by each party as a third party beneficiary hereof, is not for the benefit of, nor may any provision hereof be enforced by, any other person.

 

(h) Survival; Indemnification; Limitation on Liability .

 

(i) The representations and warranties of the Purchasers and the Company set forth in Sections 2 and 3 hereof shall survive for 12 months following the Closing Date notwithstanding any due diligence investigation conducted by or on behalf of the Purchasers or the Company, as applicable.

 

(ii) The Company agrees to indemnify and hold harmless each of the Purchasers and all of their respective officers, directors, employees, agents and representative from and against any and all claims, costs, expenses, liabilities, obligations, losses or damages (including reasonable legal fees) of any nature (“ Losses ”), incurred by or imposed upon any such party arising as a result of or related to any actual or alleged breach by the Company of any of its representations, warranties and covenants set forth in Sections 3 and 4 hereof or any of its covenants, agreements and obligations under this Agreement or any other Transaction Document.

 

(iii) Each Purchaser agrees, severally but not jointly, to indemnify and hold harmless the Company and its officers, directors, employees and agents for Losses arising as a result of or related to any actual or alleged breach any breach by such Purchaser of any of its representations or warranties set forth in Section 2 hereof or any of its covenants, agreements and obligations under this Agreement or any other Transaction Document.

 

(iv) Notwithstanding the foregoing: (A) an indemnifying party shall not be liable for any claim for indemnification or Loss associated therewith unless and until the aggregate amount of indemnifiable Losses which may be recovered from the indemnifying party equals or exceeds $100,000, after which the indemnifying party shall be liable, subject to the provisions hereof, for all Losses, including the initial $100,000 of Losses, and (ii) in no event shall the aggregate amount paid by an indemnifying party pursuant to this Section 9(h) exceed $500,000.

 

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(i) Publicity . The Company and the Placement Agent shall have the right to review a reasonable period of time before issuance of any press releases or SEC or other regulatory filings, or any other public statements with respect to the transactions contemplated hereby; provided , however , that the Company shall be entitled, without the prior approval of the Placement Agent or the Purchasers, to make any press release or SEC or other regulatory filings with respect to such transactions as is required by applicable law and regulations (although the Placement Agent shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon).

 

(j) Further Assurances . Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

(k) No Strict Construction . The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

 

[Remainder of page intentionally left blank; signature pages follow.]

 

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IN WITNESS WHEREOF , the undersigned Purchasers and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first above written.

 

  IMAC Holdings, LLC
     
  By:               
  Name:  
  Title:  
     
  PURCHASERS:
     
  The Purchasers executing the Signature Page in the form attached hereto as Annex A and delivering the same to the Company or its agents shall be deemed to have executed this Agreement and agreed to the terms hereof.

 

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Annex A

 

Securities Purchase Agreement

Purchaser Counterpart Signature Page

 

The undersigned, desiring to: (i) enter into this Securities Purchase Agreement dated as of ________ ___, 2018 (the “ Agreement ”), between the undersigned, IMAC Holdings, LLC, a Kentucky limited liability company (the “ Company ”), and the other parties thereto, in or substantially in the form furnished to the undersigned and (ii) purchase the securities of the Company appearing next to the undersigned’s name on Schedule A to the Agreement, hereby agrees to purchase such securities from the Company as of the Closing and further agrees to join the Agreement as a party thereto, with all the rights and privileges appertaining thereto, and to be bound in all respects by the terms and conditions thereof.

 

IN WITNESS WHEREOF , the undersigned has executed the Agreement as of ____________ ___, 2018.

 

  PURCHASER:
   
  Name and Address, E-mail, Fax No. and Social Security No./EIN of Purchaser:
 

 

______________________________________

 

______________________________________

 

______________________________________

 

E-mail: ________________________________

 

Fax No.: _______________________________

 

Soc. Sec. No./EIN: _______________________

 

  If a partnership, corporation, trust or other business entity:
     
  By:           
  Name:  
  Title:  
     
  If an individual:
   
   
  Signature
     
  Purchase Price: $ ___________________

 

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THE SECURITY REPRESENTED HEREBY, AND THE SECURITIES ISSUABLE UPON CONVERSION OR REDEMPTION HEREOF, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS COMPANY, IS AVAILABLE.

 

IMAC Holdings, LLC

 

4% CONVERTIBLE PROMISSORY NOTE

 

No. _____

 

US$______ ___________ __, 2018

 

THIS 4% CONVERTIBLE PROMISSORY NOTE is one of a duly authorized issue of unsecured convertible promissory notes (each, a “ Note ” and collectively, the “ Notes ”) of IMAC Holdings, a Kentucky limited liability company that intends to convert, prior to a proposed Regulation A+ initial public offering, into a corporation pursuant to a statutory conversion and change its name to IMAC Regeneration Centers, Inc. (as applicable, the “ Company ”), and has been issued to the Holder (as defined below) in connection with the private placement of securities offered pursuant to that certain: (i) Securities Purchase Agreement, (ii) Term Sheet, (iii) this Note, and (iv) Lock-Up Agreement, each dated as of the date of this Note (collectively, the “ Transaction Documents ”). The Notes are designated as the 4 % Convertible Promissory Notes , in an aggregate maximum principal face value for all Notes of this series (the “ Series ”) of up to Two Million United States Dollars (US$2,000,000).

 

FOR VALUE RECEIVED, the Company promises to pay to the order of __________, having an address at ____________________, and such person or entities’ successors and assigns (the “ Holder ”), the principal sum of __________ Dollars ($__________), or such other amount as shall then equal the outstanding principal amount hereof, in accordance with the terms hereof, and to pay interest on the principal sum outstanding, at the rate of four percent (4%) per annum. Accrual of interest on the outstanding principal amount shall commence on the date hereof and shall continue until payment in full of the outstanding principal amount has been made or duly provided for, or until the entire outstanding principal amount of the Note has been converted. This Note is unsecured. The Holder takes this Note subject to the terms and restrictions set forth in the Transaction Documents and shall be entitled to certain rights and privileges as set forth in the Transaction Documents.

 

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The following is a statement of the rights of the Holder of this Note and the terms and conditions to which this Note is subject, and to which the Holder, by acceptance of this Note, agrees:

 

1. Principal Repayment . This Note and any accrued but unpaid interest hereunder will become due and payable in accordance with the terms hereof on ________, 2019, one year from the date of issuance (such date, the “ Maturity Date ”), unless this Note has been converted as described below; provided , however , that this Note may be prepaid in whole or in part at any time at one hundred twenty percent (120%) of the principal amount hereof plus accrued interest to the date of repayment; and provided , further , that the Company shall be required to offer to prepay the aggregate principal amount of this Note at one hundred twenty-five percent (125%) of the principal amount hereof upon the occurrence of a Change of Control prior to a Qualified Financing.

 

2. Interest . The holders of the Notes are entitled to receive interest at an annual cumulative rate of four percent (4%) of the principal face dollar value of this Note, due and payable quarterly at a rate of three percent (1%), in the form, at the Holder’s option, of (a) cash out of funds legally available therefor (but mandatorily in cash as to the first such quarterly interest payment), (b) in-kind as shares of the Company’s Common Stock, no par value per share (the “ Common Stock ”), based on the fair market value of the Common Stock on the date of issuance, as determined by the Board of Directors of the Company in good faith, or (c) a combination of cash and in-kind interest, on the last business day of each calendar quarter commencing six months after the date of issuance of this Note. Upon the occurrence of an Event of Default (as defined in Section 7), and so long as it remains uncured, interest on the principal face dollar value of this Note shall accrue at a rate of eight percent (8%) per annum. The interest rates provided above shall be calculated for the actual days elapsed on the basis of a 365-day year and shall apply before and after maturity and judgment.

 

3. Conversion .

 

(a) Generally . All or any portion of the outstanding principal amount of and accrued interest under this Note may, at any time after the conversion of the Company into a corporation and on or prior to or after the Maturity Date and in the Holder’s sole discretion (except as provided for in Section 3(b) below), be converted into shares of Common Stock at a price equal to the Conversion Price, as defined below.

 

(b) In Connection with a Qualified Financing . If, on or prior to the Maturity Date, the Company consummates a Qualified Financing (as defined below) establishing a valuation of the Company, then, on and following the closing of such Qualified Financing, one hundred percent (100%) of the outstanding principal amount of and accrued interest under this Note may, at the Holder’s option, be converted into such number of shares of Common Stock at a price equal to eighty percent (80%) of the offering price per share to be received by the Company (or otherwise calculable) in the Qualified Financing (as modified below, the “ Conversion Price ”). For purposes hereof, a “Qualified Financing” shall mean an equity financing transaction pursuant to which the Company sells shares of its common stock, preferred stock or any other equity or equity-linked securities (which financing includes the Company’s contemplated Regulation A+ initial public offering under Title IV of the JOBS Act), with aggregate gross proceeds of not less than $3.0 million, excluding any and all indebtedness under the Notes that is converted into shares of Common Stock, and with the principal purpose of raising capital. In the event that a Qualified Financing is not consummated by the Company on or before the Maturity Date, the Holder may elect to convert this Note into shares of Common Stock at a “Conversion Price” equal to eighty percent (80%) of the gross price per share received by the Company (or otherwise calculable) in the last round of financing by the Company of any of its equity or equity-linked securities of the Company in a third-party financing transaction (provided, that, in the event an agreement or letter of intent for a Qualified Financing is executed by the Company establishing a valuation of the Company prior to the Maturity Date and is actively in the process of being completed, the Conversion Price shall not be less than the price per share of Common Stock established (or calculable) in the agreement or letter of intent for the Qualified Financing).

 

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(c) Mechanics of Conversion . Upon any conversion of this Note: (i) such principal amount converted and such converted portion of this Note shall become fully paid and satisfied, (ii) the Holder shall surrender and deliver this Note, duly endorsed, to the Company or such other address which the Company shall designate against delivery of the certificates representing the new securities of the Company, (iii) the Company shall promptly deliver a duly executed Note to the Holder in the principal amount, if any, that remains outstanding after any such conversion; and (iv) in exchange for all or any portion of the surrendered Note described in the preceding clauses 3(c)(i) or (ii) hereof, the Company shall deliver to the Holder certificates representing such number of shares of Common Stock to which the Holder is entitled to receive based on its conversion of the Note, which certificates shall bear such legends as are required under applicable state and federal securities laws.

 

(d) Issue Taxes . The Company shall pay any and all issue and other taxes that may be payable with respect to any issue or delivery of shares of Common Stock on conversion of this Note pursuant hereto; provided , however , that the Holder shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

 

(e) Elimination of Fractional Interests . No fractional shares of Common Stock shall be issued upon conversion of this Note, nor shall the Company be required to pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated and that all issuances of Common Stock shall be rounded up to the nearest whole share.

 

4. Rights upon Liquidation, Dissolution or Winding Up. In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Notes shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of any debt or equity securities of the Company, an amount equal to the unpaid and unconverted principal face amount of their Notes and any accrued and unpaid interest thereon. The Holder shall be paid in preference to any unsecured creditors of the Company and shall be paid pro rata in proportion to the principal amount of Notes held by holders of the Series if the available assets are not sufficient to repay the Notes. The rights of the Holder described in this Section 4 are referred to collectively as the “ Liquidation Preference .”

 

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5. Adjustments .

 

(a) Splits, Subdivisions, etc . In the event that the Company should at any time or from time to time, after the date of this Note, fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock, or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly additional shares of Common Stock (hereinafter referred to as “ Common Stock Equivalents ”) without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of this Note shall be increased in proportion to such increase in the aggregate number of shares of the Common Stock outstanding.

 

(b) Combinations . If the number of shares of Common Stock outstanding at any time after the date of this Note is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price shall be appropriately increased so that the number of shares of Common Stock issuable upon conversion of this Note shall be decreased in proportion to such decrease in outstanding shares.

 

(c) Mergers, Consolidations, etc . A merger, consolidation or other corporate reorganization in which the Company’s stockholders shall receive cash or securities of another entity, or any transaction in which all or substantially all of the assets of the Company are sold shall be treated as a liquidation of the Company for purposes of the payment of the Liquidation Preference. The Holder shall receive prior written notice of any of the foregoing transactions and shall have an opportunity to convert, at their sole election, the Note prior to the consummation of any such transaction.

 

(d) Dilutive Issuances . In the event that the Company shall, at any time while all or any portion of this Note is outstanding, sell any shares of Common Stock for a consideration per share less than the Conversion Price, or issue Common Stock Equivalents convertible into or exchangeable for Common Stock at an exercise or conversion price below the Conversion Price (such actions, a “ Dilutive Offering ”), then the Conversion Price shall immediately be changed upon each such issuance such that the Conversion Price shall be adjusted by multiplying the then applicable Conversion Price by the following fraction:

 

A + B

————————————————

(A + B) + [((C – D) x B) / C]

 

A = Total amount of shares convertible pursuant to this Note assuming the entire amount of the Note is converted.

 

B = Actual shares sold in the Dilutive Offering

 

C = Conversion Price

 

D = Offering price in the Dilutive Offering

 

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(e) Computation of Consideration . For purposes of any computation respecting consideration received pursuant to Section 5(d) above, the following shall apply:

 

(i) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith;

 

(ii) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by the Board of Directors of the Company (irrespective of the accounting treatment thereof); and

 

(iii) upon any such exercise, the aggregate consideration received for such securities shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in subsections (i) and (ii) of this Section 5(e)).

 

(f) Exceptions . No adjustment to the Conversion Price shall be made pursuant to this Section 5 with respect to: (i) the issuance or sale of this Note or other Notes in the series, or shares of Common Stock issuable upon exercise of the Notes, warrants and convertible securities outstanding as of the date hereof, or (ii) the issuance or sale of any shares of Company capital stock, or the grant of options exercisable therefore, issued or issuable after the date of this Note, to directors, officers, employees, advisers and consultants of the Company pursuant to any incentive or non-qualified stock option plan or agreement, stock purchase plan or agreement, employee stock ownership plan (ESOP), but solely as the same is in existence as of the date hereof, or (iii) shares of Company capital stock issued in connection with any subdivision, reclassification or combination of, the outstanding shares of Common Stock, or (iv) shares of Company capital stock issued at less than the Conversion Price then in effect to the sellers in connection with the acquisition by the Company of a corporation or other business entity or assets; provided , however , that in no event shall any issuances of Company capital stock issued under clause (iv) of this subsection (f) cause dilution in excess of twenty percent (20%) to the holders of the Securities.

 

6. Representations and Affirmative and Negative Covenants of the Company . The Company hereby represents and warrants to the Holder, and covenants and agrees, as the case may be, to all of the matters set forth in Sections 3 and 4 of the Securities Purchase Agreement, which representations, warranties, covenants and agreements are incorporated by reference herein as if set forth fully herein. In addition, the Company hereby covenants to the holder as follows:

 

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(a) Event of Default . Within five (5) days of any officer of the Company obtaining knowledge of any Event of Default (as defined in Section 7 hereof), if such Event of Default is then continuing, the Company shall furnish to the Holder a certificate of the chief financial or accounting officer of the Company setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto.

 

(b) Performance . The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of the provisions of this Note and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Note against impairment.

 

7. Events of Default . This Note shall become immediately due and payable at the option of the holders of greater than 50% of the face amount of all then outstanding Notes issued in the Series, upon any one or more of the following events or occurrences (“ Events of Default ”):

 

(a) if any portion of this Note is not paid when due; provided , that this shall only constitute an Event of Default if such default is not cured by the Company within fifteen (15) days after the Holder has given the Company written notice of such default;

 

(b) upon a “ Change in Control ” of the Company, meaning: (i) an acquisition of any voting securities of the Company (the “ Voting Securities ”) by any “person” (as the term “person” is used for purposes of Section 13(d) or Section 14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), immediately after which such person has “beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) (“ Beneficial Ownership ”) of 30% or more of the combined voting power of the Company’s then outstanding Voting Securities without the approval of the Company’s Board of Directors (the “ Board ”); (ii) a merger or consolidation that results in more than 50% of the combined voting power of the Company’s then outstanding Voting Securities of the Company or its successor changing ownership(whether or not approved by the Board); (iii) the sale of all or substantially all of the Company’s assets in one or a series of related transactions; (iv) approval by the stockholders of the Company of a plan of complete liquidation of the Company; or (v) the individuals constituting the Board as of the date of this Note (the “ Incumbent Board ”) cease for any reason to constitute at least 1/2 of the members of the Board; provided , however , that if the election, or nomination for election by the Company’s stockholders, of any new director was approved by a vote of the Incumbent Board, such new director shall be considered a member of the Incumbent Board. The Company shall give the Holder no less than thirty (30) days written notice of a potential Change in Control.

 

(c) if any final judgment for the payment of money is rendered against the Company and the Company does not discharge the same or cause it to be discharged or vacated within ninety (90) days from the entry thereof, or does not appeal therefrom or from the order, decree or process upon which or pursuant to which said judgment was granted, based or entered, and does not secure a stay of execution pending such appeal within ninety (90) days after the entry thereof;

 

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(d) if the Company makes an assignment for the benefit of creditors or if the Company generally does not pay its debts as they become due;

 

(e) if a receiver, liquidator or trustee of the Company is appointed or if the Company is adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, is filed by or against, consented to, or acquiesced in, by the Company or if any proceeding for the dissolution or liquidation of the Company is instituted; however, if such appointment, adjudication, petition or proceeding is involuntary and is not consented to by the Company, upon the same not being discharged, stayed or dismissed within sixty (60) days;

 

(f) if the Company defaults in any material respect under any other secured or unsecured indebtedness for borrowed money, other than any indebtedness owed to officers, directors or stockholders of the Company, mortgage or security agreement covering any part of its property;

 

(g) if the Company defaults in the observance or performance of any other material term, agreement, covenant or condition of this Note or the Transaction Documents, and the Company fails to remedy such default within fifteen (15) days after notice by the Holder to the Company of such default, or, if such default is of such a nature that it cannot with due diligence be cured within said fifteen (15) day period, if the Company fails, within said fifteen (15) days, to commence all steps necessary to cure such default, and fail to complete such cure within forty five (45) days after the end of such fifteen (15) day period;

 

(h) except for specific defaults set forth in this Section 7, if the Company defaults in the observance or performance of any material term, agreement or condition of the Note or the Transaction Documents, and such default continues after the end of any applicable cure period provided for therein; and

 

(i) if any of the following exist uncured for fifteen (15) days following written notice to the Company: (i) the failure, subject to applicable survival periods, of any representation or warranty made by the Company to the Holder pursuant to any of the Transaction Documents to be true and correct in all material respects or (ii) the Company fails to provide the Holder with the written certifications and evidence referred to in this Note.

 

8. Usury . In no event shall the amount of interest paid or agreed to be paid hereunder exceed the highest lawful rate permissible under applicable law. Any excess amount of deemed interest shall be null and void and shall not interfere with or affect the Company’s obligation to repay the principal of and interest on the Note.

 

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9. Holder Not Deemed a Stockholder . The Holder, as such, of this Note shall be entitled (prior to conversion or redemption of this Note into Common Stock, and only then to the extent of such conversion) to vote or receive dividends or be deemed the holder of shares of Common Stock for any purpose, nor shall anything contained in this Note be construed to confer upon the Holder hereof, as such, any of the rights at law of a stockholder of the Company prior to the issuance to the holder of this Note of the shares of Common Stock which the Holder is then entitled to receive upon the due conversion of all or a portion of this Note.

 

10. Mutilated, Destroyed, Lost or Stolen Notes . In case this Note shall become mutilated or defaced, or be destroyed, lost or stolen, the Company shall execute and deliver a new note of like principal amount in exchange and substitution for the mutilated or defaced Note, or in lieu of and in substitution for the destroyed, lost or stolen Note. In the case of a mutilated or defaced Note, the Holder shall surrender such Note to the Company. In the case of any destroyed, lost or stolen Note, the Holder shall furnish to the Company: (a) evidence to its satisfaction of the destruction, loss or theft of such Note and (b) such security or indemnity as may be reasonably required by the Company to hold the Company harmless.

 

11. Waiver of Demand, Presentment, etc . The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereunder, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder.

 

12. Payment . Except as otherwise provided for herein, all payments with respect to this Note shall be made in lawful currency of the United States of America by check or wire transfer of immediately available funds, at the option of the Holder, at the principal office of the Holder or such other place or places or designated accounts as may be reasonably specified by the Holder of this Note in a written notice to the Company at least one (1) business day prior to payment. Payment shall be credited first to the accrued interest then due and payable and the remainder applied to principal.

 

13. Assignment . The rights and obligations of the Company and the Holder of this Note shall be binding upon, and inure to the benefit of, the permitted successors, assigns, heirs, administrators and transferees of the parties hereto.

 

14. Waiver and Amendment . Any provision of this Note, including, without limitation, the due date hereof, and the observance of any term hereof, may be amended, waived or modified (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the holders of greater than 50% of the face amount of all then outstanding Notes issued in the Series.

 

15. Notices . Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or delivered by facsimile transmission, to the Company at the address or facsimile number set forth herein or to the Holder at its address or facsimile number set forth in the records of the Company. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given when personally delivered or when deposited in the mail in the manner set forth above and shall be deemed to have been received when delivered or, if notice is given by facsimile transmission, when delivered with confirmation of receipt.

 

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16. Governing Law; Jurisdiction; Waiver of Jury Trial .

 

(a) THIS NOTE SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF KENTUCKY APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW.

 

(b) THE COMPANY HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COMMONWEALTH OF KENTUCKY OR UNITED STATES FEDERAL COURTS LOCATED IN THE MIDDLE DISTRICT OF KENTUCKY WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS NOTE. THE COMPANY IRREVOCABLY WAIVES THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. THE COMPANY FURTHER AGREES THAT SERVICE OF PROCESS UPON IT MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE COMPANY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT THE HOLDER’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. THE COMPANY AGREES THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER.

 

(c) THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE.

 

17. Severability . If one or more provisions of this Note are held to be unenforceable under applicable law, such provisions shall be excluded from this Note, and the balance of this Note shall be interpreted as if such provisions were so excluded and shall be enforceable in accordance with its terms.

 

18. Headings . Section headings in this Note are for convenience only, and shall not be used in the construction of this Note.

 

[Remainder of page intentionally left blank; signature page follows.]

 

  9  
 

 

IN WITNESS WHEREOF , the Company has caused this Note to be issued as of the date first above written.

 

  IMAC Holdings, LLC
     
  By:          
  Name:  
  Title:  

 

  10  
 

 

NOTICE OF CONVERSION

 

(to be signed upon conversion of the Note by the Holder)

 

To IMAC Regeneration Centers, Inc.:

 

The undersigned, the holder of the foregoing Note, hereby surrenders such Note for conversion into ______ shares of the common stock of IMAC Regeneration Centers, Inc., and requests that the certificates for such shares be issued in the name of, and delivered to, _________________, whose address is ___________________________________.

 

Dated: _____________________

 

   
  (signature)
   
   
  (address)

 

     
 

 

LOCK-UP AGREEMENT

 

IMAC Regeneration Centers, Inc.

2725 James Sanders Blvd.
Paducah, KY 42001

 

Ladies and Gentlemen:

 

The undersigned, an owner of a 4% convertible promissory note of IMAC Holdings, LLC, a Kentucky limited liability company that intends to convert, prior to a proposed Regulation A+ initial public offering, into a corporation pursuant to a statutory conversion and change its name to IMAC Regeneration Centers, Inc. (as applicable, the “Company” ), in the principal amount of $________, convertible into shares of Common Stock of the Company (the “Common Stock” ), understands that the Company proposes to file with the U.S. Securities and Exchange Commission an offering statement for the registration of certain securities of the Company (the “Registration Statement” ) in connection with a proposed public offering of such securities (the “Offering” ).

 

In order to induce the Underwriter to proceed with the Offering, the undersigned agrees, for the benefit of the Company and the Underwriter, that should the Offering become effective, the undersigned will not, without the Underwriter’s prior written consent (and, if required by applicable state blue sky laws, the securities commissions in any such states), offer, sell, assign, hypothecate, pledge, transfer or otherwise dispose of, directly or indirectly, any of the abovementioned securities, or any shares of Common Stock issued in connection with the conversion of such securities, or by reason of any stock split or other distribution of stock, or grant of options, warrants or other rights with respect to any such options (collectively, the “Securities” ), during the six-month period commencing on the date the Company’s Registration Statement is declared effective by the Securities and Exchange Commission) (the “Effective Date” ); provided that the foregoing shall not apply to (i) Securities acquired by the undersigned in the Offering or Securities acquired by the undersigned in the after-market after the Effective Date; and (ii) the transfer without consideration to family members or a trust established for their benefit in connection with which the proposed transferee agrees in writing to be bound by all of the provisions of this agreement prior to the consummation of such transfer.

 

The undersigned will permit all certificates evidencing any such Securities to be endorsed with an appropriate restrictive legend reflecting the terms of this letter, and consents to the placement of appropriate stop transfer orders with the transfer agent for the Company. A copy of this letter will be available from the Company or the Company’s transfer agent upon request and without charge. The terms and conditions of this letter can be modified (including premature termination of this Agreement) only with the Underwriter’s prior written consent.

 

Dated: _________ ___, 2018
    Printed Name
   
  By:        
    Signature

 

  1  
 

 

 

EXHIBIT 10.4

 

MANAGEMENT SERVICES AGREEMENT

 

THIS MANAGEMENT SERVICES AGREEMENT (the “Agreement”) is made as of November 1, 2016, by and between IMAC Regeneration Center of Nashville, P.C., a professional corporation organized and existing under the laws of Tennessee (“PC”) and IMAC Regeneration Management of Nashville, LLC (“IMAC”), a Tennessee corporation.

 

RECITALS

 

A.       PC is engaged in the practice of medicine through physicians and nurse practitioners, each of whom are duly licensed to practice medicine by the State of Tennessee are employed or contracted with PC to provide services to patients of PC, and conducts such practice at facilities and offices located in the State of Tennessee.

 

B.       IMAC seeks to provide comprehensive management and related administrative services to PC and has developed extensive expertise and experience in the management of the non-professional aspects of the medical practice of the type operated by PC.

 

C.       PC, in order to enable its physicians to focus their efforts and time on the practice of medicine and the delivery of medical services to the public, has requested, and IMAC has agreed to provide, comprehensive management and related administrative services.

 

NOW, THEREFORE , in consideration of the foregoing and of the mutual agreements set forth herein, the parties agree as follows:

 

1.       Definitions.

 

(a)       “Acts” means the Tennessee Business Corporation Act, the Tennessee Professional Corporation Act, the Tennessee Medical Practice Act, the regulations of the Tennessee Board of Medical Examiners and the regulations of the Tennessee Board of Nursing.

 

(b)       “Cost of Medical Services” means the aggregate compensation of physicians who are employed by or who are independent contractors with PC and other personnel who must be employed by the PC under applicable law including nurse practitioners and nurses (“Support Personnel”) together with the cost of expenses, taxes, and benefits of such physicians and Support Personnel including, but not limited to, vacation pay, sick pay, health care expenses, professional dues, expense reimbursement, discretionary bonuses or incentive payments, if any, based on profitability or productivity and other expenses and payments required to be made to or for the benefit of the physicians or the Support Personnel pursuant to their employment agreements or independent contractor agreements plus PC portion of all employment and payroll taxes; other expenses incurred by PC in carrying out its obligations under this Agreement; all other taxes of PC except income of PC; and the costs of malpractice insurance, in each case on an accrual basis.

 

(c)       “Medical Board” means the Tennessee Board of Medical Examiners or Tennessee Board of Nursing.

 

 

 

 

(d)       “Medical Services” means all services which constitute the practice of medicine as defined under the Act, including ancillary health care services, rendered by practitioners licensed to practice medicine in Tennessee who are employed by or under contract with PC, including any non-physician personnel acting under the supervision or delegation of a physician.

 

(e)       “Non-Medical Personnel” means all personnel including, but not limited to, accountants, bookkeepers, and receptionists who perform services which do not constitute the practice of medicine or practice of nursing.

 

(f)       “Revenues” means all amounts on an accrual basis which PC receives or becomes entitled to receive for any services or sales of products or otherwise, including, without limitation, for the performance of Medical Services (including payments from managed care and similar organizations whether in the form of capitated payments, incentive bonuses, risk pool allocations or other revenues) for its patients by physicians or Support Personnel who are employees or independent contractors of PC, for the sale of products, including pharmaceuticals, and for other forms of ancillary services rendered to patients of the PC by physicians and Support Personnel all as determined in accordance with generally accepted accounting principles consistently applied.

 

(g)       “IMAC Costs” means all costs incurred by IMAC including indirect overhead and other expenses attributable to the carrying out of its obligations under this Agreement, in each case on an accrual basis.

 

(h)       “Support Personnel” shall have the meaning specified in the definition of Cost of Medical Services.

 

2.        Engagement to Provide Services . It is the intention of the parties that IMAC provide management services that will permit PC’s physicians to devote their skills and expertise to the delivery of health care services. Therefore, during the term of this Agreement and all renewals and extensions thereof, PC engages IMAC to provide sole and exclusive development, management and administrative services with respect to all non-medical functions of the practice, and IMAC agrees to furnish to PC all of the non-medical development, management, and administrative services needed by PC in connection with the operation of the practice. Pursuant to its engagement hereunder, IMAC shall manage all aspects of PC’s business other than those aspects which relate to the provision of Medical Services, as contemplated by Section 4.

 

3.        Services . The non-medical development, management and administrative services to be provided by IMAC shall include the following:

 

(a)        Bookkeeping and Accounts . IMAC shall provide all bookkeeping and accounting services necessary or appropriate to the functioning of the practice including, but not limited to, maintenance, custody and supervision of all business records, ledgers, journals and reports, and the preparation, distribution and recordation of all bills and statements for professional services rendered by PC including the billing and completion of reports and forms required by insurance companies, health maintenance organizations, governmental agencies or other third-party payors (collectively, the “Business Records”); provided , however , that such Business Records shall not be deemed to include patient records and other records or documents which relate to patient treatment by physicians.

 

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(b)        Billing; Collections . IMAC shall be responsible, in PC’s name and for and on its behalf as its agent, for billing and collecting the charges made with respect to all Medical Services provided by PC at any location. PC hereby appoints IMAC for the term hereof to be its true and lawful attorney-in-fact, for the following purposes: (i) to bill payors and patients in PC’s name and on its behalf; (ii) to collect accounts receivable resulting from such billing in PC’s name and on its behalf; (iii) to receive payments from payors in PC’s name and on its behalf for deposit in a bank account of PC; and (iv) to take possession of, in the name of PC and deposit in a bank account of PC any notes, checks, money orders, insurance payments and other instruments received in payment of accounts receivable. The extent to which IMAC attempts to collect such charges, the methods of collection and the amount of settlements with respect to disputed charges, and the determination of which charges are not collectible, shall be determined by PC in consultation with IMAC; provided that IMAC will comply with all applicable law, including without limitation, the Federal Fair Debt Collection Practice Act. The performance of all billing and collection functions by IMAC shall comply with state and federal statutes, regulations and directives applicable to such functions.

 

(c)        Non-Medical Personnel . IMAC shall, in its sole discretion but following consultation with PC, select for employment and terminate the employment of all Non-Medical Personnel as IMAC shall deem necessary or advisable, and shall be responsible for the supervision, direction, training and assigning of duties of all Non-Medical Personnel, with the exception of activities carried on by Non-Medical Personnel which must be under the direction or supervision of licensed physicians in accordance with applicable law and regulations. Unless otherwise specifically agreed in writing, all Non-Medical Personnel shall be employees or independent contractors employed or engaged by IMAC, and the selection and terms of employment or engagement, including the rates of compensation, supervision, direction, training and assignment of duties of all Non-Medical Personnel shall be determined and controlled exclusively by IMAC. Notwithstanding the foregoing, IMAC shall consult with PC from time to time as appropriate in connection with the hiring, performance evaluation and termination of the Non-Medical Personnel. IMAC will make reasonable efforts, consistent with sound business practice, to honor the specific requests of PC with regard to the assignment of Non-Medical Personnel by IMAC.

 

(d)        Medical Personnel . IMAC shall assist PC with the recruitment and evaluation of prospective physicians and Support Personnel as employees or independent contractors of PC, provided that all physicians and support personnel shall be employees of or independent contractors to PC. PC shall have complete control of and responsibility for the hiring, firing, selection, supervision, evaluation, compensation, terms, conditions and privileges of employment and retention of all medical and Support Personnel. PC shall be responsible for the payment of such physicians’ salaries and wages, payroll taxes, benefits and all other taxes and charges now or hereafter applicable to them. PC shall be solely responsible for the cost of membership in professional associations and continuing professional education for its physicians.

 

(e)        Marketing and Advertising Programs . IMAC shall: (i) develop, with the consultation and approval of PC, marketing and advertising programs for PC; (ii) provide advice and assistance to PC on overall marketing programs, and determine and analyze the effect of such programs; (iii) plan, create, write, and prepare advertising materials for PC, subject to PC’s approval; (iv) negotiate contracts on behalf of PC with advertising media for space and time; and (v) obtain services necessary in connection with the production and presentation of PC’s advertisements.

 

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(f)        Insurance . IMAC shall, following consultation with PC, make reasonable efforts to obtain and maintain in full force and effect during the term of this Agreement, and all extensions and renewals thereof, public liability and property insurance which IMAC deems appropriate to protect against loss, claims, and other risks, or which is necessary to comply with the terms of lease agreements for the practice’s location, and IMAC shall assist PC and the physicians in obtaining professional liability insurance.

 

(g)        Supplies . IMAC shall acquire and supply to PC all medical and non-medical supplies which may be reasonably required in connection with the operation of the practice.

 

(h)        Health Plans . IMAC shall provide assistance to PC in developing, negotiating, marketing, and administering prepaid managed and other health plans for the provision of medical care and shall obtain licensure as a third party administrator, and any other appropriate licenses, registrations or certificates, if and to the extent required by applicable law.

 

(i)        Bank Accounts, Cash Management . IMAC is authorized to establish and maintain for and on behalf of PC bank accounts for the collection and disbursement of PC’s funds. IMAC is authorized to disburse funds from such accounts for the payment of costs incurred by or on behalf of PC in accordance with this Agreement, for IMAC’s compensation, and for all other costs, expenses, and disbursements which are incurred in connection with this Agreement. IMAC shall manage all cash and cash equivalents of PC.

 

(j)        Tax Returns, Reports . IMAC shall be responsible for preparing and filing on behalf of PC all tax returns and reports required or necessary in connection with the operation of the practice.

 

(k)        Overall Supervision . IMAC shall provide PC with overall supervision and management, including maintenance and repair, of the practice and all furniture, fixtures, furnishings, equipment, and leasehold improvements located in or used at the practice operated by PC.

 

(l)        Space, Equipment and Furnishings . IMAC shall provide and maintain, either directly or through appropriate lease agreements, all necessary equipment and furnishings for the practice (unless otherwise agreed by the parties). INSPRIS shall provide and maintain, either directly or through appropriate lease agreements, the premises on which the PC’s offices are or will be located, including all necessary office space, buildings, fixtures and other real property and improvements (unless otherwise agreed by the parties).

 

(m)        Financial Statements and Budgets . IMAC shall prepare monthly and annual financial statements containing a balance sheet and statement of income for PC. Annual financial statements shall be delivered to PC within 90 days after the end of each fiscal year and monthly financial statements shall be delivered to PC within 30 days after the end of each calendar month. IMAC shall prepare, in reasonable detail, an annual budget for PC which shall be delivered to PC within 30 days prior to the end of each fiscal year, with IMAC retaining final authority with respect to budgeting.

 

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(n)        Litigation Management . IMAC will (i) manage and direct the defense of all claims, actions, proceedings or investigations against PC or any of its officers, directors or employees in their capacity as such, and (ii) manage and direct the initiation and prosecution of all claims, actions, proceedings or investigations brought by PC against any person other than IMAC.

 

(o)        Business Operations . IMAC shall generally control and manage all non-professional aspects of the business of the practice other than those aspects relating to the provision of Medical Services or the physicians which under applicable law are required to be subject to the control of PC, as contemplated by Section 4. IMAC agrees that PC will perform medical and clinical functions and provide Medical Services. IMAC will have no authority, directly or indirectly, to perform and will not perform any medical functions or provide health care services. IMAC may, however, advise PC as to the relationship between its performance of Medical Services and the overall administrative and business functioning of PC.

 

4.        Conduct of Medical Practice and Other Matters .

 

(a)        Practice of Medicine . PC, through physicians licensed to practice in Tennessee who are either employed by PC or independent contractors of PC, shall direct and control the treatment of patients at the practice where medical services are performed. Notwithstanding the authority granted to IMAC herein, IMAC and PC agree that each of PC’s physicians shall retain the authority to direct the medical, professional and ethical aspects of his or her medical practice. PC shall be solely and exclusively in control of all clinical aspects of the practice of medicine, as defined under the Act, and the delivery of Medical Services at the practice, including the exercise of independent professional judgment regarding the diagnosis or treatment of any medical disease, disorder or physical condition (which IMAC shall not control, attempt to control, influence, attempt to influence or otherwise interfere with), and PC shall be responsible for providing all Medical Services and for the payment of all Costs of Medical Services. All persons to whom such Medical Services are provided shall be patients of PC and not of IMAC, and IMAC shall not have or exercise any control or direction over the manner or methods with which Medical Services and related duties are performed or interfere in any way with the exercise by the physicians who are employees or independent contractors of PC of their professional judgment. IMAC shall not practice Medicine or engage therein, or hold itself out as being entitled to practice Medicine. PC shall be solely responsible for assuring that all physicians who are employed or who are independent contractors of PC hold all necessary licenses from the State of Tennessee and that such licenses are current and in good standing, and that such professional services are performed in accordance with the applicable ethical standards, laws and regulations relating to professional practice in the State of Tennessee. PC shall take all actions necessary to maintain its status as a professional services corporation including provision for succession of ownership of shares of the PC as required by applicable State law.

 

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(b)        Fees for Professional Services . PC shall be solely responsible for determining all fees for professional services rendered by physicians.

 

(c)        Patient Referrals . It is not a purpose of this Agreement to induce or encourage the referral of patients. The parties agree that the benefits to PC and IMAC do not require, are not payment or inducement for, and are not in any way contingent upon the admission, referral or any other arrangement for the provisions of any item or service offered by IMAC to any of PC’s patients or for the referral of any patient. All services by IMAC hereunder are provided in exchange for fair and reasonable fees, and all compensation provided by PC to any employed physicians is provided without reference to any referrals or specific utilization of services.

 

(d)        Non-competition/Non-solicitation .

 

(i)       PC hereby irrevocably appoints IMAC as its agent and attorney in fact during the term of this Agreement with full power and authority to enforce the terms of any employment or independent contractor agreements to which it is a party and any noncompetition, confidentiality and similar covenants or restrictions (“Non-competition Agreements”) of which PC is the beneficiary.

 

(ii)       During the term of this Agreement and for a period of three (3) years after the termination of this Agreement, PC shall not, directly or indirectly, for its own benefit or the benefit of others, induce, nor attempt to induce, any employee of IMAC (or any of its affiliates) to terminate his or her association with any such party.

 

(iii)       PC understands and acknowledges that the foregoing provisions in this Section are designed to preserve the goodwill of IMAC and the goodwill of the individual physicians of PC. Accordingly, if PC breaches any obligation of this Section 4(d), in addition to any other remedies available under this Agreement, at law or in equity, IMAC shall be entitled to enforce this Agreement by injunctive relief and by specific performance of the Agreement, such relief to be without the necessity of posting a bond, cash or otherwise (unless required by applicable law). Additionally, nothing in this paragraph shall limit IMAC’s right to recover any other damages to which it is entitled as a result of PC’s breach. If any one or more of the provisions of this Section 4(d) or any word, phrase, clause, sentence or other portion of this Section 4(d) (including, without limitation, the geographical, temporal or scope of activity restrictions contained in this Section 4(d)) shall be held to be unenforceable or invalid for any reason, such provision or portion of provision shall be modified or deleted in such a manner so as to make this Section 4(d), as modified, legal and enforceable to the fullest extent permitted under applicable law. The provisions of this Section 4(d) shall survive the termination of this Agreement.

 

(e)        Attorney-in-Fact . PC hereby appoints IMAC for the term of this Agreement to be its true and lawful attorney-in-fact for all purposes relating to or arising in connection with the provision by IMAC of the management and related administrative services as provided in this Agreement, including without limitation the provisions of Section 3(b) and Section 4(d)(i). This power of attorney and the power of attorney granted under Section 4(e) are coupled with an interest and shall be irrevocable and remain in effect for the term of this Agreement.

 

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5.        Compensation of IMAC .

 

(a)        Security Interest . PC hereby grants a security interest in all accounts receivable, contract rights, Revenues and general intangibles of PC to IMAC to secure all indebtedness and obligations of PC to IMAC arising under or in connection with this Agreement. At the request of IMAC, PC shall execute all documents and instruments necessary to evidence and perfect the foregoing security interest.

 

(b)        Compensation of IMAC . As consideration for the services provided by IMAC under this Agreement, IMAC shall receive a service fee (the “Service Fee”) in an amount equal to: (i) IMAC Costs, plus (ii) ___ percent (__%) of IMAC Costs.

 

(c)        Adjustment . The Service Fee shall be payable monthly in arrears based upon IMAC Costs in the prior month. Adjustments to the estimated payments shall be made to reconcile actual amounts due under Section 5(b) by the end of the following month. The Service Fee shall be reviewed annually and at such other times as may be deemed appropriate and adjusted in such manner as the parties may agree; in the absence of such agreement, the Service Fee then in effect shall continue in effect.

 

(d) Bonus . PC in its sole discretion, may elect to award a year end bonus (“Bonus”) to IMAC, in an amount, if any, equal to the amount as determined by PC’s Board of Directors. The Bonus, if any, shall be paid by PC to IMAC within sixty (60) days following the end of each calendar year.

 

6.        Indemnification . PC shall indemnify, hold harmless and defend IMAC, its officers, directors, shareholders, employees, agents and subcontractors from and against any and all liability, loss, damage, claim, causes of action and expenses (including reasonable attorneys’ fees) (collectively, “Claims”), whether or not covered by insurance, caused or asserted to have been caused, directly or indirectly, by or as a result of the performance of Medical Services or the performance of any intentional acts, negligent acts or omissions by PC and/or its officers, directors, shareholders, agents, employees, independent contractors and/or subcontractors (other than IMAC and its employees) during the term of this Agreement. IMAC shall indemnify, hold harmless and defend PC, its officers, directors, shareholders and employees, from and against any and all Claims, whether or not covered by insurance, caused or asserted to have been caused, directly or indirectly by or as a result of the performance of any intentional acts, negligent acts or omissions by IMAC and/or its officers, directors, shareholders, agents, employees and/or subcontractors (other than PC and its employees) in connection with the performance of IMAC’s obligations under this Agreement.

 

7.        General Obligations of PC and IMAC . PC and IMAC each agrees to cooperate fully with the other in connection with the carrying out of their respective obligations under this Agreement and to employ their best efforts to resolve any dispute which may arise under or in connection with the carrying out of this Agreement.

 

8.        Term . Subject to Section 9, the term of this Agreement shall be for a period of thirty (30) years from November 1, 2016, and unless either party shall give written notice to the contrary at least 180 days prior to the 30th anniversary of this Agreement or any anniversary thereafter, the term shall be extended for an additional year on the 30th anniversary and on each anniversary thereafter so that on the thirtieth (30th) anniversary and at each anniversary of this Agreement thereafter the remaining term shall always be, unless such written notice is given, ten (10) years.

 

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9.        Termination . This Agreement may be terminated as follows:

 

(a)       By mutual agreement of the parties.

 

(b)       If either party fails to perform any of its obligations under this Agreement and, after written notice from the other party demanding that such failure be cured, the party on whom such notice is served shall fail to cure such breach within 30 days after such notice or, if such breach will reasonably require more than 30 days to cure, such party is not diligently pursuing efforts to cure such breach; provided , however , that if the party on whom such demand is made elects to submit such dispute to arbitration, no action to terminate this Agreement can be taken until such arbitration has been finally adjudicated and then only if the party guilty of such failure shall fail to comply with the arbitration award within 60 days after its issuance.

 

(c)       If any bankruptcy, insolvency or receivership proceedings are instituted by or against the PC or IMAC and not dismissed within sixty (60) days after the commencement of such proceedings or if the PC party shall voluntarily dissolve.

 

(d)       By IMAC for any reason with or without cause, after delivering ninety (90) days prior written notice to PC.

 

10.        Relationship of Parties . This Agreement is not intended to and shall not construed as creating the relationship of employer and employee, partnership, joint venture or association between IMAC and PC Since the physicians and Support Personnel who perform services for the PC are not employees or independent contractors of IMAC, IMAC shall not withhold on their behalf any amounts for income tax, social security, unemployment compensation, workers compensation or other similar withholding provisions and all such withholding shall be the obligation of PC. Notwithstanding any provision to the contrary contained herein, this Agreement is not intended to: (a) constitute the use of a medical license or other professional license by anyone other than a person licensed to provide such services; (b) aid IMAC or any other entity to practice medicine or other health services when in fact such entity is not licensed to practice such services; or (c) do any other act or create any other arrangement in violation of the State of Tennessee’s Public Health Code, Public Act 368 of 1978, as amended, or any other applicable act, regulation or rule governing the delivery of medical or health care services.

 

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11.        Confidential Information . Each of PC and IMAC acknowledges that it will have access to information of a proprietary nature owned by the other including (i) information on the systems, policies and procedures developed by IMAC in connection with the provision of management services for practices and (ii) patient information. PC acknowledges that IMAC has a proprietary interest in such information, that such information constitutes trade secrets and that PC does not, by reason of this Agreement, acquire any continuing right or interest in such proprietary information or trade secrets. PC will hold such proprietary information and trade secrets in confidence and will not disclose them, either during the term of this Agreement or thereafter, to any person or entity other than employees or independent contractors of PC or IMAC without the prior written consent of IMAC or as may be required by law. IMAC will comply with all applicable federal, state and local laws and regulations regarding the confidentiality and security of health-related information, including, but not limited to, regulations issued pursuant to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as may be amended from time to time. IMAC shall comply with the terms of the Business Associate Addendum, attached hereto as Schedule 11 and incorporated by reference. IMAC will use the information in such records only for the limited purposes necessary to perform the services of IMAC set forth herein (including billing and collections) and shall not use patient names, addresses or any other patient information for marketing or any other purpose except as expressly permitted by this Agreement without the prior written consent of PC. Each of PC and IMAC acknowledges that it does not have an adequate remedy at law for a breach of this Section 11, will suffer irreparable harm in the event of such breach and that, therefore, the other party shall be entitled to injunctive and other equitable relief for the enforcement of this Section 11. The provisions of this Section 11 shall survive termination of this Agreement.

 

12.        Miscellaneous .

 

(a)        Assignment . This Agreement shall not be assignable by either party hereto without the express prior written consent of the other; provided , however , that this Agreement shall be assignable by IMAC to any of its affiliates, subsidiaries or successors without the consent of PC.

 

(b)        Waiver . Waiver of any agreement or obligation set forth in this Agreement by either party shall not prevent that party from later insisting upon full performance of such agreement or obligation and no course of dealing, partial exercise or any delay or failure on the part of any party hereto in exercising any right, power, privilege, or remedy under this Agreement or any related agreement or instrument shall impair or restrict any such right, power, privilege or remedy or be construed as a waiver therefore. No waiver shall be valid against any party unless made in writing and signed by the party against whom enforcement of such waiver is sought.

 

(c)        Amendment . No amendment or change in the provisions of this Agreement shall be effective unless made in writing and signed by and on behalf of the parties to this Agreement or their successors and assigns.

 

(d)        Entire Agreement . This Agreement constitutes the entire agreement between the parties in connection with the subject matter of this Agreement and supersedes all prior agreements entered into before the effective date of this Agreement.

 

(e)        Notices . The mailing addresses of IMAC and PC for the purposes of any notices to be given under this Agreement are as follows:

 

  If to IMAC: 2725 James Sanders Blvd., Ste. B
    Paducah, KY 42001
     
  If to PC: 2725 James Sanders Blvd., Ste. B
    Paducah, KY 42001

 

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(f)        Binding Effect . Subject to the provisions set forth in this Agreement, this Agreement shall be binding upon and inure to the benefit of the parties hereto and upon their respective successors and assigns.

 

(g)        Arbitration . Any disputes arising under this Agreement shall be resolved by arbitration; provided, however, that arbitration shall not apply to the enforcement of either party’s rights under Sections 4(d) and 11. Any party electing to submit an action to arbitration shall give written notice to the other party of such election. The dispute shall be submitted to arbitration in accordance with the rules of the American Health Lawyers Association (“AHLA”) Dispute Resolution Service. Such arbitration shall be conducted, unless otherwise agreed by the parties, by a panel of three arbitrators, one selected by IMAC and the PC, and the third one selected by the other two arbitrators, in Nashville, Tennessee. The award of the arbitrator may be confirmed or enforced in any court of competent jurisdiction. The prevailing party in any arbitration shall be entitled to recover all costs incurred by such party in connection with such proceedings, including reasonable attorney fees.

 

(h)        Severability . If any one or more of the provisions of this Agreement is adjudged to any extent invalid, unenforceable, or contrary to law by a court of competent jurisdiction, each and all of the remaining provisions of this Agreement will not be affected thereby and shall be valid and enforceable to the fullest extent permitted by law.

 

(i)        Governing Law . This Agreement shall be governed by and enforced in accordance with the laws of the State of Tennessee, without regard to its conflict of law rules.

 

(j)        Change in Law . If after the effective date of this Agreement, any new law, rule or regulation becomes effective which renders illegal the structure of the relationship between PC and IMAC set forth in this Agreement, or otherwise substantially impairs the economics of the parties hereunder, this Agreement shall not terminate, but the parties hereto agree to exclusively negotiate with each other in good faith for a period of six months following such change of law or circumstance with respect to the subject matter hereof. To the maximum extent possible, any amendment hereto shall preserve the underlying economic and financial arrangements between PC and IMAC.

 

(k)        Counterpart . This Agreement may be signed and executed in one or more counterparts, each which shall be deemed an original and all of which together shall constitute one agreement.

 

(l)        Litigation . In the event that a dispute between the parties results in litigation, in addition to any other relief to which it may be entitled, the prevailing party shall be reimbursed for reasonable attorneys’ fees and all other reasonable costs.

 

(m)        No Rights or Liabilities in Third Parties . This Agreement is not intended to, nor shall it be construed to, create any rights or liabilities in any third parties, including, without limitation, in any of PC’s physicians, employees, contractors, patients or patient representatives.

 

[Remainder of Page Left Blank Intentionally]

 

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IN WITNESS WHEREOF , the parties have signed this Agreement as of the date first set forth above.

 

  PC: IMAC REGENERATION CENTER OF NASHVILLE, P.C.
     
  By: /s/ David N. Smithson, M.D.
  Name: David N. Smithson, M.D.
  Title: Physician
     
IMAC: IMAC REGENERATION MANAGEMENT OF NASHVILLE, LLC
                      
                    By: /s/ Jeff Ervin
  Name: Jeff Ervin
  Title: CEO

 

 
 

 

SCHEDULE 11

 

HIPAA BUSINESS ASSOCIATE ADDENDUM

 

This HIPAA Business Associate Addendum (“Addendum”) amends and is made part of that certain Management Services Agreement effective as of November 1, 2016 (“Agreement”), by and among IMAC Regeneration Center of Nashville, P.C., (“Entity”), and IMAC Regeneration Management of Nashville, LLC (“Associate”).

 

Entity and Associate agree that the parties incorporate this Addendum into the Agreement in order to comply with the requirements of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the Health Information Technology for Economic and Clinical Health Act (“HITECH”) and their implementing regulations set forth at 45 C.F.R. Parts 160 and Part 164 (the “HIPAA Rules”). To the extent Associate is acting as a Business Associate of Entity pursuant to the Agreement, the provisions of this Addendum shall apply, and Associate shall be subject to the penalty provisions of HIPAA as specified in 45 CFR Part 160.

 

1.        Definitions. Capitalized terms not otherwise defined in this Addendum shall have the meaning set forth in the HIPAA Rules. References to “PHI” mean Protected Health Information maintained, created, received or transmitted by Associate from Entity or on Entity’s behalf.

 

2.        Uses or Disclosures . Associate will neither use nor disclose PHI except as permitted or required by this Addendum or as Required By Law. To the extent Associate is to carry out an obligation of Entity under the HIPAA Rules, Associate shall comply with the requirements of the HIPAA Rules that apply to Entity in the performance of such obligation. Associate is permitted to use and disclose PHI:

 

(a)       to perform any and all obligations of Associate as described in the Agreement, provided that such use or disclosure would not violate the HIPAA Rules, if done by Entity directly;

 

(b)       as otherwise permitted by law, provided that such use or disclosure would not violate the HIPAA Rules, if done by Entity directly and provided that Entity gives its prior written consent;

 

(c)       to perform Data Aggregation services relating to Entity’s health care operations;

 

(d)       to report violations of the law to federal or state authorities consistent with 45 CFR § 164.502(j)(1);

 

(e)       as necessary for Associate’s proper management and administration and to carry out Associate’s legal responsibilities (collectively “Associate’s Operations”), provided that Associate may only disclose PHI for Associate’s Operations if the disclosure is Required By Law or Associate obtains reasonable assurance, evidenced by a written contract, from the recipient that the recipient will: (1) hold such PHI in confidence and use or further disclose it only for the purpose for which it was disclosed or as Required By Law; and (2) notify Associate of any instance of which the recipient becomes aware in which the confidentiality of such PHI was breached;

 

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(f)       to de-identify PHI in accordance with 45 CFR § 164.514(b), provided that such de-identified information may be used and disclosed only consistent with applicable law.

 

In the event Entity notifies Associate of an Individual’s restriction request granted pursuant to 45 CFR §164.522 that would restrict a use or disclosure otherwise permitted by this Section, Associate shall comply with the terms of the restriction request.

 

3.        Safeguards . Associate will use appropriate administrative, technical and physical safeguards to prevent the use or disclosure of PHI other than as permitted by this Addendum. Associate will also comply with the applicable provisions of 45 CFR Part 164, Subpart C of the HIPAA Rules with respect to electronic PHI to prevent any use or disclosure of such information other than as provided by this Addendum.

 

4.        Subcontractors . In accordance with 45 CFR §§ 164.308(b)(2) and 164.502(e)(1)(ii), Associate will ensure that all of its subcontractors that create, receive, maintain or transmit PHI on behalf of Associate agree by written contract to comply with the same restrictions and conditions that apply to Associate with respect to such PHI.

 

5.        Minimum Necessary . Associate represents that the PHI requested, used or disclosed by Associate shall be the minimum amount necessary to carry out the purposes of the Agreement. Associate will limit its uses and disclosures of, and requests for, PHI (i) when practical, to the information making up a Limited Data Set; and (ii) in all other cases subject to the requirements of 45 CFR § 164.502(b), to the minimum amount of PHI necessary to accomplish the intended purpose of the use, disclosure or request.

 

6.        Entity Obligations . Entity shall notify Associate of (i) any limitations in its notice of privacy practices, (ii) any changes in, or revocation of, permission by an individual to use or disclose PHI, and (iii) any confidential communication request or restriction on the use or disclosure of PHI affecting Associate that Entity has agreed to or with which Entity is required to comply, to the extent any of the foregoing affect Associate’s use or disclosure of PHI.

 

7.        Access and Amendment . In accordance with 45 CFR § 164.524, Associate shall permit Entity or, at Entity’s request, an individual (or the individual’s designee) to inspect and obtain copies of any PHI about the individual that is in Associate’s custody or control and that is maintained in a Designated Record Set. If the requested PHI is maintained electronically, Associate must provide a copy of the PHI in the electronic form and format requested by the individual, if it is readily producible, or, if not, in a readable electronic form and format as agreed to by Entity and the individual. Associate will, upon receipt of notice from Entity, promptly amend or permit Entity access to amend PHI so that Entity may meet its amendment obligations under 45 CFR § 164.526.

 

8.        Accounting . Except for disclosures excluded from the accounting obligation by the HIPAA Rules and regulations issued pursuant to HITECH, Associate will record for each disclosure that Associate makes of PHI the information necessary for Entity to make an accounting of disclosures pursuant to the HIPAA Rules. In the event the U.S. Department of Health and Human Services (“HHS”) finalizes regulations requiring Covered Entities to provide access reports, Associate shall also record such information with respect to electronic PHI held by Associate as would be required under the regulations for Covered Entities beginning on the effective date of such regulations. Associate will make information required to be recorded pursuant to this Section available to Entity promptly upon Entity’s request for the period requested, but for no longer than required by the HIPAA Rules (except Associate need not have any information for disclosures occurring before the effective date of this Addendum).

 

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9.        Inspection of Books and Records . Associate will make its internal practices, books, and records, relating to its use and disclosure of PHI, available upon request to HHS to determine compliance with the HIPAA Rules.

 

10.        Reporting . To the extent Associate becomes aware or discovers any use or disclosure of PHI not permitted by this Addendum, any Security Incident involving electronic PHI or any Breach of Unsecured Protected Health Information, Associate shall promptly report such use, disclosure, Security Incident or Breach to Entity. Associate shall mitigate, to the extent practicable, any harmful effect known to it of a Security Incident, Breach or use or disclosure of PHI by Associate not permitted by this Addendum. Notwithstanding the foregoing, the parties acknowledge and agree that this section constitutes notice by Associate to Entity of the ongoing existence and occurrence of attempted but Unsuccessful Security Incidents (as defined below) for which no additional notice to Entity shall be required. “Unsuccessful Security Incidents” shall include, but not be limited to, pings and other broadcast attacks on Associate’s firewall, port scans, unsuccessful log-on attempts, denials of service and any combination of the above, so long as no such incident results in unauthorized access, use or disclosure of electronic PHI. All reports of Breaches shall be made in compliance with 45 CFR § 164.410.

 

11.        Term . This Addendum shall be effective as of the effective date of the Agreement and shall remain in effect until termination of the Agreement. Either party may terminate this Addendum and the Agreement effective immediately if it determines that the other party has breached a material provision of this Addendum and failed to cure such breach within thirty (30) days of being notified by the other party of the breach. If the non-breaching party determines that cure is not possible, such party may terminate this Addendum and the Agreement effective immediately upon written notice to other party. Upon termination of this Addendum for any reason, Associate will, if feasible, return to Entity or destroy all PHI maintained by Associate in any form or medium, including all copies of such PHI. Further, Associate shall recover any PHI in the possession of its agents and subcontractors and return to Entity or securely destroy all such PHI. In the event that Associate determines that returning or destroying any PHI is infeasible, Associate may maintain such PHI but shall continue to abide by the terms and conditions of this Addendum with respect to such PHI and shall limit its further use or disclosure of such PHI to those purposes that make return or destruction of the PHI infeasible. Upon termination of this Addendum for any reason, all of Associate’s obligations under this Addendum shall survive termination and remain in effect (a) until Associate has completed the return or destruction of PHI as required by this Section and (b) to the extent Associate retains any PHI pursuant to this Section.

 

12.        General Provisions . In the event that any final regulation or amendment to final regulations is promulgated by HHS or other government regulatory authority with respect to PHI, the parties shall negotiate in good faith to amend this Addendum to remain in compliance with such regulations. Any ambiguity in this Addendum shall be resolved to permit Entity and Associate to comply with the HIPAA Rules. Nothing in this Addendum shall be construed to create any rights or remedies in any third parties or any agency relationship between the parties. A reference in this Addendum to a section in the HIPAA Rules means the section as in effect or as amended. The terms and conditions of this Addendum override and control any conflicting term or condition of the Agreement and replace and supersede any prior business associate agreements in place between the parties. All non-conflicting terms and conditions of the Agreement remain in full force and effect.

 

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EXHIBIT 10.5

 

 

 

UNIT PURCHASE AGREEMENT

 

dated as of March 1, 2018

 

by and among

 

IMAC HOLDINGS CORP., a Delaware corporation,

 

IMAC of ST. LOUIS LLC, a Missouri limited liability company

 

and

 

Doug Bouldin, Jon Ervin, Sandra Miller, and Matt Wallis,

certain Unitholders of IMAC of St. Louis LLC

 

 

 

     
 

 

Table of Contents

 

      Page
ARTICLE I THE UNIT PURCHASE 1
     
  Section 1.1 Purchase and Sale of the Interests. 1
  Section 1.2 Closing. 2
  Section 1.3 Deposit. 2
  Section 1.4 Working Capital Adjustment. 2
       
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE UNITHOLDERS 4
     
  Section 2.1 Organization, Etc. 4
  Section 2.2 Capitalization. 5
  Section 2.3 Subsidiaries. The Company does not have any subsidiaries or own any equity interest in any other Person. 5
  Section 2.4 Authority Relative to this Agreement. 5
  Section 2.5 Consents and Approvals; No Violations. 6
  Section 2.6 Financial Statements. 6
  Section 2.7 No Undisclosed Liabilities. 6
  Section 2.8 Absence of Certain Changes. 7
  Section 2.9 Compliance with Law. 7
  Section 2.10 Material Contracts. 7
  Section 2.11 Permits. 8
  Section 2.12 Litigation. 9
  Section 2.13 Taxes. 9
  Section 2.14 Title to Properties; Sufficiency of Assets. 11
  Section 2.15 Intellectual Property. 11
  Section 2.16 Insurance. 12
  Section 2.17 Environmental Matters. 12
  Section 2.18 Employee and Labor Matters. 13
  Section 2.19 Employee Plans. 14
  Section 2.20 Brokers and Finders. 15
  Section 2.21 Absence of Questionable Payments 16
  Section 2.22 Bank Accounts; Powers of Attorney. 16
  Section 2.23 Customers and Suppliers. 16
  Section 2.24 Accounts Receivable. 16
  Section 2.25 Certain Transactions 16
  Section 2.26 No Other Representations or Warranties. 17
  Section 2.27 Disclosure. 17
       
ARTICLE III REPRESENTATIONS AND WARRANTIES OF HOLDINGS 17
     
  Section 3.1 Corporate Organization, Etc. 17
  Section 3.2 Authority Relative to this Agreement. 17

 

  - i  
 

 

Table of Contents

(continued)

 

      Page
  Section 3.3 Consents and Approvals; No Violations. 18
  Section 3.4 Litigation 18
  Section 3.5 Brokers and Finders. 18
  Section 3.6 Sufficient Funds. 18
       
ARTICLE IV COVENANTS 19
     
  Section 4.1 Conduct of the Business of the Company Pending the Closing. 19
  Section 4.2 Access to Information. 21
  Section 4.3 Disclosure Supplements. 21
  Section 4.4 Consents and Approvals 21
  Section 4.5 Filings. 22
  Section 4.6 Further Assurances. 22
       
ARTICLE V ADDITIONAL AGREEMENTS 22
     
  Section 5.1 Acquisition Proposals. 22
  Section 5.2 Public Announcements. 23
  Section 5.3 Indemnification. 23
  Section 5.4 Notification of Certain Matters 26
  Section 5.5 Non-Competition. 27
  Section 5.6 Tax Covenants. 28
  Section 5.7 Retention Agreements. 30
       
ARTICLE VI CONDITIONS TO CONSUMMATION OF THE UNIT PURCHASE 30
     
  Section 6.1 Conditions to Each Party’s Obligations to Effect the Unit Purchase. 30
  Section 6.2 Conditions to the Obligation of Holdings. 31
  Section 6.3 Conditions to the Obligations of the Company and the Unitholders. 32
  Section 6.4 Closing Deliveries 32
       
ARTICLE VII TERMINATION 33
     
  Section 7.1 Termination by Mutual Agreement. 33
  Section 7.2 Termination by either Holdings or the Unitholders. 33
  Section 7.3 Termination by the Unitholders. 33
  Section 7.4 Termination by Holdings. 33
  Section 7.5 Effect of Termination and Abandonment. 33
       
ARTICLE VIII MISCELLANEOUS 34
     
  Section 8.1 Entire Agreement; Assignment. 34
  Section 8.2 Notices. 34
  Section 8.3 Governing Law; Jurisdiction; WAIVER OF JURY TRIAL. 35

 

  - ii  
 

 

Table of Contents

(continued)

 

      Page
  Section 8.4 Expenses. 35
  Section 8.5 Descriptive Headings. 35
  Section 8.6 Parties in Interest. 35
  Section 8.7 Severability. 36
  Section 8.8 Specific Performance. 36
  Section 8.9 Counterparts. 36
  Section 8.10 Interpretation. 36
  Section 8.11 Amendment and Modification; Waiver. 37
  Section 8.12 Definitions. 37

 

INDEX OF EXHIBITS
 
Exhibit A – Form of Retention Agreements
Exhibit B – Working Capital Worksheet

 

  - iii  
 

 

UNIT PURCHASE AGREEMENT

 

THIS UNIT PURCHASE AGREEMENT (this “Agreement” ), dated as of March 1, 2018, is by and among IMAC Holdings Corp., a Delaware corporation ( “Holdings” ), IMAC of St. Louis LLC, a Missouri limited liability company (the “Company” ), Doug Bouldin, Jon Ervin, Sandra Miller, and Matt Wallis, certain Unitholders of the Company (collectively, the “Unitholders” ). Certain capitalized terms used herein are defined in Section 8.12.

 

RECITALS

 

WHEREAS, as of the date of this Agreement, the outstanding membership interests in the Company consist of 100 units (the “Units” and those units of membership interests, the “Interests” );

 

WHEREAS, as of the date hereof, Holdings owns 36% of the outstanding Interests and the Unitholders own all of the remaining 64% of the outstanding Interests;

 

WHEREAS, the parties desire to enter into this Agreement to provide for the acquisition by Holdings of the Company through the purchase by Holdings from the Unitholders of the remaining Interests.

 

NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants and agreements herein contained, and intending to be legally bound hereby, the parties hereto hereby agree as follows:

 

ARTICLE I

THE UNIT PURCHASE

 

Section 1.1 Purchase and Sale of the Interests . Upon the terms and subject to the conditions of this Agreement, the Unitholders agrees to sell to Holdings, and Holdings agrees to purchase from the Unitholders, the Units at the Closing (the “Unit Purchase” ). The purchase price for the Interests shall be equal to the dollar amount represented by 1.05 times the total Collections from payments at the IMAC Regeneration Centers of St. Louis on account of the Company’s regeneration-related services and associated products from June 1, 2017 to May 31, 2018 and shall be paid as a percentage or amount in the form as follows, subject to adjustment as provided in Section 1.4 and offset as provided in Section 5.3(c):

 

(a) Approximately $1,000,000 in the form of cash payable as selected by the individual Unitholders at the Closing (the “Cash Consideration” ); and

 

(b) Excess amount over the Cash Consideration in the form of shares of common stock, par value $0.001 per share (the “Holdings Shares” ), of Holdings (the “Stock Consideration” and, together with the Cash Consideration, the “Total Consideration” ).

 

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Payment of the Cash Consideration shall be made by wire transfer of immediately available funds to an account designated in writing by the Unitholders at least two Business Days prior to the Closing Date. Payment of the Stock Consideration shall be based on the gross price per share of the Holdings Shares received by Holdings (or otherwise calculable) in the last round of financing by Holdings of any of its shares of common stock, preferred stock or any other equity or equity-linked securities in a third-party financing transaction; provided, that, in the event an agreement or letter of intent for an initial public offering (which offering includes Holdings’ contemplated Regulation A+ exempt public offering under Title IV of the JOBS Act), is executed by Holdings establishing a valuation of Holdings and is actively in the process of being completed, the price shall not be less than the price per share of Holding Shares established (or calculable) in the agreement or letter of intent for such public offering.

 

Section 1.2 Closing . The closing of the Contemplated Transactions (the “ Closing ”) will take place at a time and on a date to be specified by the parties (the “ Closing Date ”), which shall be no later than the second Business Day after satisfaction or waiver (to the extent legally permissible) of the conditions set forth in Article VI (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions), at the offices of Olshan Frome Wolosky LLP, 1325 Avenue of the Americas, 15 th Floor, New York, New York 10019, or at such other time, date or place as agreed to in writing by the parties hereto. At the Closing, the Unitholders will deliver to Holdings good and valid title to the Interests, free and clear of all Encumbrances, together with a certificate(s) for the Interests duly endorsed or accompanied by a power(s) duly endorsed in blank, with any required transfer stamps affixed thereto, against payment or delivery of the Total Consideration.

 

Section 1.3 Deposit . Concurrently with the execution and delivery of this Agreement, Holdings shall deposit the sum of $50,000 in cash as a down payment (together with any interest earned thereon, the “Deposit” ) by payment to Company’s bank account (the “Bank” ). The Deposit shall be held by the Bank pursuant to the terms of this Agreement. If the Closing occurs in accordance with the terms and provisions of this Agreement, the Deposit shall be paid to the Unitholders and credited against the Cash Consideration. If the Closing does not occur, the Deposit shall be held and delivered as provided in this Agreement. The Unitholders and Holdings acknowledge and agree that if Holdings does not terminate this Agreement as provided in Section 7.4, the Deposit will be deemed earned by the Unitholders and non-refundable to Holdings for any reason except as otherwise specifically set forth in this Agreement.

 

Section 1.4 Working Capital Adjustment .

 

(a) The Company and the Unitholders shall use commercially reasonable efforts to ensure that as of the close of business on the day prior to the Closing Date, the Company shall have Closing Date Working Capital in the amount of $75,000 (the “Working Capital Threshold” ). By no later than two Business Days prior to the Closing Date, the Unitholders shall prepare, or cause to be prepared, in consultation with Holdings, and deliver to Holdings a statement (the “Estimated Closing Date Working Capital Statement” ), which shall be subject to the prior review and approval of Holdings, setting forth the estimated Company Working Capital as of the close of business on the day prior to the Closing Date (the “Estimated Closing Date Working Capital” ). The “Company Working Capital” shall be equal to the current assets minus the current liabilities of the Company (each as determined in accordance with GAAP and the working capital worksheet attached as Exhibit B hereto), including as a payable of the Company (i) any fees and out-of-pocket expenses incurred by the Company or the Unitholders (including fees and expenses of counsel and of any broker or finder), to be paid by the Company but which has not previously been paid by the Company, in connection with this Agreement or any of the other Transaction Documents or the consummation of any of the Contemplated Transactions, (ii) any liability for Taxes directly or indirectly arising out of or related to the consummation of any of the Contemplated Transactions and (iii) any liability for Transfer Taxes arising out of or related to any of the Contemplated Transactions and accrued or paid by the Company. The Estimated Closing Date Working Capital Statement shall fairly and accurately present the Estimated Closing Date Working Capital, determined in the manner set forth in the immediately preceding sentence. If the Estimated Closing Date Working Capital is less than the Working Capital Threshold, then the Cash Consideration payable on the Closing Date shall be reduced by the amount of such difference. If the Estimated Closing Date Working Capital is greater than the Working Capital Threshold, then the Cash Consideration payable on the Closing Date shall be increased by the amount of such excess.

 

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(b) Within ninety (90) days after the Closing, Holdings shall prepare, or cause to be prepared, and deliver to the Unitholders a statement (the “Closing Date Working Capital Statement” ) setting forth the actual Company Working Capital as of the close of business on the day prior to the Closing Date (the “Closing Date Working Capital” ). The Closing Date Working Capital Statement shall fairly and accurately present the Closing Date Working Capital, determined in the manner set forth in the definition of Company Working Capital in Section 1.4(a).

 

(c) The Unitholders shall have a period of thirty (30) days after the date on which the Closing Date Working Capital Statement is delivered to them (the “Review Period” ) to review the Closing Date Working Capital Statement. If the Unitholders objects to the calculation of the Closing Date Working Capital as set forth on such Closing Date Working Capital Statement, the Unitholders shall so inform Holdings in writing (the “Objection” ) on or before the last day of the Review Period, setting forth in reasonable detail the basis of the Objection and the adjustments to the Closing Date Working Capital Statement which the Unitholders believes should be made. In the event that an Objection is not delivered to Holdings on or before the last day of the Review Period, the Unitholders shall be deemed to have agreed to the Closing Date Working Capital Statement. In the event that an Objection is delivered to Holdings on or before the last day of the Review Period, Holdings and the Unitholders shall attempt in good faith to reach an agreement with respect to any matters in dispute. If Holdings and the Unitholders are unable to resolve all of their differences within thirty (30) days after delivery of the Objection to Holdings, they shall refer their remaining differences to an independent public accountants as to which Holdings and the Unitholders shall mutually agree (the “WC Arbiter” ). The WC Arbiter shall, based on those items as to which Holdings and the Unitholders have agreed and the WC Arbiter’s determination regarding those items in dispute, finally determine the Closing Date Working Capital; provided , however , that the Closing Date Working Capital as finally determined by the WC Arbiter shall not be less than the amount proposed by Holdings or greater than the amount proposed by the Unitholders. The WC Arbiter’s determination shall be set forth in writing and shall be conclusive and binding upon all parties hereto and may be entered as a final judgment in any court of competent jurisdiction. The non-prevailing party shall pay the fees of the WC Arbiter (unless the WC Arbiter otherwise determines), and each of Holdings and the Unitholders shall pay the fees and expenses of their own legal counsel, accountants and other Representatives. Each of the parties hereto shall make available to the WC Arbiter and each other party hereto all relevant books and records and any work papers (including those, if any, of the accountants of the Company) in its possession or readily obtainable by it relating to the Closing Date Working Capital, and all other items reasonably requested by the WC Arbiter and each other party hereto.

 

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(d) The “Final Working Capital Amount” shall be (i) if no Objection is sent to Holdings prior to the end of the Review Period, the amount of Closing Date Working Capital set forth on the Closing Date Working Capital Statement delivered by Holdings, (ii) if an Objection is made but finally determined between Holdings and the Unitholders prior to referring any such dispute to a WC Arbiter, the amount of Closing Date Working Capital so finally determined between them; and (iii) if an Objection is sent to the WC Arbiter, the amount of Closing Date Working Capital finally determined by such WC Arbiter.

 

(e) If the Final Working Capital Amount is less than the Estimated Closing Date Working Capital, then Holdings shall offset against the Stock Consideration (by the forfeiture of Holdings Shares proportionally by the Unitholders) an amount equal to the difference between the Estimated Closing Date Working Capital and the Final Working Capital Amount. If the amount of such difference exceeds the amounts to be due (and not previously offset as provided herein), then any such excess shall be the obligation of the Unitholders and shall be paid to Holdings within ten (10) days after the determination of the Final Working Capital Amount.

 

(f) If the Final Working Capital Amount is greater than the Estimated Closing Date Working Capital, then the excess balance shall be paid by Holdings to the Unitholders within ten (10) days after the determination of the Final Working Capital Amount.

 

(g) Any amounts paid by a party pursuant to Section 1.4(e) or Section 1.4(f) will be treated as an adjustment to the Cash Consideration.

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE

COMPANY AND THE UNITHOLDERS

 

Except as set forth in the Company’s disclosure schedule provided herewith (the “Company Disclosure Schedule” ), the Company and the Unitholders hereby jointly and severally represent and warrant to Holdings, as of the date hereof and as of the Closing Date, except to the extent certain representations and warranties are limited to a certain date set forth in the applicable Section, as follows:

 

Section 2.1 Organization, Etc. The Company is duly formed, validly existing and in good standing under the Laws of the State of Missouri and has all requisite limited liability company power and authority to conduct its business as it is now being conducted and to own, lease and operate its properties and assets. The Company is qualified to do business and is in good standing in each jurisdiction in which the ownership of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified or in good standing would not, individually or in the aggregate, have a Company Material Adverse Effect. True and complete copies of the Certificate of Formation of the Company (the “Certificate of Formation” ), and Limited Liability Company Operating Agreement of the Company (the “Operating Agreement” ), each as presently in effect, have been heretofore made available to Holdings. The Company is not in violation of any term or provision of the Certificate of Formation or Operating Agreement.

 

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Section 2.2 Capitalization . The Company has _____ Units outstanding, 64% of which are owned of record and beneficially by the Unitholders, free and clear of all Encumbrances. No other securities of the Company are issued or outstanding. All outstanding Interests are duly authorized, validly issued, fully paid and non-assessable, and issued free from preemptive rights and in compliance with all applicable securities Laws. Except as set forth in Section 2.2 of the Company Disclosure Schedule, there are no outstanding (a) securities convertible into or exchangeable for Units of the Company, (b) options, warrants or other rights to purchase or subscribe for Units of the Company, or (c) contracts, commitments, agreements, understandings or arrangements of any kind relating to the issuance of any Units of the Company, any such convertible or exchangeable securities or any such options, warrants or rights, pursuant to which, in any of the foregoing cases, the Company is subject or bound. The Unitholders have not granted any power of attorney or proxy with respect to any Units owned by them. As a result of the Contemplated Transactions, Holdings will acquire good, valid and marketable title to the Interests free and clear of all Encumbrances, other than those that may be created or incurred by Holdings.

 

Section 2.3 Subsidiaries . The Company does not have any subsidiaries or own any equity interest in any other Person.

 

Section 2.4 Authority Relative to this Agreement . The Company has all requisite limited liability company power and authority, and the Unitholders have all requisite right, power and authority, to execute and deliver the Transaction Documents to which it or they are a party, to perform its or their obligations thereunder and to consummate the Contemplated Transactions. The execution and delivery of the Transaction Documents to which the Company is a party, the performance of its obligations thereunder and the consummation of the Contemplated Transactions have been duly and validly authorized by all required limited liability company action on the part of the Company, and no other limited liability company or other proceedings on the part of the Company are necessary to authorize the Transaction Documents to which it is a party or to consummate the Contemplated Transactions. This Agreement has been, and each of the other Transaction Documents to which it or they are a party will be, duly and validly executed and delivered by the Company and the Unitholders and, assuming this Agreement has been, and each of the other Transaction Documents to which it or they are a party will be, duly authorized, executed and delivered by the other parties thereto, this Agreement constitutes, and each of the other Transaction Documents to which it or they are a party will constitute, a legal, valid and binding obligation of each of the Company and the Unitholders, enforceable against each of the Company and the Unitholders in accordance with their respective terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to or affecting creditors’ rights generally, including the effect of statutory and other Laws regarding fraudulent conveyances and preferential transfers and subject to the limitations imposed by general equitable principles (regardless whether such enforceability is considered in a proceeding at law or in equity) (collectively, the “ Bankruptcy and Equity Principles ”).

 

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Section 2.5 Consents and Approvals; No Violations . Except as set forth on Section 2.5 of the Company Disclosure Schedule, none of the execution or delivery of any of the Transaction Documents by the Company or the Unitholders, the performance by the Company or the Unitholders of any of their obligations thereunder, or the consummation of any of the Contemplated Transactions by the Company or the Unitholders will (a) violate any provision of the Certificate of Formation or Operating Agreement, (b) require them to obtain or make any consent, waiver, approval, exemption, declaration, license, authorization or permit of, or registration or filing with or notification to, any U.S. federal, state, local or foreign government, executive official thereof, governmental, administrative or regulatory authority, agency, body or commission, including any court of competent jurisdiction, domestic or foreign (each, a “Governmental Entity” ), (c) require a consent under, result in a material violation or material breach of, constitute (with or without notice or lapse of time or both) a material default (or give rise to any right of termination, cancellation, amendment or acceleration or any obligation) under, or result in the creation of any Encumbrance on any of the properties or assets of the Company pursuant to, any of the terms, conditions or provisions of any Material Contract or Lease or any contract to which the Unitholders is a party or by which the Unitholders or any of their properties or assets are bound, or (d) violate any Law of any Governmental Entity applicable to the Company or the Unitholders or by which the Company or the Unitholders or any of their respective properties or assets are bound.

 

Section 2.6 Financial Statements . The Company has previously delivered or made available to Holdings true and complete copies of the following financial statements, each of which is included in Section 2.6 of the Company Disclosure Schedule: the balance sheet and related statements of income and retained earnings of the Company as of and for each of the years ended December 31, 2016 and December 31, 2017, each of which has been compiled by the Company’s independent registered public accounting firm (collectively, the “ Company Financials ”). Each of the Company Financials (i) has been prepared from, and is in accordance with, the books and records of the Company, (ii) does not deviate in any material respect from GAAP (except, in the case of unaudited financial statements, for the absence of footnotes and, in the case of interim financial statements, normal and recurring year-end adjustments (the nature or amount of which adjustments would not reasonably be expected, individually or in the aggregate, to be material)), and (iii) fairly presents in all material respects the financial position and results of operations of the Company as of the respective dates thereof and for the respective periods indicated therein (except that the unaudited financial statements do not contain footnotes and interim financial statements are subject to normal and recurring year-end adjustments (the nature or amount of which adjustments would not reasonably be expected, individually or in the aggregate, to be material)).

 

Section 2.7 No Undisclosed Liabilities .

 

(a) The Company does not have any liabilities or obligations of any nature (absolute, accrued, contingent or otherwise), except as and to the extent specifically set forth, disclosed in, provided for, reflected in or otherwise described in the Company Financials or in Section 2.7(a) of the Company Disclosure Schedule, and except for those incurred in the ordinary course of business since January 1, 2017.

 

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(b) Section 2.7(b) of the Company Disclosure Schedule sets forth all indebtedness of the Company for borrowed money.

 

Section 2.8 Absence of Certain Changes . Since December 31, 2016, except as set forth on Section 2.8 of the Company Disclosure Schedule, the Company has not (a) conducted business other than in the ordinary and usual course consistent with past practice, (b) suffered any Company Material Adverse Effect, (c) declared, set aside for payment or paid any dividend or other distribution (whether in cash, securities, property or any combination thereof) in respect of any Units, or redeemed or otherwise acquired any Units, (d) incurred any indebtedness for borrowed money or assumed, guaranteed or endorsed the obligations of any other Person, (e) acquired or Transferred or entered into a Contract to acquire or Transfer any assets outside the ordinary course of business, other than this Agreement, (f) created any Encumbrance on any of its properties or assets, (g) increased in any manner the rate or terms of compensation of any of its directors, officers or employees except for any increases for employees (other than the Unitholders) made in the ordinary course of business, (h) paid or agreed to pay any pension, retirement allowance or other material employee benefit not required by any existing Benefit Plan or Employee Arrangement, (i) entered into or amended any employment, bonus, severance or retirement Contract other than with employees (other than the Unitholders) in the ordinary course of business, (j) made or revoked any election relating to Taxes, (k) changed any methods of reporting income or deductions for U.S. federal income tax purposes, (l) made any capital expenditures, individually or in the aggregate, in excess of $10,000, (m) suffered any damage, destruction or loss (whether or not covered by insurance) to any of its material assets, (n) had any officer or key employee resign or terminate employment, or (o) settled or compromised any pending or threatened suit, action, proceeding or, other than in the ordinary course of business, claim.

 

Section 2.9 Compliance with Law . The Company is, and has been for the past three (3) years, in compliance in all material respects with all Laws applicable to it or any of its businesses, properties or assets, including, but not limited to, the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) and all Missouri state medical practice acts and regulations of the state board of medical examiners and state board of nursing. The Company has not received notice from any Governmental Entity of any violation of any provision of any applicable Law that remains unresolved.

 

Section 2.10 Material Contracts .

 

(a) Section 2.10(a) of the Company Disclosure Schedule sets forth a list of all Contracts that are material to the Company to which it is a party or by which it or any of its properties or assets is bound, including (i) any employment Contract or other Contract for services that is not terminable at will without liability for any penalty or severance payment, (ii) any Contract involving annual payments or receipts by the Company of $50,000 or more with respect to any such Contract, (iii) any Contract with each of the 15 largest customers and 10 largest suppliers of the Company, which largest customers and suppliers shall be determined using revenues/payments by the Company during the year ended December 31, 2017 (respectively, the “ Major Customers ” and the “ Major Suppliers ” and, collectively, the “ Major Customers and Suppliers ”), (iv) any Contract containing an exclusivity provision that restricts any of the Company’s businesses or any Contract limiting its freedom to compete in any line of business, in any geographic area or with any Person, (v) any Contract providing for the borrowing or lending of money or any guarantee or, other than in the ordinary course of business, any indemnification of any third party, and (vi) any partnership or joint venture agreement (collectively, the “ Material Contracts ”). The Company has made available to Holdings true, correct and complete copies of all Material Contracts. The Company will not have any responsibilities, obligations or liabilities, contractual or otherwise, arising under any change of control provision of any Contract as a result of any of the Contemplated Transactions.

 

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(b) Each of the Material Contracts constitutes the valid, legally binding and enforceable obligation of the Company and, to the Knowledge of the Company, each of the other parties thereto, except as may be limited by applicable Bankruptcy and Equity Principles. Each Material Contract is in full force and effect.

 

(c) Except as set forth in Section 2.10(c) of the Company Disclosure Schedule, the Company is not in breach or default in any material respect, and no event has occurred that with notice or lapse of time or both would constitute such a breach or default by the Company or permit termination, modification or acceleration, of or under any of the Material Contracts and, to the Knowledge of the Company, no other party to any of the Material Contracts is in breach or default in any material respect, and no event has occurred that with notice or lapse of time or both would constitute such a breach or default in any material respect by such party, of or under any of the Material Contracts. The Company has not received a written notice or claim by any party to a Material Contract in respect of any breach or default thereunder that remains unresolved.

 

(d) Except as set forth in Section 2.10(d) of the Company Disclosure Schedule, the Company has not received written notice of termination, cancellation, material reduction of services or non-renewal that is currently in effect with respect to any Material Contract and, to the Knowledge of the Company, no other party to a Material Contract plans to terminate, cancel or not renew, or materially reduce the services provided under, any such Material Contract.

 

Section 2.11 Permits . The Company has all material permits, licenses, certificates of authority and other authorizations from all Governmental Entities necessary for the conduct of its business as presently conducted (the “Permits” ) and is in compliance in all material respects with the terms of its Permits. All such Permits are in full force and effect, and the Company has not received written notice of any event, inquiry or proceeding that is reasonably likely to lead to the revocation, amendment, failure to renew, limitation, suspension or restriction of any Permit.

 

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Section 2.12 Litigation . Except as set forth in Section 2.12 of the Company Disclosure Schedule, there is no action, suit, proceeding or investigation pending or, to the Knowledge of the Company, threatened against the Company or any of its properties by or before any Governmental Entity. The Company is not subject to any outstanding injunction, writ, judgment, order or decree of any Governmental Entity. There is no action, suit, proceeding or investigation pending or, to Knowledge of the Company, threatened against any current or former officer, director, employee or consultant of any of the Company in his or her capacity as such. There is no action, suit or proceeding pending or, to the Knowledge of the Company, threatened against the Company or the Unitholders by or before any Governmental Entity that questions the validity of any of the Transaction Documents or any action to be taken in connection with the consummation of any of the Contemplated Transactions or would otherwise prevent or materially delay the consummation of any of the Contemplated Transactions.

 

Section 2.13 Taxes . Except as set forth in Section 2.13 of the Company Disclosure Schedule:

 

(a) The Company has

 

(i) duly and timely filed, or caused to be filed, in accordance with applicable Law, all material Company Tax Returns, each of which is true, correct and complete in all material respects,

 

(ii) duly and timely paid in full, or caused to be paid in full, all Company Taxes reflected on such Company Tax Returns, and

 

(iii) properly accrued, in a manner that does not deviate in any material respect from GAAP, on its books and records a provision for the payment of all Company Taxes that are due, are claimed to be due, or may or will become due with respect to any Tax period (or portion thereof) ending on or before the Closing Date.

 

(b) No extension of time to file a Company Tax Return, which Company Tax Return has not since been filed in accordance with applicable Law, has been filed. There is no power of attorney in effect with respect or relating to any Company Tax or Company Tax Return.

 

(c) No Company Tax Return has been filed, and no Company Tax has been determined, on a consolidated, combined, unitary or other similar basis (including, but not limited to, a consolidated U.S. federal income tax return). There is no circumstance (including, but not limited to, as a transferee or successor, under Code Section 6901 or Treasury Regulation Section 1.1502-6 (or similar provision of applicable Law), as result of a Tax sharing agreement or other Contract or by operation of Law) under which the Company is or may be liable for any Tax determined, in whole or in part, by taking into account any income, sale or asset of, or any activity conducted by, any other Person.

 

(d) The Company has complied in all material respects with all applicable Laws relating to the deposit, collection, withholding, payment or remittance of any Tax (including, but not limited to, Code Section 3402 or similar provision of applicable Law).

 

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(e) There is no Encumbrance for any Tax upon any asset or property of the Company, except for any statutory lien for any Tax not yet due.

 

(f) No audit, action, assessment, examination, hearing, inquiry or investigation is pending or, to the Knowledge of the Company, threatened with regard to the Company, any Company Tax or any Company Tax Return.

 

(g) The statute of limitations for any audit, action, assessment, examination, hearing, inquiry or investigation relating to any Company Tax or any Company Tax Return has not been modified, extended or waived.

 

(h) Any material assessment, deficiency, adjustment or other similar item relating to any Company Tax or Company Tax Return has been reported to all Governmental Entities in accordance with applicable Law.

 

(i) No jurisdiction where no Company Tax Return has been filed or no Company Tax has been paid has made or threatened in writing to make a claim for the payment of any Company Tax or the filing of any Company Tax Return.

 

(j) The Company is not a party to any agreement with any Governmental Entity (including, but not limited to, any closing agreement within the meaning of Code Section 7121 or any analogous provision of applicable Law).

 

(k) The Company is not a party to any Contract that results or could reasonably be expected to result in any amount that is not deductible under Code Section 280G or Code Section 404, or any similar provision of applicable Law.

 

(l) The Company does not have any “tax-exempt bond-financed property” or “tax-exempt use property,” within the meaning of Code Section 168(h) or any similar provision of applicable Law.

 

(m) No asset of the Company is required to be treated as being owned by any other Person pursuant to any provision of applicable Law (including, but not limited to, the “safe harbor” leasing provisions of Code Section 168(f)(8), as in effect prior to the repeal of those “safe harbor” leasing provisions).

 

(n) The Company is not and will not be required to include any item of income in, or exclude any item of deduction from, U.S. federal taxable income for any Tax period (or portion thereof) ending after the Closing Date, as a result of a change in method of accounting, any installment sale or open transaction, any prepaid amount, refund or credit.

 

(o) The Company is not and has not been a beneficiary or otherwise participated in any reportable transaction within the meaning of Treasury Regulation Section 1.6011-4(b)(1).

 

(p) The Company has not distributed securities of another Person and has not had its securities distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Code Section 355 or Code Section 361.

 

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(q) No election under Code Section 338 or any similar provision of applicable Law has been made or required to be made by or with respect to the Company.

 

Section 2.14 Title to Properties; Sufficiency of Assets .

 

(a) Except as set forth on Section 2.14(a) of the Company Disclosure Schedule, the Company has good, valid and marketable title to, or a valid leasehold or contractual interest in, all of the assets and properties (real and personal) which it owns or leases, and such assets and properties are owned or leased by it free and clear of all Encumbrances. Section 2.14(a) of the Company Disclosure Schedule contains a complete and correct list of all real property leased by the Company. The Company does not own and has never owned any real property. True, correct and complete copies of all lease agreements, including all amendments and modifications thereto, for all leased real property (the “ Leases ”) have been made available to Holdings. All rents due under the Leases have been paid. The Company enjoys undisturbed possession of its leased real properties and is in compliance in all material respects with the terms of the Leases, and all Leases are in full force and effect. Each Lease constitutes the valid, legally binding and enforceable obligation of the Company and, to the Knowledge of the Company, each of the other parties thereto, except as may be limited by applicable Bankruptcy and Equity Principles. No party to any Lease has given written notice to the Company or made a claim in writing against the Company in respect of any breach or default thereunder.

 

(b) All tangible personal property owned or leased by the Company is in good operating condition and repair, ordinary wear and tear excepted and subject to routine maintenance, and is suitable and adequate for the uses for which it is being used. Except as set forth on Section 2.14(b) of the Company Disclosure Schedule, the Company’s assets and properties (real, personal and intangible) include all material tangible and intangible assets, properties and rights necessary to conduct its businesses following the Closing Date in substantially the same manner as is currently conducted.

 

Section 2.15 Intellectual Property.

 

(a) All Intellectual Property owned or used by the Company in the conduct of its business as currently conducted is referred to as the “ Company Intellectual Property .” Section 2.15(a) of the Company Disclosure Schedule identifies all of the following Company Intellectual Property: (i) Patents and applications therefor, the number, issue date, title and priority information for each country in which any such Patent has been issued, or the application number, date of filing, title and priority information for each country in which any such Patent application is pending; (ii) registered and unregistered Trademarks (excluding Internet domain names) and applications for registration of Trademarks, the registration or application number related thereto (and, if applicable, the class of goods or the description of the goods or services covered thereby), the countries of filing and the expiration date of each registration in each country in which a registration was issued; (iii) registered and unregistered Copyrights and applications for registration of Copyrights, the registration number and registration date, or the application number and application date, related thereto, and the countries of filing; and (iv) registered Internet domain names. All of the Company Intellectual Property, the registrations and applications for registration of which are set forth on Section 2.15(a) of the Company Disclosure Schedule, is valid and in full force and effect. To the Knowledge of the Company, all of the other rights within the Company Intellectual Property are valid and subsisting. All filings for the Company Intellectual Property are in good standing.

 

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(b) The Company owns and has good and valid title to the Company Intellectual Property, free and clear of all Encumbrances. The Company Intellectual Property constitutes all of the Intellectual Property necessary for the Company to conduct its business as such business is currently being conducted.

 

(c) Except as set forth on Section 2.15(c) of the Company Disclosure Schedule, the Company does not license any Intellectual Property (other than (i) widely available, commercial off-the-shelf third-party Software licensed to the Company on a non-exclusive basis or (ii) any open source Software, in the case of clauses (i) and (ii), as to which the Company is in compliance with the terms of the applicable license agreements and has made all payments required to be made thereunder) to or from any third party.

 

(d) To the Knowledge of the Company, there is no unauthorized use, disclosure, infringement or misappropriation of any Company Intellectual Property by any third party, including any current or former employee of the Company.

 

(e) The Company has not received any notice or other communication (in writing or otherwise) of any actual, alleged, possible or potential infringement, misappropriation or unlawful use of, and, to the Knowledge of the Company, the Company is not infringing, misappropriating or making unlawful use of, any Intellectual Property owned by any third party. There are no actions, suits or proceedings that are pending or, to the Knowledge of the Company, threatened against the Company with respect to any infringement, misappropriation or unlawful use of any Intellectual Property owned or used by any third party.

 

Section 2.16 Insurance . The Company maintains policies of fire and casualty, liability and other forms of insurance, in such amounts, with such deductibles, covering against such risks and losses and with such reputable insurers, as are customary for businesses of a type and size, and with assets and properties, comparable to those of the businesses of the Company. Set forth on Section 2.16 of the Company Disclosure Schedule is a listing of each insurance policy maintained by the Company, setting forth the issuers, amounts, deductibles and coverages for each, and a description of all material claims under any insurance policy maintained by the Company at any time during the past three years. All such policies are in full force and effect and all premiums due and payable thereon have been paid in full, and no notice of cancellation or termination has been received with respect to any such policy which has not been replaced on substantially similar terms prior to the date of such cancellation. There are no pending claims under any of such policies.

 

Section 2.17 Environmental Matters .

 

(a) The operations of the Company are in compliance with, in all material respects, and have complied with, in all material respects, all applicable Environmental Laws.

 

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(b) The Company does not have any material liability under any Environmental Law nor is it responsible for any material liability of any other Person under any Environmental Law, whether by Contract, by operation of Law or otherwise

 

(c) The Company has not received any written information request, notice or other communication from a Governmental Entity, and there are no actions, suits, proceedings or investigations pending or, to the Knowledge of the Company, threatened against the Company, relating to any violation, or alleged violation of, or liability under, any Environmental Law or relating to any Hazardous Materials.

 

(d) For purposes of this Section 2.17, the following terms shall have the following meanings:

 

(i) “Environmental Laws” means all U.S. federal, state and local Laws of any Governmental Entity relating to (A) the generation, treatment, storage, disposal, use, handling, manufacturing, transportation or shipment of Hazardous Materials, or (B) the environment or to emissions, discharges, releases or threatened releases of Hazardous Materials into the environment.

 

(ii) “Hazardous Materials” means (A) petroleum and petroleum products, radioactive materials and friable asbestos; and (B) chemicals and other materials and substances which are now defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” or “toxic pollutants” under any Environmental Law.

 

Section 2.18 Employee and Labor Matters . The Company is not a party to any collective bargaining or other labor union Contract applicable to Persons employed by it, no collective bargaining agreement is being negotiated by the Company, and, to the Knowledge of the Company, there are no activities or proceedings of any labor union to organize any of the employees of the Company. Except as set forth in Section 2.18 of the Company Disclosure Schedule, (a) the Company is in compliance in all material respects with all applicable Laws relating to employment and employment practices, wages, hours, occupational safety, health standards, severance payments, equal opportunity, payment of social security, national insurance and other Taxes, and terms and conditions of employment, (b) there are no charges with respect to or relating to the Company pending, or to the Knowledge of the Company, threatened by or before any Governmental Entity responsible for the prevention of unlawful or discriminatory employment practices or unfair labor practices, and (c) there is no strike, work stoppage, work slowdown, lockout, picketing, concerted refusal to work overtime, or other similar labor activity pending or, to the Knowledge of the Company, threatened against or involving the Company currently or within the last three years. All sums due for employee, consultant and independent contractor compensation and benefits, including pension and severance benefits, and all vacation time owing to any employees of the Company have been duly and adequately accrued on the accounting records of the Company. All individuals characterized and treated by the Company as consultants or independent contractors are properly treated as independent contractors under all applicable Laws. All employees of the Company classified as exempt under the Fair Labor Standards Act or applicable state and local wage and hour Laws are properly classified.

 

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Section 2.19 Employee Plans .

 

(a) Section 2.19 of the Company Disclosure Schedule sets forth a true, correct and complete list of:

 

(i) all “employee benefit plans,” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ( “ERISA” ) with respect to which the Company has any obligation or liability, contingent or otherwise (the “Benefit Plans” );

 

(ii) all current directors, officers and employees of the Company; and

 

(iii) all employment, consulting, termination, profit sharing, severance, change of control, individual compensation and indemnification agreements, and all bonus and other incentive compensation, deferred compensation, salary continuation, disability, severance, equity award, unit option, unit purchase, educational assistance, legal assistance, club membership, employee discount, employee loan, credit union and vacation agreements, policies and arrangements under which the Company has any obligation or liability (contingent or otherwise) in respect of any current or former officer, director, employee, consultant or contractor of the Company (the “Employee Arrangements” ).

 

(b) In respect of each Benefit Plan and Employee Arrangement, a complete and correct copy of each of the following documents (if applicable) has been made available to Holdings: (i) the most recent plan and related trust documents, and all amendments thereto; (ii) the most recent summary plan description, and all related summaries of modifications thereto; (iii) the most recent Form 5500 (including schedules and attachments); (iv) the most recent Internal Revenue Service ( “IRS” ) determination, opinion or notification letter; and (v) each written Employee Arrangement, and all amendments thereto.

 

(c) None of the Benefit Plans or Employee Arrangements is subject to Title IV of ERISA, constitutes a defined benefit retirement plan or is a multiemployer plan described in Section 3(37) of ERISA, and the Company does not have any obligation or liability (contingent or otherwise) in respect of any such plans.

 

(d) The Benefit Plans and their related trusts intended to qualify under Sections 401 and 501(a) of the Code, respectively, have either received a favorable determination, opinion or notification letter from the IRS with respect to each such Benefit Plan as to its qualified status under the Code, or has remaining a period of time under applicable U.S. Treasury Regulations or IRS pronouncements in which to apply for such a letter and make any amendments necessary to obtain a favorable determination as to the qualified status of each such Benefit Plan.

 

(e) All contributions and other payments required to have been made by the Company to or under any Benefit Plan or Employee Arrangement by applicable Law or the terms of such Benefit Plan or Employee Arrangement (or any agreement relating thereto) have been timely and properly made.

 

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(f) The Benefit Plans and Employee Arrangements have been maintained and administered in all material respects in accordance with their terms and applicable Laws.

 

(g) There are no pending or, to the Knowledge of the Company, threatened actions, claims, suits or proceedings against or relating to any Benefit Plan or Employee Arrangement (other than routine benefit claims by persons entitled to benefits thereunder) and, to the Knowledge of the Company, there are no facts or circumstances which could reasonably be expected to form the basis for any of the foregoing.

 

(h) The Company does not have any obligation or liability (contingent or otherwise) to provide post-retirement life insurance or health benefits coverage for current or former officers, directors, employees, consultants or contractors except (i) as may be required under Part 6 of Title I of ERISA, (ii) a medical expense reimbursement account plan pursuant to Section 125 of the Code, or (iii) through the last day of the calendar month in which the participant terminates employment.

 

(i) Neither the execution and delivery of any of the Transaction Documents nor the consummation of any of the Contemplated Transactions will (i) result in any payment becoming due to any director, officer, employee, consultant or contractor (current, former or retired) of the Company, (ii) increase any benefits under any Benefit Plan or Employee Arrangement or (iii) result in the acceleration of the time of payment of, vesting of, or other rights in respect of any such benefits (except as which may be required by the partial or full termination of any Benefit Plan intended to be qualified under Section 401 of the Code). No Benefit Plan or Employee Arrangement in effect immediately prior to the Closing Date would result, individually or in the aggregate (including as a result of this Agreement, any of the Transaction Documents or any of the Contemplated Transactions), in the payment of any “excess parachute payment” within the meaning of Section 280G of the Code.

 

(j) Each Benefit Plan or Employee Arrangement that is a non-qualified deferred compensation plan or arrangement subject to Section 409A of the Code has been operated and administered in good faith compliance with Section 409A of the Code from the period beginning January 1, 2007, or the date such Benefit Plan or Employee Arrangement was established, whichever date is later, through the date hereof.

 

(k) The Company has made available to Holdings a true, complete and correct list of the following (if applicable) for each current employee, consultant and contractor of the Company: base salary; any bonus obligations; immigration status; hire date; time-off balance; and pay rate.

 

Section 2.20 Brokers and Finders . None of the Company, the Unitholders or any of their respective Representatives has employed any investment banker, broker or finder or incurred any liability for any investment banking fees, brokerage fees, commissions or finders’ fees in connection with any of the Contemplated Transactions for which Holdings would be liable.

 

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Section 2.21 Absence of Questionable Payments . None of the Company or the Unitholders or, to the Knowledge of the Company, any director, officer, employee, consultant or other Person acting on behalf of the Company has (a) used any Company funds for unlawful contributions, payments, gifts or expenditures, or (b) made any unlawful expenditures of Company funds relating to political activity to government officials or others. None of the Company or the Unitholders or, to the Knowledge of the Company, any director, officer, employee, consultant or other Person acting on behalf of the Company has offered, paid or agreed to pay to any Person (including any governmental official), or solicited, received or agreed to receive from any such Person, directly or indirectly, any unlawful contributions, payments, gifts, expenditures, money or anything of value for the purpose or with the intent of (a) obtaining or maintaining business for the Company, (b) facilitating the purchase or sale of any product or service, or (c) avoiding the imposition of any fine or penalty.

 

Section 2.22 Bank Accounts; Powers of Attorney . Section 2.22 of the Company Disclosure Schedule sets forth a true, complete and correct list showing: (a) all banks in which the Company maintains a bank account or safe deposit box (collectively, “Bank Accounts” ), together with, as to each such Bank Account, the type of account, account number and the names of all signatories thereof and, with respect to each such safe deposit box, if any, the number thereof and the names of all Persons having access thereto; and (b) the names of all Persons holding powers of attorney from the Company, true, complete and correct copies of which have been made available to Holdings.

 

Section 2.23 Customers and Suppliers . There are no disputes between the Company, on the one hand, and any of the Major Customers and Suppliers, on the other hand, that relate to the operation of the business of the Company. Since December 31, 2016, none of the Major Customers and Suppliers has terminated, cancelled, not renewed or materially reduced, or notified the Company in writing of its intention to terminate, cancel, not renew or materially reduce, its relationship with the Company.

 

Section 2.24 Accounts Receivable . Except as set forth in Section 2.24 of the Company Disclosure Schedule, all accounts receivable of the Company have arisen from bona fide transactions in the ordinary course of business, are valid and enforceable, are collectible within 90 days in amounts not less than the amounts thereof carried on the books of the Company (except to the extent of the allowance for doubtful accounts shown on the Company Financials), and are not subject to set-off or counterclaim. Any allowances that the Company has established for doubtful accounts have been established on a basis consistent with past practice and do not deviate in any material respect from GAAP.

 

Section 2.25 Certain Transactions . Except as set forth on Section 2.25 of the Company Disclosure Schedule, none of the Unitholders, officers, directors or employees of the Company, or any of their respective Affiliates or any member of any such Person’s immediate family (for this purpose, “immediate family” means such Person’s spouse, parents, children and siblings), is presently a party to any Contract or transaction with the Company, including any Contract (i) providing for the furnishing of services by, (ii) providing for the rental of real or personal property from, or (iii) otherwise requiring payments to (other than for services in the foregoing capacities) any such Person or any corporation, partnership, trust or other entity in which any such Person has a substantial interest as a Unitholders, officer, director, trustee or partner.

 

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Section 2.26 No Other Representations or Warranties . Except for the representations and warranties contained in this Article II, none of the Company, the Unitholders or any other Person makes any representations or warranties, and the Company and the Unitholders hereby disclaim any other representations or warranties, whether made by either of them or any officer, director, employee, agent or other Representative of the Company, the Unitholders or any other Person, with respect to this Agreement or any of the Contemplated Transactions. For the avoidance of doubt, the foregoing is not intended to limit the ability of a Holdings Indemnified Party to make a claim arising out, based upon or related to fraud and shall not be given any effect in the case of fraud.

 

Section 2.27 Disclosure . All factual information (taken as a whole) furnished by or on behalf of the Company or the Unitholders in writing (including electronically) to Holdings or any of its Representatives for purposes of or in connection with any of the Transactions Documents or any of the Contemplated Transactions is true and accurate in all material respects and not incomplete by omitting to state any material fact necessary to make such information not misleading in light of the circumstances under which such information was provided.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF HOLDINGS

 

Except as set forth in Holdings’ disclosure schedule provided herewith (the “Holdings Disclosure Schedule” ), Holdings hereby represents and warrants to the Company and the Unitholders, as of the date hereof and as of the Closing Date, except to the extent certain representations and warranties are limited to a certain date set forth in the applicable Section, as follows:

 

Section 3.1 Corporate Organization, Etc. Holdings is duly incorporated, validly existing and in good standing under the Laws of the State of Delaware and has all requisite corporate power and authority to conduct its business as it is now being conducted and to own, lease and operate its properties and assets.

 

Section 3.2 Authority Relative to this Agreement . Holdings has all requisite corporate power and authority to execute and deliver the Transaction Documents to which it is a party, to perform its obligations thereunder and to consummate the Contemplated Transactions. The execution and delivery of the Transaction Documents to which it is a party, the performance of its obligations thereunder and the consummation of the Contemplated Transactions have been duly and validly authorized by all required corporate action on the part of Holdings, and no other corporate or other proceedings on the part of Holdings are necessary to authorize the Transaction Documents to which it is a party or to consummate the Contemplated Transactions. This Agreement has been, and each of the other Transaction Documents to which it is a party will be, duly and validly executed and delivered by Holdings and, assuming this Agreement has been, and each of the other Transaction Documents to which it is a party will be, duly authorized, executed and delivered by the other parties thereto, this Agreement constitutes, and each of the other Transaction Documents to which it is a party will constitute, a legal, valid and binding obligation of Holdings, enforceable against it in accordance with their respective terms, except as limited by applicable Bankruptcy and Equity Principles.

 

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Section 3.3 Capitalization of Holdings . The authorized capital stock of Holdings consists of _______ shares of the Holdings Shares and _____ shares of preferred stock, par value $0.001 per share. There are ______ shares of the Holding Shares, and no shares of preferred stock, issued and outstanding as of the date of this Agreement. Holdings has no outstanding stock options, warrants, rights or commitments to issue Holdings Shares or other equity securities and no outstanding securities convertible into or exchangeable for Holdings Shares or other equity securities. All outstanding shares of the Holdings Shares are validly issued and outstanding, fully paid and nonassessable.

 

Section 3.4 Consents and Approvals; No Violations . None of the execution or delivery of any of the Transaction Documents by Holdings, the performance by Holdings of any of its obligations thereunder, or the consummation of any of the Contemplated Transactions by Holdings will (a) violate any provision of the organizational or governing documents of Holdings, (b) require it to obtain or make any consent, waiver, approval, exemption, declaration, license, authorization or permit of, or registration or filing with or notification to, any Governmental Entity, except for such consents, waivers, approvals, exemptions, declarations, licenses, authorizations, permits, registrations, filings and notifications which are listed in Section 3.3 of the Holdings Disclosure Schedule (the “Holdings Consents” ), (c) require a consent under, result in a material violation or material breach of, constitute (with or without notice or lapse of time or both) a material default (or give rise to any right of termination, cancellation, amendment or acceleration or any obligation) under, or result in the creation of any Encumbrance on any of the properties or assets of Holdings pursuant to, any of the terms, conditions or provisions of any material Contract to which Holdings is a party or by which Holdings or any of its properties or assets is bound, or (d) violate any Law of any Governmental Entity applicable to Holdings or by which Holdings or any of its properties or assets is bound.

 

Section 3.5 Litigation . There is no action, suit or proceeding pending or, to the Knowledge of Holdings, threatened against Holdings by or before any Governmental Entity that questions the validity of any of the Transaction Documents or any action to be taken in connection with the consummation of any of the Contemplated Transactions or would otherwise prevent or materially delay the consummation of any of the Contemplated Transactions.

 

Section 3.6 Brokers and Finders . Holdings has not employed any investment banker, broker or finder or incurred any liability for any investment banking fees, brokerage fees, commissions or finders’ fees in connection with any of the Contemplated Transactions for which the Company or the Unitholders would be liable.

 

Section 3.7 Sufficient Funds . Holdings will have sufficient cash on hand to pay the Cash Consideration and consummate the Contemplated Transactions at the Closing.

 

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Section 3.8 Validity of Shares . The _______ shares of Holdings Shares to be issued at the Closing pursuant to Section 1.1(b) hereof, when issued and delivered in accordance with the terms hereof, shall be duly and validly issued, fully paid and nonassessable. Based in part on the representations and warranties of the Unitholders in this Agreement and assuming the accuracy thereof, the issuance of the Holdings Shares at the Closing pursuant to Section 1.1(b) will be exempt from the registration and prospectus delivery requirements of the Securities Act and from the qualification or registration requirements of any applicable state blue sky or securities laws.

 

Section 3.9 No General Solicitation . In issuing the Holdings Shares hereunder, neither Holdings nor anyone acting on its behalf has offered to sell the Holdings Shares by any form of general solicitation or advertising.

 

Section 3.10 No Other Representations or Warranties . Except for the representations and warranties contained in this Article III, neither Holdings nor any other Person makes any representations or warranties, and Holdings hereby disclaims any other representations or warranties, whether made by it or any officer, director, employee, agent or other Representative of Holdings or any other Person, with respect to this Agreement or any of the Contemplated Transactions. For the avoidance of doubt, the foregoing is not intended to limit the ability of a Unitholders Indemnified Party to make a claim arising out, based upon or related to fraud and shall not be given any effect in the case of fraud.

 

ARTICLE IV

COVENANTS

 

Section 4.1 Conduct of the Business of the Company Pending the Closing . Except as otherwise expressly provided by this Agreement or with the prior written consent of Holdings, during the period between the date of this Agreement and the Closing, the Company will, and the Unitholders will cause the Company to, conduct its business and operations in the ordinary and usual course of business, in substantially the same manner as heretofore conducted, and use commercially reasonable efforts consistent therewith to preserve intact its properties, assets and business organization, to keep available the services of its officers, employees, consultants and contractors and to maintain its business relationships with customers, suppliers, distributors and others having commercially beneficial business relationships with it. Without limiting the generality of the foregoing, the Company will not, and the Unitholders will cause the Company not to, prior to the Closing, without the prior written consent of Holdings:

 

(a) issue, sell or pledge, or authorize or propose the issuance, sale or pledge of, any (i) additional Units or other equity interests, or securities convertible into or exchangeable for any such Units or interests, or any rights, warrants or options to acquire any such Units or interests or other convertible or exchangeable securities, or (ii) other securities in respect of, in lieu of, or in substitution for, any Units or other equity interests outstanding on the date hereof;

 

(b) split, combine or reclassify any Units or other equity interests;

 

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(c) declare or pay any dividend or distribution to any Person;

 

(d) redeem, purchase or otherwise acquire any outstanding Units or other equity interests;

 

(e) propose or adopt any amendment to any of its organizational or governing documents;

 

(f) (i) incur or assume any long-term or short-term debt or issue any debt securities; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other Person; (iii) make any loans, advances or capital contributions to, or investments in, any other Person; (iv) pledge or otherwise encumber any Units or other equity interests; (v) Transfer or permit to be Transferred any Units or other equity interests of the Company; or (vi) mortgage or pledge any of its assets, tangible or intangible, or create or suffer to exist any Encumbrance thereupon;

 

(g) (i) increase in any manner the rate or terms of compensation or benefits of any of its directors, officers, employees, consultants or contractors, except for increases to employees (other than officers), consultants or contractors made in the ordinary course of business consistent with past practice, (ii) pay or agree to pay any pension, retirement allowance or other benefit not required or permitted by any existing Benefit Plan or Employee Arrangement to any director, officer, employee, consultant or contractor, whether past or present, or (iii) adopt, enter into, terminate or amend any Benefit Plan or Employee Arrangement;

 

(h) acquire, sell, lease or dispose of any assets outside the ordinary and usual course of business consistent with past practice;

 

(i) acquire (by merger, consolidation or acquisition of securities or assets) any corporation, partnership or other business organization or entity or division thereof or any equity interest therein;

 

(j) settle or compromise any pending or threatened suit, action, proceeding or, other than in the ordinary course of business consistent with past practice, claim;

 

(k) fail to comply in any material respect with any Law or Permit applicable to it or any of its assets or allow any Permit to lapse;

 

(l) sell, dispose of, permit to lapse or license any rights to any material Intellectual Property;

 

(m) change any of its banking or safe deposit arrangements;

 

(n) fail to maintain its books, accounts and records in the ordinary course on a basis consistent with prior years or make any change in the accounting principles, methods or practices used by it;

 

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(o) amend, modify, waive any material provision of or terminate any Material Contract or enter into any Contract which, if entered into prior to the date hereof, would have been a Material Contract;

 

(p) make any capital expenditures in excess of $5,000 in the aggregate;

 

(q) satisfy, discharge, waive or settle any liabilities, other than in the ordinary course of business consistent with past practice;

 

(r) (i) fail to timely file any Tax Return that is due, (ii) file any amended Tax Return or claim for refund, (iii) consent to any extension or waiver of the statute of limitations period applicable to any Tax claim or assessment, (iv) make any Tax election, or (v) settle or compromise any Tax liability; or

 

(s) take, propose to take, or agree in writing or otherwise to take any of the actions described in this Section 4.1 or any action that would make any of the representations or warranties contained in this Agreement untrue, incomplete or incorrect in any material respect.

 

Section 4.2 Access to Information . From the date of this Agreement to the Closing, the Company will (a) give Holdings and its authorized Representatives reasonable access to all personnel, books, records, Contracts, customers, offices and other facilities and properties of the Company, (b) permit Holdings and its authorized Representatives to make such inspections thereof as Holdings may reasonably request and (c) cause the officers and employees of the Company to furnish Holdings with such financial and operating data and other information with respect to the business and operations of the Company as Holdings may from time to time reasonably request; provided , however , that all access under this Section 4.2 shall be conducted at a reasonable time, during normal business hours, on reasonable advance notice and in such a manner as not to interfere unreasonably with the operation of the business of the Company. Holdings shall be permitted to contact customers of the Company regarding such customers’ business relationships with the Company, and the Company will cooperate with Holdings in facilitating such contacts with its customers. No investigation under this Section 4.2 shall affect or be deemed to modify any of the representations or warranties made by the Company or the Unitholders in this Agreement.

 

Section 4.3 Disclosure Supplements . From time to time prior to the Closing, the Company will supplement or amend the Company Disclosure Schedule with respect to any matter hereafter arising or of which the Company or the Unitholders becomes aware after the date hereof which, if existing, occurring or known at or prior to the date of this Agreement, would have been required to be set forth or described in the Company Disclosure Schedule or which is necessary to complete or correct any information in the Company Disclosure Schedule or in any representation or warranty which has been rendered inaccurate thereby. No such supplement or amendment shall be given effect for purposes of determining the satisfaction of the conditions set forth in Article VI hereof.

 

Section 4.4 Consents and Approvals . Each of the parties hereto shall use its commercially reasonable efforts to obtain as promptly as practicable all consents, waivers, approvals, exemptions, licenses and authorizations required to be obtained from any Person or Governmental Entity in connection with the consummation of any of the Contemplated Transactions; provided , however , that no party is required to make any payment to any Person or Governmental Entity to obtain any consents, waivers, approvals, exemptions, licenses or authorizations.

 

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Section 4.5 Filings . Promptly after the execution of this Agreement, each of the parties hereto shall prepare and make or cause to be made any required filings, registrations, submissions and notifications under the Laws of any jurisdiction to the extent necessary to consummate any of the Contemplated Transactions.

 

Section 4.6 Further Assurances .

 

(a) Upon the terms and subject to the conditions herein provided, each of the parties hereto agrees to use its commercially reasonable efforts to take or cause to be taken all actions, and to do or cause to be done, and to assist and cooperate with the other parties hereto in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Contemplated Transactions.

 

(b) The Company and the Unitholders will use their commercially reasonable efforts to have employees of the Company identified by Holdings, if any, execute and deliver at will employment letters with the Company on terms and conditions acceptable to Holdings.

 

ARTICLE V

ADDITIONAL AGREEMENTS

 

Section 5.1 Acquisition Proposals . Neither the Company nor the Unitholders will, nor will either of them authorize or permit any officer, director, employee, consultant or contractor or any investment banker, attorney, accountant or other agent or Representative of the Company or the Unitholders acting on either of their behalf to, directly or indirectly, (a) solicit, initiate or intentionally encourage the submission of any Acquisition Proposal or (b) participate in any discussions or negotiations regarding, or furnish to any Person any information in respect of, or take any other action to facilitate, any Acquisition Proposal or any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal. Immediately after the execution and delivery of this Agreement, each of the Company and the Unitholders will, and will cause their respective officers, directors, employees, investment bankers, attorneys, accountants and other agents and Representatives to, cease and terminate any existing activities, discussions or negotiations with any parties conducted heretofore in respect of any possible Acquisition Proposal and will promptly inform Holdings of the receipt of any subsequent Acquisition Proposal. Each of the Company and the Unitholders will take all necessary steps to promptly inform the individuals or entities referred to in the first sentence of this Section 5.1 of the obligations undertaken in this Section 5.1. “ Acquisition Proposal ” means an inquiry, offer or proposal regarding any of the following (other than the Contemplated Transactions) involving the Company: (i) any merger, consolidation, share exchange, recapitalization, business combination or other similar transaction; (ii) any sale of Units or other equity interests or securities, (iii) any sale, lease, exchange, mortgage, pledge, Transfer or other disposition of all or any material portion of its assets in a single transaction or series of transactions; or (iv) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing.

 

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Section 5.2 Public Announcements . Each of Holdings, on the one hand, and the Company and the Unitholders, on the other hand, will consult with one another before issuing any press release or otherwise making any public statements in respect of any of the Contemplated Transactions, including the Unit Purchase, and will not issue any such press release or make any such public statement without the prior written consent of the other party; provided , however , that any party may at any time make disclosures regarding the Contemplated Transactions if it is advised by legal counsel that such disclosure is required under applicable Law or by a Governmental Entity, in which case the disclosing party will consult with the other parties hereto prior to such disclosure.

 

Section 5.3 Indemnification .

 

(a) Indemnification by the Unitholders . Subject to the other terms of this Section 5.3, the Unitholders will defend, indemnify and hold harmless Holdings, its Affiliates and each of Holdings’ and its Affiliates’ respective Representatives (collectively, the “Holdings Indemnified Parties” ), from and against and in respect of any and all losses, liabilities, obligations, claims, actions, damages, judgments, penalties, fines, settlements and expenses, including reasonable attorneys’ fees (collectively, “Losses” ), incurred by any of the Holdings Indemnified Parties arising out of, based upon or related to (i) any inaccuracy or breach of any of the representations or warranties made by the Company and/or the Unitholders in this Agreement, (ii) any breach of or failure to comply with any covenant or agreement made by the Company and/or the Unitholders in this Agreement, or (iii) any Company Taxes for any Tax period (or portion thereof) ending on or prior to the Closing Date, excluding 50% of any Transfer Taxes incurred in connection with this Agreement or any of the Contemplated Transactions. “ Transfer Taxes ” shall mean any transfer, documentary, sales, use, stamp, registration and other substantially similar Taxes and fees.

 

(b) Indemnification by Holdings . Subject to the other terms of this Section 5.3, Holdings will defend, indemnify and hold harmless the Unitholders, their respective Affiliates and each of the Unitholders’ and their respective Affiliates’ respective Representatives (collectively, the “Unitholders Indemnified Parties” ) from and against and in respect of any and all Losses incurred by any of the Unitholders Indemnified Parties arising out of, based upon or related to (i) any inaccuracy or breach of any of the representations or warranties made by Holdings in this Agreement, or (ii) any breach of or failure to comply with any covenant or agreement made by Holdings in this Agreement.

 

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(c) Indemnification Procedure .

 

(i) The Person seeking indemnification under this Section 5.3 (the “ Indemnified Party ”) shall give to the party(ies) from whom indemnification is sought (the “ Indemnifying Party ”) prompt written notice of any third-party claim which may give rise to any indemnity obligation under this Section 5.3, and the Indemnifying Party will have the right to assume the defense of any such claim through counsel of its own choosing, by so notifying the Indemnified Party within 10 days of receipt of the Indemnified Party’s written notice; provided , however , that such counsel shall be reasonably satisfactory to the Indemnified Party. Failure of the Indemnified Party to give prompt notice shall not affect the Indemnifying Party’s indemnification obligations hereunder except to the extent the Indemnifying Party is materially prejudiced by such failure. If the Indemnified Party desires to participate in any such defense assumed by the Indemnifying Party, it may do so at its sole cost and expense; provided , however , that the Indemnified Party will be entitled to participate in any such defense with separate counsel at the expense of the Indemnifying Party if, in the reasonable judgment of counsel to the Indemnified Party, a conflict or potential conflict exists, or there are separate or additional defenses available to the Indemnified Party, that would make such separate representation advisable. If the Indemnifying Party declines to assume any such defense or fails to diligently pursue any such defense, then the Indemnifying Party will be liable for all reasonable costs and expenses incurred by the Indemnified Party in connection with investigating, defending, settling and/or otherwise dealing with such claim, including reasonable fees and disbursements of counsel. The parties hereto agree to cooperate with each other in connection with the defense of any such claim. The Indemnifying Party will not, without the prior written consent of the Indemnified Party, settle, compromise, or consent to the entry of any judgment with respect to any such claim, unless such settlement, compromise or judgment (A) does not result in the imposition of a consent order, injunction or decree that would restrict the future activity or conduct of the Indemnified Party or any Affiliate thereof, (B) does not involve any remedies other than monetary damages, and (C) includes an unconditional release of the Indemnified Party and its Affiliates for all liability arising out of such claim and any related claim. The Indemnified Party will not, without the prior written consent of the Indemnifying Party, which will not be unreasonably withheld, delayed or conditioned, settle, compromise, or consent to the entry of any judgment with respect to any such claim.

 

(ii) If an indemnification claim by any Indemnified Party is not disputed by the Indemnifying Party within 20 days after the Indemnifying Party’s having received written notice thereof, or has been resolved by a Law of a Governmental Entity, by a settlement of the indemnification claim in accordance with Section 5.3(c)(i), or by agreement of the Indemnified Party and the Indemnifying Party (any of the foregoing, a “Resolution” ), then (A) in the case of indemnification under Section 5.3(b), Holdings will pay to the Unitholders Indemnified Party promptly following such Resolution an amount equal to the Losses of such Unitholders Indemnified Party as set forth in such Resolution, or (B) in the case of indemnification under Section 5.3(a), Holdings will offset against the Stock Consideration (by the forfeiture of Holdings Shares proportionally by the Unitholders) an amount equal to the Losses of the Holdings Indemnified Party as set forth in such Resolution; provided , that if the amount of such Losses exceeds the amounts to be due (and not previously offset as provided herein), then any such excess shall be the obligation of the Unitholders and shall be paid to such Holdings Indemnified Party promptly following such Resolution.

 

(d) Limitations .

 

(i) The foregoing indemnification obligations under Section 5.3(a)(i) and 5.3(b)(i) will survive the consummation of the Unit Purchase until the second anniversary of the Closing Date; provided , however , that the right to indemnification arising out of, based upon or related to any inaccuracy or breach of any of the representations or warranties contained in Sections 2.1, 2.13, 2.19, 2.2, 2.3, 2.4, 2.5, 2.20, 3.1, 3.2, 3.3, 3.5 and the first sentence of Section 2.14(a) will survive until 60 days after the expiration of the applicable statute of limitations, including any extensions thereof, and provided , further , that claims first asserted in writing within the applicable survival period will not thereafter be barred.

 

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(ii) Except for any indemnification claims arising out of, based upon or related to fraud or intentional misrepresentation, or any indemnification claims arising out of, based upon or related to any of the Fundamental Representations (none of which are subject to the limitations in this Section 5.3(d)(ii)), the Unitholders will have no liability to the Holdings Indemnified Parties for indemnification claims brought under Section 5.3(a)(i) until the total amount of Losses in respect of indemnification claims under such section exceeds $25,000 in the aggregate, and then the Holdings Indemnified Parties will be entitled to recover all such amounts, including the original $25,000.

 

(iii) Except for any indemnification claims arising out of, based upon or related to fraud or intentional misrepresentation, or any indemnification claims arising out of, based upon or related to any of the Fundamental Representations (none of which will be counted towards the Claims Cap), the maximum liability of the Unitholders for any and all Losses in respect of indemnification claims brought under Section 5.3(a)(i) shall be limited to an amount equal to $____________ (the “Claims Cap” ).

 

(iv) Except for any indemnification claims arising out of, based upon or related to fraud or intentional misrepresentation, or any indemnification claims arising out of, based upon or related to any of the Fundamental Representations (none of which are subject to the limitations in this Section 5.3(d)(iv)), Holdings will have no liability to the Unitholders Indemnified Parties for indemnification claims brought under Section 5.3(b)(i) until the total amount of Losses in respect of indemnification claims under such section exceeds $25,000 in the aggregate, and then the Unitholders Indemnified Parties will be entitled to recover all such amounts, including the original $25,000.

 

(v) Except for any indemnification claims arising out of, based upon or related to fraud or intentional misrepresentation, or any indemnification claims arising out of, based upon or related to any of the Fundamental Representations (none of which will be counted towards the Claims Cap), the maximum liability of Holdings for any and all Losses in respect of indemnification claims brought under Section 5.3(b)(i) shall be limited to an amount equal to the Claims Cap.

 

(vi) The right of an Indemnified Party to indemnification hereunder will not be affected by any investigation conducted, or any knowledge acquired (or capable or being acquired), at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy of, or compliance with, any of the representations, warranties, covenants or agreements set forth in this Agreement.

 

(vii) For purposes of this Section 5.3, the terms “material” and “Company Material Adverse Effect”, as such terms are used in any representation or warranty contained in Article II or III, shall be disregarded and, for purposes of this Section 5.3, such representations and warranties shall be deemed to be not qualified by such terms.

 

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(viii) In calculating the amount of Losses recoverable pursuant to this Section 5.3, the amount of such Losses shall be reduced by (A) any insurance proceeds actually received by the Indemnified Party from any unaffiliated insurance carrier offsetting the amount of such Loss, net of any expenses incurred by the Indemnified Party in obtaining such insurance proceeds (including the payment of a deductible with respect to the same and any premium increase directly attributable thereto), and (B) any recoveries actually received by the Indemnified Party from other Persons pursuant to indemnification (or otherwise) with respect thereto, net of any expenses incurred by the Indemnified Party in obtaining such payment. If any Losses for which indemnification payments have actually been received by the Indemnifying Party hereunder are subsequently reduced by any insurance payment or other recovery actually received from another Person, the Indemnified Party shall promptly remit the amount of such recovery to the applicable Indemnifying Party (up to the amount of the payment by the applicable Indemnifying Party, after deducting therefrom the full amount of the expenses incurred by such Indemnified Party (i) in procuring such recovery or (ii) in connection with such indemnification to the extent required to be, but which have not been, paid or reimbursed).

 

(ix) Following the Closing Date, the sole and exclusive remedy of the Holdings Indemnified Parties and the Unitholders Indemnified Parties for any of the matters set forth in this Section 5.3 shall be indemnification in accordance with this Section 5.3, except with respect to any claim arising out of, based upon or related to fraud or intentional misrepresentation, a breach of any of the covenants set forth in Section 5.5 or as otherwise provided in Section 8.8. Each Indemnified Party entitled to indemnification hereunder shall use commercially reasonable efforts to mitigate Losses for which it seeks indemnification hereunder, and the costs and expenses incurred in connection with such mitigation efforts shall be deemed Losses for purposes of this Section 5.3.

 

(e) The parties to this Agreement agree to treat any indemnity payment made pursuant to this Section 5.3 as an adjustment to the Total Consideration for U.S. federal, state and local income tax purposes.

 

Section 5.4 Notification of Certain Matters . From the date of this Agreement to the Closing, each of the Company and the Unitholders will give prompt notice to Holdings, and Holdings will give prompt notice to the Company and the Unitholders, of (a) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence of which would be likely to cause any representation or warranty made by it or them contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Closing, (b) any failure of the Company, the Unitholders or Holdings, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it or them hereunder, (c) any notice or other communication received from any third party alleging that the consent of such third party is or may be required in connection with any of the Contemplated Transactions, or (d) in the case of the Company, any facts or circumstances that could reasonably be expected to result in a Company Material Adverse Effect; provided, however , that the delivery of any notice pursuant to this Section 5.4 will not cure such breach or non-compliance or limit or otherwise affect the rights, obligations or remedies available hereunder to the party receiving such notice.

 

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Section 5.5 Non-Competition . As a material inducement to Holdings’ consummation of the Contemplated Transactions, including Holdings’ acquisition of the goodwill associated with the business of the Company, the Unitholders agree as follows:

 

(a) The Unitholders will not, for a period of three (3) years following the Closing Date (computed by excluding from such computation any time during which any of the Unitholders is found by a court of competent jurisdiction to have been in violation of any provision of this Section 5.5(a)) (the “ Restricted Period ”), directly or indirectly, for itself or on behalf of or in conjunction with any other Person, engage in, invest in or otherwise participate in (whether as an owner, employee, officer, director, manager, consultant, independent contractor, agent, partner, advisor, or in any other capacity) any business that competes with the business of the Company (such business, the “ Restricted Business ”) in any Restricted Area, or at any time following the Closing Date make any use of any Company Intellectual Property other than in connection with the business of the Company. Notwithstanding the above, the foregoing covenant shall not be deemed to prohibit the acquisition as a passive investment of not more than one percent (1%) of the capital stock of a competing business whose stock is traded on a national securities exchange or over-the-counter market.

 

(b) The Unitholders will not, for a period of three (3) years following the Closing Date (computed by excluding from such computation any time during which any of the Unitholders is found by a court of competent jurisdiction to have been in violation of any provision of this Section 5.5(b)), directly or indirectly, for itself or on behalf of or in conjunction with any other Person, (i) solicit or hire (or assist or encourage any other Person to solicit or hire), or otherwise interfere in any manner with the employment or consulting relationship of, any Person who is an employee or consultant of any of Holdings, the Company or any of Holdings’ other subsidiaries (each, a “ Restricted Entity ”), other than by general public advertisement or other such general solicitation not specifically targeted at any such Person, (ii) induce or request any customer of any Restricted Entity to reduce, cancel or terminate its business with a Restricted Entity or otherwise interfere in any manner in any Restricted Entity’s business relationship with any of its customers, or (iii) solicit or accept business from any customer of any Restricted Entity in connection with a Restricted Business. For purposes of this Section 5.5(b), a Person shall be deemed to be an employee, consultant or customer of any Restricted Entity if any such relationship existed or exists at any time (A) during the thirty (30) days prior to the execution of this Agreement or (B) after the Closing Date and during the operation of this provision, and any such Person shall cease to have the applicable status one year after the termination of any such relationship.

 

(c) The Unitholders agree that the foregoing covenants are reasonable with respect to their duration, geographic area and scope, to protect, among other things, Holdings’ acquisition of the goodwill associated with the business of the Company. If a judicial or arbitral determination is made that any provision of this Section 5.5 constitutes an unreasonable or otherwise unenforceable restriction against the Unitholders, then the provisions of this Section 5.5 shall be rendered void with respect to the Unitholders only to the extent such judicial or arbitral determination finds such provisions to be unenforceable. In that regard, any judicial or arbitral authority construing this Section 5.5 shall be empowered to sever any prohibited business activity, time period or geographical area from the coverage of any such agreements and to apply the remaining provisions of this Section 5.5 to the remaining business activities, time periods and/or geographical areas not so severed. Moreover, in the event that any provision, or the application thereof, of this Section 5.5 is determined not to be specifically enforceable, Holdings shall nevertheless be entitled to recover monetary damages as a result of the breach of such agreement.

 

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(d) The Unitholders acknowledge that they have carefully read and considered the provisions of this Section 5.5. The Unitholders acknowledge that they have received and will receive sufficient consideration and other benefits to justify the restrictions in this Section 5.5. The Unitholders also acknowledge and understand that these restrictions are reasonably necessary to protect interests of Holdings, including protection of the goodwill acquired, and the Unitholders acknowledge that such restrictions will not prevent them from conducting businesses that are not included in the Restricted Business set forth in this Section 5.5 during the periods covered by the restrictive covenants set forth in this Section 5.5. The Unitholders also acknowledge that the Contemplated Transactions constitute full and adequate consideration for the execution and enforceability of the restrictions set forth in this Section 5.5.

 

Section 5.6 Tax Covenants .

 

(a) To the extent permitted under applicable Law, the Company and the Unitholders shall close or terminate (or cause to be closed or terminated), as of the close of business on the Closing Date, each Tax period relating to any Company Tax or Company Tax Return.

 

(b) To the extent not filed prior hereto, the Unitholders will prepare or cause to be prepared, in accordance with applicable Law and consistent with past practice of the Company, each Company Tax Return for each Pre-Closing Period. At least twenty (20) days prior to the date on which a Company Tax Return for a Pre-Closing Period is due (after taking into account any valid extension), the Unitholders will deliver such Company Tax Return to Holdings. No later than five (5) days prior to the date on which a Company Tax Return for a Pre-Closing Period is due (after taking into account any valid extension), Holdings may make reasonable changes and revisions to such Company Tax Return. The Unitholders will cooperate fully in making any reasonable changes and revisions to any Company Tax Return for a Pre-Closing Period. At least three (3) days prior to the date on which a Company Tax Return (as reasonably revised by Holdings) for a Pre-Closing Period is due (after taking into account any valid extension), the Unitholders will pay to Holdings an amount equal to any Company Tax due with respect to such Company Tax Return, and Holdings will file such Company Tax Return.

 

(c) Holdings will prepare and file each Company Tax Return for any Post-Closing Period or any Straddle Period in accordance with applicable Law. At least twenty (20) days prior to the date on which a Company Tax Return for a Straddle Period is due (after taking into account any valid extension), Holdings will deliver such Company Tax Return to the Unitholders. No later than five (5) days prior to the date on which a Company Tax Return for any Straddle Period is due (after taking into account any valid extension), the Unitholders may make reasonable changes and revisions to such Company Tax Return. Holdings will cooperate fully in making any reasonable changes and revisions to any Company Tax Return for any Straddle Period. At least three (3) days prior to the date on which such Company Tax Return (as reasonably revised by the Unitholders) for a Straddle Period is due (after taking into account any valid extension), the Unitholders will pay to Holdings an amount equal to the Company Tax on such Company Tax Return to the extent such Company Tax relates, as determined under Section 5.6(d), to the portion of such Straddle Period ending on and including the Closing Date.

 

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(d) In the case of a Company Tax payable for a Straddle Period, the portion of such Company Tax that relates to the portion of the Straddle Period ending on the Closing Date will (i) in the case of a Tax other than a Tax based upon or related to income, employment, sales or other transactions, franchise or receipts, be deemed to be the amount of such Tax for the entire Straddle Period multiplied by a fraction the numerator of which is the number of days in the portion of the Straddle Period ending on the Closing Date and the denominator of which is the number of all of the days in the Straddle Period; and (ii) in the case of a Tax based upon or related to income, employment, sales or other transactions, franchise or receipts, be deemed equal to the amount that would be payable if the Straddle Period ended on the Closing Date and such Tax was based on an interim closing of the books as of the close of business on the Closing Date.

 

(e) Each party will promptly forward to the others a copy of all written communications from any Governmental Entity relating to any Company Tax or Company Tax Return for a Pre-Closing Period or Straddle Period. Upon reasonable request, each party will make available to the others all information, records and other documents relating to any Company Tax or any Company Tax Return for a Pre-Closing Period or Straddle Period. The parties will preserve all information, records and other documents relating to a Company Tax or a Company Tax Return for a Pre-Closing Period or Straddle Period until the date that is six (6) months after the expiration of the statute of limitations applicable to the Company Tax or the Company Tax Return. Prior to transferring, destroying or discarding any information, records or documents relating to any Company Tax or any Company Tax Return for a Pre-Closing Period or Straddle Period, the Unitholders will give to Holdings reasonable written notice and, to the extent Holdings so requests, the Unitholders will permit Holdings to take possession of all such information, records and documents. In addition, the parties will cooperate with each other in connection with all matters relating to the preparation of any Company Tax Return or the payment of any Company Tax for a Pre-Closing Period or Straddle Period and in connection with any audit, action, suit, claim or proceeding relating to any such Company Tax or Company Tax Return, and Holdings will have the right to control any such audit, action, suit, claim or proceeding. Nothing in this Section 5.6(e) will affect or limit any indemnity or similar provision or any representations, warranties or obligations of any of the parties. Each party will bear its own costs and expenses in complying with the provisions of this Section 5.6(e).

 

(f) Holdings and the Unitholders shall each be liable for and each shall pay when due fifty percent (50%) of all Transfer Taxes incurred in connection with this Agreement or any of the Contemplated Transactions. The party required by any applicable Law to file a Tax Return or other documentation with respect to such Transfer Taxes shall do so within the time period prescribed by Law, and the other party shall promptly reimburse such party for any Transfer Taxes for which the other party is responsible upon receipt of notice that such Transfer Taxes are payable. To the extent permitted by any applicable Law, the parties hereto shall cooperate in taking reasonable steps to minimize any Transfer Taxes.

 

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(g) The Unitholders will not make or request a refund of any Company Tax or with respect to any Company Tax Return or amend any Company Tax Return, unless Holdings, in its reasonable discretion, consents in writing thereto. Holdings will not be obligated to seek or request any refund of any Company Tax or amend any Company Tax Return, unless Holdings is reimbursed for out-of-pocket costs incurred in preparing such Tax Return and Holdings determines in its reasonable discretion that neither Holdings nor any of its subsidiaries will be adversely impacted by filing such Tax Return.

 

(h) Any Tax sharing or similar agreement with respect to or involving the Company will be terminated as of the Closing Date, without liability to the Company, and will have no further effect for any year (whether the current year, a future year or a past year). Any amounts payable under any Tax sharing or similar agreement will be cancelled as of the Closing Date, without any liability to the Company.

 

Section 5.7 Retention Agreements . Retention Agreements shall be executed at, and shall be a condition precedent for, Closing for each of Doug Bouldin and Sandra Miller (the “ Employee Unitholders ”) Under their Retention Agreements, the form of which is attached as Exhibit A hereto, the Employee Unitholders shall be entitled to receive a base salary. The Retention Agreements shall have a three (3) year term and provide for other terms customary for retention arrangements of other Holdings management; the final terms of which will be mutually agreed upon by both Holdings and each of the Employee Unitholders. No rights to employment will exist unless and until the Retention Agreements are executed and delivered.

 

 

 

ARTICLE VI

CONDITIONS TO CONSUMMATION OF THE UNIT PURCHASE

 

Section 6.1 Conditions to Each Party’s Obligations to Effect the Unit Purchase . The respective obligations of each party to consummate the Contemplated Transactions are subject to the fulfillment at or prior to the Closing of each of the following conditions, any or all of which may be waived in writing in whole or in part by the party being benefited thereby, to the extent permitted by applicable Law:

 

(a) Holdings, the Company and the Unitholders shall have timely obtained from each Governmental Entity all authorizations, approvals, licenses, permits, waivers and consents necessary for consummation of any of the Contemplated Transactions, as determined by Holdings.

 

(b) There shall not be in effect any Law of any Governmental Entity of competent jurisdiction restraining, enjoining, making illegal or otherwise preventing or prohibiting consummation of any of the Contemplated Transactions, or imposing any limitation on the operation or conduct of the business of the Company or Holdings after the Closing, and no Governmental Entity shall have instituted or threatened to institute any proceeding seeking any such Law.

 

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(c) No action, suit or proceeding shall have been instituted or threatened against any of the parties hereto seeking to restrain, materially delay or prohibit, or to obtain substantial damages or other injunctive or other equitable relief with respect to, the consummation of any of the Contemplated Transactions.

 

Section 6.2 Conditions to the Obligation of Holdings . The obligation of Holdings to consummate the Contemplated Transactions is subject to the fulfillment at or prior to the Closing of each of the following additional conditions, any or all of which may be waived in writing in whole or part by Holdings to the extent permitted by applicable Law:

 

(a) The representations and warranties of the Company and of the Unitholders contained herein qualified as to materiality or Company Material Adverse Effect shall be true and correct in all respects and those not so qualified shall be true and correct in all material respects as of the date hereof and at and as of the Closing Date as though such representations and warranties were made at and as of such date (except for representations and warranties made as of a specified date, which shall speak only as of the specified date).

 

(b) Each of the Company and the Unitholders shall have performed or complied with in all material respects all agreements, covenants and conditions contained herein required to be performed or complied with by it or them prior to or at the time of the Closing.

 

(c) Since December 31, 2016, there shall not have been any event, change, effect, occurrence or circumstance that, individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect

 

(d) No action, suit or proceeding shall be pending or threatened against the Company.

 

(e) The Company and the Unitholders shall have delivered to Holdings certificates, dated the date of the Closing, signed by an executive officer of the Company and by the Unitholders, certifying as to the fulfillment of the conditions specified in Section 6.2(a), Section 6.2(b), Section 6.2(c) and Section 6.2(d).

 

(f) The Company Consents and the Holdings Consents shall have been obtained.

 

(g) Holdings shall have completed its due diligence investigation of the Company to the satisfaction of Holdings in its sole discretion.

 

(h) The Company shall have delivered to Holdings an income statement for the period of June 1, 2017 through May 31, 2018, which income statement shall be complete and correct and shall not deviate in any material respect from GAAP.

 

(i) The Retention Agreements shall have been executed and delivered by the Company and the Employee Unitholders.

 

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(j) All proceedings of the Company and the Unitholders that are required in connection with the Contemplated Transactions shall be reasonably satisfactory in form and substance to Holdings and its counsel, and Holdings and its counsel shall have received such evidence of any such proceedings, good standing certificates (if applicable), organizational and governing documents, certified if requested, as may be reasonably requested and is customary in transactions such as this one.

 

(k) The Unitholders shall have executed and delivered to Holdings a lock-up agreement, in customary form, with respect to restricting the sale or otherwise transfer of the Holding Shares for 180 days from the date of a prospectus for an initial public offering by Holdings, as and to the extent requested by the underwriter of such public offering.

 

(l) All agreements set forth on Section 6.2(l) of the Company Disclosure Schedule shall have been terminated, without any further liability or obligation of any of the Company thereunder, and shall cease to be of force or effect.

 

Section 6.3 Conditions to the Obligations of the Company and the Unitholders . The respective obligations of the Company and the Unitholders to consummate the Contemplated Transactions are subject to the fulfillment at or prior to the Closing of each of the following additional conditions, any or all of which may be waived in writing in whole or in part by the Company or the Unitholders to the extent permitted by applicable Law:

 

(a) The representations and warranties of Holdings contained herein qualified as to materiality shall be true and correct in all respects and those not so qualified shall be true and correct in all material respects as of the date hereof and at and as of the Closing Date as though such representations and warranties were made at and as of such date (except for representations and warranties made as of a specified date, which shall speak only as of the specified date).

 

(b) Holdings shall have performed or complied with in all material respects all agreements, covenants and conditions contained herein required to be performed or complied with by it prior to or at the time of the Closing.

 

(c) Holdings shall have delivered to the Unitholders a certificate, dated the Closing Date, signed by an executive officer of Holdings, certifying as to the fulfillment of the conditions specified in Section 6.3(a) and Section 6.3(b).

 

Section 6.4 Closing Deliveries . At Closing, the following documents will be delivered, or caused to be delivered, to the parties as set forth in each subsection:

 

(a) The Employee Unitholders shall deliver to Holdings the Retention Agreements.

 

(b) Holdings shall deliver to the Unitholders stock certificates evidencing the Stock Consideration.

 

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ARTICLE VII

TERMINATION

 

Section 7.1 Termination by Mutual Agreement . This Agreement may be terminated and the Unit Purchase may be abandoned at any time prior to the Closing, by mutual written consent of Holdings and the Unitholders.

 

Section 7.2 Termination by either Holdings or the Unitholders . This Agreement may be terminated and the Unit Purchase may be abandoned at any time prior to the Closing by Holdings or the Unitholders if:

 

(a) the Unit Purchase shall not have been consummated by December 1, 2018;

 

(b) any Law permanently restraining, enjoining or otherwise prohibiting or preventing consummation of the Unit Purchase shall become final and non-appealable; or

 

provided , however , that the right to terminate this Agreement pursuant to this Section 7.2 shall not be available to any party (and in the case of the Unitholders, including the Company) that has breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the occurrence of the failure of the Unit Purchase to be consummated.

 

Section 7.3 Termination by the Unitholders . This Agreement may be terminated and the Unit Purchase may be abandoned at any time prior to the Closing by the Unitholders, if any representation of Holdings contained in this Agreement shall have been inaccurate, or Holdings shall have breached any representation, warranty, covenant or other agreement contained in this Agreement, in any such event that would give rise to the failure of a condition set forth in Section 6.3(a) or (b) hereof, which inaccuracy or breach cannot be or has not been cured within twenty (20) days after the giving of written notice by the Unitholders to Holdings thereof.

 

Section 7.4 Termination by Holdings . This Agreement may be terminated and the Unit Purchase may be abandoned at any time prior to the Closing by Holdings, if any representation of the Company and/or the Unitholders contained in this Agreement shall have been inaccurate, or the Company and/or the Unitholders shall have breached any representation, warranty, covenant or other agreement contained in this Agreement, in any such event that would give rise to the failure of a condition set forth in Section 6.2(a) or (b) hereof, which inaccuracy or breach cannot be or has not been cured within twenty (20) days after the giving of written notice by Holdings to the Unitholders thereof.

 

Section 7.5 Effect of Termination and Abandonment . In the event of the termination of this Agreement and the abandonment of the Unit Purchase pursuant to this Article VII, this Agreement (other than this Section 7.5, Section 5.2 and Article VIII) shall become void and of no effect with no liability on the part of any party hereto (or of any of its directors, officers, employees, consultants, contractors, agents, attorneys or other Representatives); provided, however , that no such termination shall relieve any party hereto of any liability or damages resulting from any willful breach of this Agreement by such party.

 

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ARTICLE VIII

MISCELLANEOUS

 

Section 8.1 Entire Agreement; Assignment .

 

(a) This Agreement (including the exhibits hereto, the Holdings Disclosure Schedule and the Company Disclosure Schedule) constitutes the entire agreement among the parties hereto in respect of the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, among the parties in respect of the subject matter hereof.

 

(b) Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by the Company or the Unitholders, on the one hand, or Holdings, on the other hand, without the prior written consent of the other party(ies). Any assignment in violation of the preceding sentence shall be void.

 

Section 8.2 Notices . All notices, requests, demands, instructions and other documents and communications to be given under this Agreement shall be in writing and shall be deemed given (a) three (3) Business Days following sending by registered or certified mail, postage prepaid, (b) when sent if sent by facsimile or email, provided that in the case of facsimile receipt is confirmed and in the case of e-mail the e-mail is not returned with an undeliverable, delayed or similar message, (c) when delivered, if delivered personally to the intended recipient, and (d) one Business Day following sending by overnight delivery via a nationally recognized overnight courier service, and in each case, addressed to a party at the following address for such party:

 

if to Holdings, to:    
    IMAC Holdings Corp.
    2725 James Sanders Blvd.
    Paducah, Kentucky 42001
    Attention: Mr. Jeff Ervin, Chief Executive Officer
    Facsimile:
    E-mail: jervin@imacrc.com
     
with a copy (which shall    
not constitute notice) to:   Olshan Frome Wolosky LLP
    1325 Avenue of the Americas, 15 th Floor
    New York, New York 10019
    Attention: Spencer G. Feldman, Esq.
    Facsimile: (212) 451-2222
    Email: sfeldman@olshanlaw.com
     
if to the Company    
or the Unitholders, to:   IMAC of St. Louis LLC
    13353 Olive Blvd.
    Chesterfield, Missouri 63017
    Attention: Legal Dept. Fax:
    Email: jeff@ozziesmithcenter.com

 

or to such other address, email address or facsimile number as the party to whom notice is given shall have previously furnished to the other parties in writing in the manner set forth above.

 

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Section 8.3 Governing Law; Jurisdiction; WAIVER OF JURY TRIAL . This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware, without giving effect to the choice of law principles thereof to the extent that the application of the Laws of another jurisdiction would be required thereby. All actions, suits or proceedings arising out of or relating to this Agreement or any of the other Transaction Documents shall be heard and determined exclusively in any Delaware state or federal court. The parties hereto hereby (a) submit to the exclusive jurisdiction of any state or federal court sitting in Delaware for the purpose of any action, suit or proceeding arising out of or relating to this Agreement or any of the other Transaction Documents, and (b) irrevocably waive, and agree not to assert by way of motion, defense, or otherwise, in any such action, suit or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the action, suit or proceeding is brought in an inconvenient forum, that the venue of the action, suit or proceeding is improper, or that this Agreement, any of the other Transaction Documents or any of the Contemplated Transactions may not be enforced in or by any of the above-named courts. Each of the parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. Each of the parties hereto hereby consents to process being served by any party to this Agreement in any suit, action or proceeding by delivery of a copy thereof in accordance with the provisions of Section 8.2. EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING ARISING HEREUNDER.

 

Section 8.4 Expenses . Except as otherwise provided by this Agreement, all fees and out-of-pocket expenses incurred in connection with this Agreement or any of the other Transaction Documents or the consummation of any of the Contemplated Transactions shall be paid by the party incurring the same.

 

Section 8.5 Descriptive Headings . The descriptive headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement.

 

Section 8.6 Parties in Interest . This Agreement shall be binding upon and inure solely to the benefit of each party hereto and its successors and permitted assigns, and, except as provided in Section 5.3, nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement.

 

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Section 8.7 Severability . The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

 

Section 8.8 Specific Performance . Notwithstanding Section 5.3(d)(ix), the parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to seek an injunction or injunctions to prevent any breach or threatened of this Agreement and to enforce specifically the terms and provisions of this Agreement, without the requirement to post a bond or other security, this being in addition to any other remedy to which they are entitled at law or in equity.

 

Section 8.9 Counterparts . This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other parties hereto. Facsimile or .pdf signatures shall have the same force and effect as original signatures.

 

Section 8.10 Interpretation .

 

(a) The words “hereof,” “herein,” “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, paragraph, exhibit and schedule references are to the articles, sections, paragraphs, exhibits and schedules of this Agreement unless otherwise specified. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” All terms defined in this Agreement shall have the defined meanings contained herein when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, qualified or supplemented, including (in the case of agreements and instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and all attachments thereto and instruments incorporated therein. References to a Person are also to its successors and permitted assigns.

 

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(b) The phrases “the date of this Agreement,” “the date hereof,” and terms of similar import, unless the context otherwise requires, shall be deemed to refer to the date set forth in the opening paragraph of this Agreement.

 

(c) The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

 

Section 8.11 Amendment and Modification; Waiver . This Agreement can be amended, supplemented or changed, and any provision hereof can be waived, only by written instrument making specific reference to this Agreement signed by Holdings, the Company and the Unitholders. No action taken pursuant to this Agreement, including any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement contained herein. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach. No failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

 

Section 8.12 Definitions . As used herein,

 

“Affiliate” has the meaning given to it in Rule 12b-2 of Regulation 12B under the Exchange Act.

 

“Business Day” means any day other than a Saturday, a Sunday or a day on which banks in the State of New York generally are closed for regular banking business.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Collections” mean the gross selling price received by the Company from the sale of its regeneration-related services and associated products, less (a) normal or customary trade, cash, prompt payment and/or quantity discounts, (b) refunds, returns, claims or allowances, rebates and chargebacks, and (c) fees and commissions paid to third-party dealers, distributors and other selling agents (other than employees of the Company). A regeneration-related service or associated product is considered sold hereunder when paid for, if paid for before delivery, or when shipped or mailed or otherwise delivered. All sales shall be bona fide, arm’s-length transactions.

 

“Company Consents” means each of the consents, waivers, approvals, exemptions, declarations, licenses, authorizations, permits, registrations, filings and notifications of or with each Governmental Entity or under or pursuant to each Contract listed in Section 2.5 of the Company Disclosure Schedule required to be made or obtained in connection with the execution or delivery of any of the Transaction Documents by the Company or the Unitholders, the performance by the Company or the Unitholders of any of its or their obligations thereunder, or the consummation of any of the Contemplated Transactions.

 

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“Company Material Adverse Effect” means any event, development, change, circumstance, effect, occurrence or condition that, either individually or in the aggregate, (i) has caused or would reasonably be expected to cause a material adverse effect on the business, operations, financial condition or results of operations of the Company, or (ii) prevents or materially impairs or delays the ability, or would reasonably be expected to prevent or materially impair or delay the ability, of the Company or the Unitholders to perform any of their respective obligations under any of the Transaction Documents or to consummate any of the Contemplated Transactions.

 

“Company Tax” means any Tax, if and to the extent that the Company is or may be potentially liable under applicable Law, under Contract or on any other grounds (including, but not limited to, as a transferee or successor, under Code Section 6901 or Treasury Regulation Section 1.1502-6 (or similar provision of applicable Law), as a result of any Tax sharing or other agreement, or by operation of Law) for any such Tax.

 

“Company Tax Return” means any Tax Return filed or required to be filed with any Governmental Entity, if, in any manner or to any extent, relating to or inclusive of the Company or any Company Tax.

 

“Contemplated Transactions” means the transactions contemplated by this Agreement and the other Transaction Documents, including the Unit Purchase.

 

“Contract” means any written or oral contract, agreement, license, lease, instrument or note that creates a legally binding obligation.

 

“Encumbrance” means any lien, encumbrance, security interest, claim, charge, surety, mortgage, option, pledge, easement, limitation or restriction (including on any right to vote or Transfer any asset or security) of any nature whatsoever.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Fundamental Representations” means the representations and warranties contained in Sections 2.1, 2.2, 2.3, 2.4, 2.5, 2.13, 2.19, 2.20, 3.1, 3.2, 3.3, 3.5 and the first sentence of Section 2.14(a).

 

“GAAP” means United States generally accepted accounting principles applied on a consistent basis throughout the periods involved.

 

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“Intellectual Property” means all intellectual property rights arising from or in respect of the following: (i) all patents and applications therefor, including continuations, divisionals, provisionals, continuations-in-part, or reissues of patent applications and patents issuing thereon (collectively, “ Patents ”), (ii) all trademarks, service marks, trade names, service names, brand names, trade dress rights, logos, slogans, Internet domain names and individual, entity and business names, together with the goodwill associated with any of the foregoing, and all applications, registrations and renewals thereof (collectively, “ Trademarks ”), (iii) copyrights and registrations and applications therefor, works of authorship and mask work rights (collectively, “ Copyrights ”), (iv) all computer programs and software (including any and all software implementations of algorithms, models and methodologies, whether in source code, object code or other form, but excluding off-the-shelf commercial or shrink-wrap software), databases and compilations (including any and all data and collections of data), and all descriptions, flow-charts and other work product used to design, plan, organize or develop any of the foregoing, screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons, all technology supporting any of the foregoing, and all documentation, including user manuals and other training documentation, related to any of the foregoing (collectively, “ Software ”), and (v) all trade secrets, designs, formulae, algorithms, procedures, methods, techniques, ideas, know-how, research and development, technical data, programs, specifications, processes, inventions (whether patentable or unpatentable and whether or not reduced to practice), creations, improvements and other similar materials, and all recordings, graphs, drawings, reports, analyses and other works of authorship, and other tangible embodiments of the foregoing, in any form, and all related technology.

 

“Knowledge” means the actual knowledge, after reasonable inquiry, of (i) in the case of the Company, of each of the Unitholders, (ii) in the case of the Unitholders, the Unitholders, and (ii) in the case of Holdings, Jeff Ervin and Anthony Bond.

 

“Law” means any order, writ, injunction, decree, judgment, permit, license, ordinance, law, statute, rule, regulation, administrative interpretation, directive or other requirement of any Governmental Entity.

 

“Person” means an individual, corporation, limited liability company, partnership, association, trust, unincorporated organization, other entity or group (as defined in the Exchange Act).

 

“Pre-Closing Period” means any Tax period ending on or before the Closing Date.

 

“Post-Closing Period” means any Tax period beginning after the Closing Date.

 

“Representative” means, with respect to any Person, each of such Person’s Affiliates, directors, officers, employees, partners, members, managers, consultants, advisors, accountants, attorneys, representatives and agents.

 

“Restricted Area” means the States of Kentucky, Missouri, Tennessee and Texas.

 

“Retention Agreements” mean the Retention Agreements between the Company and each of the Employee Unitholders in the form attached hereto as Exhibit A .

 

“Straddle Period” means any Tax period beginning before the Closing Date and ending after the Closing Date.

 

39
 

 

“Tax” means any tax, charge, deficiency, duty, fee, levy, toll or other amount (including any net income, gross income, profits, gross receipts, excise, property, sales, ad valorem, withholding, social security, retirement, excise, employment, unemployment, minimum, alternative, add-on minimum, estimated, severance, stamp, occupation, environmental, premium, capital stock, disability, windfall profits, use, service, net worth, payroll, franchise, license, gains, customs, transfer, recording, registration or other tax) assessed or otherwise imposed by any Governmental Entity or under applicable Law, together with any interest, penalties or any other additions or increases.

 

“Tax Return” means mean any return, election, declaration, report, schedule, information return, document, information, opinion, statement, or any amendment to any of the foregoing (including any consolidated, combined or unitary return and any related or supporting information) with respect to Taxes.

 

“Transaction Documents” means this Agreement and the Retention Agreements.

 

“Transfer” means any sale, assignment, pledge, hypothecation or other disposition or Encumbrance.

 

“Treasury Regulations” means the regulations promulgated under the Code.

 

[Signature Page Follows]

 

40
 

 

IN WITNESS WHEREOF , each of the parties has caused this Agreement to be duly executed on its behalf as of the date first above written.

 

  IMAC HOLDINGS CORP.
   
  By:

/s/ Jeff Ervin

  Name: Jeff Ervin
  Title: Chief Executive Officer

 

  IMAC of ST. LOUIS LLC
   
  By:

/s/ Jeff Ervin

  Name: Jeff Ervin
  Title: Chief Executive Officer

 

  THE UNITHOLDERS:
   
  /s/ Doug Bouldin
  Doug Bouldin
   
  /s/ Jon Ervin
  Jon Ervin
   
  /s/ Sandra Miller
  Sandra Miller
   
  /s/ Matt Wallis
  Matt Wallis

 

41
 

 

 

 

PROMISSORY NOTE

 

Borrower:

IMAC Regeneration Center of Nashville, P.C.

IMAC Regeneration Management of Nashville, LLC

205 N Thompson Lane

Murfreesboro, TN 37129

Lender:

Pinnacle Bank

Brentwood

128 Franklin Rd

Brentwood, TN 37027

 

Principal Amount: $200,000.00 Date of Note: November 15, 2017

 

PROMISE TO PAY. IMAC Regeneration Center of Nashville, P.C.; and IMAC Regeneration Management of Nashville, LLC (“Borrower”) jointly and severally promise to pay to Pinnacle Bank (“Lender”), or order, in lawful money of the United States of America, the principal amount of Two Hundred Thousand & 00/100 Dollars ($200,000.00), together with interest on the unpaid principal balance from November 15, 2017, until paid in full.

 

PAYMENT. Borrower will pay this loan in accordance with the following payment schedule, which calculates interest on the unpaid principal balances as described In the “INTEREST CALCULATION METHOD” paragraph using the interest rates described in this paragraph: 6 monthly consecutive interest payments, beginning December 15, 2017, with interest calculated on the unpaid principal balances using an interest rate of 5.000% per annum based on a year of 360 days; one principal payment of $60,000.00 on June 15, 2018, during which interest continues to accrue on the unpaid principal balances using an interest rate of 5.000% per annum based on a year of 360 days; 59 monthly consecutive principal and interest payments of $2,651.84 each, beginning June 15, 2018, with interest calculated on the unpaid principal balances using an interest rate of 5.000% per annum based on a year of 360 days; and one principal and interest payment of $2,651.83 on May 15, 2023, with interest calculated on the unpaid principal balances using an interest rate of 6.000% per annum based on a year of 360 days. This estimated final payment is based on the assumption that all payments will be made exactly as scheduled; the actual final payment will be for all principal and accrued interest not yet paid, together with any other unpaid amounts under this Note. Notwithstanding the foregoing, the rate of interest accrual described for the principal only payment stream applies only to the extent that no other interest rate for any other payment stream applies. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest then to principal; then to any unpaid collection costs; and then to any late charges. Borrower will pay Lender at Lenders address shown above or at such other place as Lender may designate in writing.

 

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All Interest payable under this Note is computed using this method.

 

PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrowers obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due and may result in Borrowers making fewer payments. Borrower agrees not to send Lender payments marked “paid in full”, ‘Without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lenders rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, Including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: Pinnacle Bank, Attn: Payoff Department, P. O. Box 292487 Nashville, TN 37229-2487.

 

LATE CHARGE. If a payment is 16 days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment.

 

 
Loan No: 90018677

PROMISSORY NOTE

(Continued)

Page 2

 

INTEREST AFTER DEFAULT. Upon default. at Lenders option, and if permitted by applicable law. Lender may add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). Upon default, the interest rate on this Note shall be increased to 20.500% per annum based on a year of 360 days. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

 

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

 

Payment Default. Borrower fails to make any payment when due under this Note.

 

Other Defaults. Borrower fails to comply with or to perform any other tent, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

 

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrowers behalf under this Nate or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

 

Insolvency. The dissolution or termination of Borrowers existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrowers property. any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

 

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrowers accounts. including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, In an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

 

Events Affecting Guarantor. My of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the Indebtedness evidenced by this Note.

 

Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

 

Adverse Change. A materiel adverse change occurs in Borrowers financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

 

Insecurity. Lender in good faith believes itself insecure.

 

LENDERS RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

 

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This Includes, subject to any limits under applicable law, Lenders attorneys’ fees and Lenders legal expenses, whether or not there Is a lawsuit, including attorneys’ fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

 

 
Loan No: 90018677

PROMISSORY NOTE

(Continued)

Page 3

 

JURY WAIVER. Lander and Borrower hereby waive the right to any jury trial In any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

 

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Tennessee without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of Tennessee.

 

CHOICE OF VENUE. If there is a lawsuit. Borrower agrees upon Lenders request to submit to the jurisdiction of the courts of Williamson County. State of Tennessee,

 

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00 If Borrower makes a payment on Borrowers loan and the check or preauthorized charge with which Borrower pays is later dishonored.

 

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrowers accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lenders option, to administratively freeze all such accounts to allow Lender to protect Lenders charge and setoff rights provided in this paragraph.

 

COLLATERAL. Borrower acknowledges this Note Is secured by the following collateral described in the security instrument listed herein: inventory, chattel paper, accounts, equipment, general intangibles, fixtures, standing timber and mineral, oil and gas described in a Commercial Security Agreement dated November 15, 2017.

 

ARBITRATION. Borrower and Lender agree that all disputes, claims and controversies between them whether Individual, Joint, or class In nature, arising from this Note or otherwise, Including without limitation contract and tort disputes, shall be arbitrated pursuant to the Rules of the American Arbitration Association in effect at the time the claim is Bled, upon request of either party. No act to take or dispose of any collateral securing this Note shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement This Includes, without limitation, obtaining Injunctive relief or a temporary restraining order; Invoking a power of sale under any deed of trust or mortgage; obtaining a writ of attachment or imposition of a receiver, or exercising any rights relating to personal property, including taking or disposing of such property with or without judicial process pursuant to Article 9 of the Uniform Commercial Code. Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right, concerning any collateral securing this Note, including any claim to rescind, reform, or otherwise modify any agreement relating to the collateral securing this Note, shall also be arbitrated, provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of any party. Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. Nothing in this Note shall preclude any party from seeking equitable relief from a court of competent jurisdiction. The statute of limitations, estoppel, waiver, lashes, and similar doctrines which would otherwise be applicable In an action brought by a party shall be applicable In any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of an action for these purposes. The Federal Arbitration Act shell apply to the construction, interpretation, and enforcement of this arbitration provision.

 

FINANCIAL STATEMENT AND INFORMATION. Furnish Lender with such financial statements and other related information at such frequencies and in such detail as Lender may request or as required by the Loan Agreement or other related loan documents.

 

CROSS COLLATERAL. As security for any and all of the obligations hereunder, and all of our other indebtedness, obligations and liabilities to you, whether now existing or hereafter incurred, whether absolute or contingent. including any modifications, extensions and renewals thereof, all accrued interest and cost incurred thereon, we grant you a security interest in and hereby transfer and convey to you (a) any and all Documents and any goods covered thereby, and (b) any of our property, real or personal, according to the terms of, and as further described in, our security agreement and/or deed of trust pertaining thereto.

 

 
Loan No: 90018677

PROMISSORY NOTE

(Continued)

Page 4

 

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrowers heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and Its successors and assigns.

 

USURY SAVINGS CLAUSE. It is the intention of Lender and Borrower to comply strictly with all applicable usury laws; and, accordingly, in no event and upon no contingency shall Lender ever be entitled to charge, receive, collect, or apply as interest any interest, fees, charges, or other payments equivalent to interest, in excess of the maximum rate which the Lender may lawfully charge under applicable state and federal statutes and laws from time to time in effect: and. in the event that Lender ever receives, collects, or applies as interest, any such excess, such amount which, but for this provision, would be excessive interest shall be applied to the reduction of the unpaid principal amount of the Note; and, if said principal amount and all lawful interest thereon is paid in full, any remaining excess shall be refunded to Borrower. All interest paid or agreed to be paid shall, to the maximum extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the loan, including any renewals, until payment in full of the principal. Any provision hereof, or of any other agreement between Lender and Borrower, that operates to bind, obligate, or compel Borrower to pay interest in excess of such maximum lawful contract rate shall be construed to require the payment of the maximum rate only. The provisions of this paragraph shall be given precedence over any other provision contained herein or in any other agreement between Lender and Borrower that is in conflict with the provisions of this paragraph.

 

NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES. Borrower may notify Lender if Lender reports any inaccurate information about Borrowers account(s) to a consumer reporting agency. Borrowers written notice describing the specific inaccuracy(ies) should be sent to Lender at the following address: Pinnacle Bank 150 Third Avenue South Nashville, TN 37201.

 

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Each Borrower understands and agrees that, with or without notice to Borrower. Lender may with respect to any other Borrower (a) make one or more additional secured or unsecured loans or otherwise extend additional credit; (b) alter, compromise, renew, extend, accelerate, or otherwise change one or more times the time for payment or other terms of any indebtedness, including increases and decreases of the rate of interest on the indebtedness; (c) exchange. enforce, waive. subordinate. fail or decide not to perfect, and release any security, with or without the substitution of new collateral; (d) apply such security and direct the order or manner of sale thereof, Including without limitation, any non-judicial sale permitted by the terms of the controlling security agreements, as Lender in its discretion may determine; (e) release. substitute, agree not to sue, or deal with any one or more of Borrowers sureties, endorsers, or other guarantors on any terms or in any manner Lender may choose; and (1) determine how, when and what application of payments and credits shall be made on any other indebtedness owing by such other Borrower. Borrower and any other person who signs. guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor. accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeated& and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lenders security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

 

 
Loan No: 90018677

PROMISSORY NOTE

(Continued)

Page 5

 

PRIOR TO SIGNING THIS NOTE, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE EACH BORROWER AGREES TO THE TERMS OF THE NOTE.

 

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

 

BORROWER:

 

IMAC REGENERATION CENTER OF NASHVILLE, P.C.  
     
By: /s/ Jeffrey S. Ervin  
 

Jeffrey S. Ervin, Secretary of IMAC

Regeneration Center of Nashville, P.C.

 

 

IMAC REGENERATION MANAGEMENT OF NASHVILLE, LLC

 

IMAC HOLDINGS, LLC, Member of IMAC

Regeneration Management of Nashville, LLC

 
     
By: /s/ Jeffrey S. Ervin  
  Jeffrey S. Ervin, Member of IMAC Holdings, LLC  

 

     
   

 

 

PROMISSORY NOTE

 

Borrower:   Lender:
IMAC Regeneration Center   Tommy West
2725 James Sanders Blvd.   4235 Byars Rd.
Paducah, KY 42001   Hazel, KY 42049
     
Principal: Up to $101,096.00   Rate: 5.00%
Loan Date: 3/8/2017   Maturity: 12/31/2021

 

PROMISE TO PAY. IMAC Regeneration Center (“Borrower”) promises to pay to Tommy West (“Lender”), or order, in lawful money of the United States of America, the principal amount of One Hundred Thousand Ninety Six & 00/100 Dollars ($101,096.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance, calculated as described in the INTEREST CALCULATION METHOD paragraph using an interest rate of 5.0% per annum, until paid in full.

 

PAYMENT. Borrower will pay this loan in 5 payments of $23,349.94. borrowers first payment is due December 31, 2017, and all subsequent payments are due on the same day of each year after that. Borrowers final payment will be due on December 31, 2021, and will be for all principal and all accrued interest not yet paid. Payments include principal and interest. Unless otherwise agreed or required by applicable law, payments will be applied to any accrued unpaid interest first; then to escrow if applicable; then to principal; then to any late charges; and then to any unpaid collection costs. Borrower will pay lender at Lender’s address shown above or at such other place as lender may designate in writing.

 

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/365 simple interest basis; that is, by applying the ratio of interest rate over the number of days in a year, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

 

PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due and may result in Borrower’s making fewer payments. Borrower agrees not to send Lender payments market “paid In full”, “without recourse”, or similar language. If Borrower sends such a payment, lender may accept it without losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment Instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to lender address of record.

 

LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.00% of the regularly scheduled payment.

 

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest rate on this Note shall be increased to 8.00% per annum. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

 

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

 

Payment Default. Borrower fails to make any payment when due under this Note.

 

     
     

 

Other Defaults. Borrower falls to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

 

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

 

Death or Insolvency. The dissolution of Borrower (regardless of whether election to continue is made) any member withdraws from Borrower, or any other termination of Borrower’s existence as a going business or the death of any member, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, of the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

 

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor or Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by the Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

 

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

 

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

 

Insecurity. Lender in good faith believes itself insecure.

 

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

 

COLLATERAL. Borrower acknowledges this Note is unsecured.

 

ATTORNEY’S FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay lender that amount. This includes, subject to any limits under applicable law. Lender’s reasonable attorneys’ fees and lender’s legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

 

JURY WAIVER. Lender and Borrower herby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

 

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the Commonwealth of Kentucky without regard to its conflicts of law provisions. This Note has been accepted by Lender in the Commonwealth of Kentucky.

 

LINE OF CREDIT. This Note evidences a straight line of credit. Once the total amount of principal has been advanced, Borrower is not entitled to further loan advances. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower’s accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by lender’s internal records, including daily computer print-outs.

 

  2  
     

 

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs, representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

 

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

 

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE.

 

BORROWER:   LENDER:
IMAC Regeneration Center   Tommy West
         
By: /s/ Matt Wallis   By: /s/ Tommy West
  Matt Wallis     Tommy West

 

  3  
     

 

 

PROMISSORY NOTE

 

Principal
$133,555.39
Loan Date
09-17-2014
Maturity
09-17-2019
Loan No
35943
Call / Coll
4 / 26
Account Officer
SHA
Initials
               
References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item. Any item above containing “***” has been omitted due to text length limitations.

 

Borrower: LONE OAK CHIROPRACTIC, P.S.C. Lender: INDEPENDENC BANK OF KENTUCKY
  125 AUGUSTA AVE., SUITE D   Paducah-Jefferson Sq- Consumer – NMLS #405645
  PADUCAH, KY 42003   PO BOX 1776
      3143 BROADWAY STREET
      PADUCAH, KY 42001
      (270) 442-1716
       

 

Principal Amount: $133,555.39 Interest Rate: 4.250% Date of Note: September 17, 2014

 

PROMISE TO PAY. LONE OAK CHIROPRACTIC, P.S.C. (‘“Borrower”) promises to pay to INDEPENDENCE BANK OF KENTUCKY (“Lender”), or order, in lawful money of the United States of America, the principal amount of One Hundred Thirty-three Thousand Five Hundred Fifty-five & 39/100 Dollars ($133,555.39), together with interest on the unpaid principal balance from September 17, 2014, calculated as described in the “INTEREST CALCULATION METHOD” paragraph using an interest rate of 4.250% per annum, until paid in full. The interest rate may change under the terms and conditions of the “INTEREST AFTER DEFAULT” section.

 

PAYMENT. Borrower will pay this loan in 59 payments of $2.474.79, each payment and an irregular last payment estimated at $2,474.81. Borrower’s first payment is due October 17,2014, and an subsequent payments are due on the same day of each month after that Borrower’s final payment will be due on September 17, 2019, and will be for all principal and all accrued interest not yet paid. Payments include principal and interest. Unless otherwise agreed or required by applicable law, payments will be applied first to any late charges; then to any accrued unpaid Interest; then to principal; and then to any unpaid collection costs. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing.

 

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/365 simple interest basis; that is, by applying the ratio of interest rate over the number of days in a year, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under the Note is computed using this method.

 

PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due end may result in Borrower’s making fewer payments. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other condition or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: INDEPENDENCE BANK OF KENTUCKY, Paducah-Jefferson Sq - Consumer - NMLS #405645, PO BOX 1776, 3143 BROADWAY STREET, PADUCAH, KY 42001.

 

LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $25.00, whichever is greater.

 

INTEREST AFTER DEFAULT. Upon default including failure to pay upon final maturity, the interest rate on this Note shall be increased to 18.000% per annum. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

 

 
Loan No: 32943

 

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

 

Payment Default. Borrower fails to make any payment when due under this Note.

 

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

 

Default in Favor of Third Parties . Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales, agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property or Borrower’s ability to repay this Note or perform Borrower’s obligations under this Note or any of the related documents.

 

False Statements. Any warranty, representation or statement made or furnished to lender by Borrower or on Borrower’s behalf under this Note or the related documents is false or misleading in any material respect, either now or all the time made or furnished or becomes false or misleading at any time thereafter.

 

Insolvency. The dissolution or termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver or any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

 

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is no good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

 

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

 

Change In Ownership. Any change to ownership or twenty-five percent (25%) or more of the common stock of Borrower.

 

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

 

Insecurity. Lender in good faith believes itself insecure.

 

LENDER’S RIGHTS. Upon default, lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

 

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender’s reasonable attorneys’ fees and Lender’s legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or inunction), and appeals. If not prohibited by applicable law. Borrower also will pay any court costs, in addition to all other sums provided by law

 

2
Loan No: 32943

 

JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

 

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and to the extent not preempted by federal law, the laws of the Commonwealth of Kentucky without regard to its conflicts of law provisions. This Note has been accepted by Lender in the Commonwealth of Kentucky.

 

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $35.00 if Borrower makes payment on Borrower’s loan and the check or preauthorized charge with which Borrower pays is later dishonored.

 

RIGHT OF SETOFF. To the extent permitted by applicable law, lender reserves a right of setoff in all Borrower’s accounts with lender (whether checking, savings, or some other account). This includes 411 accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts.

 

COLLATERAL. Borrower acknowledges this Note is secured by the following collateral described in the security instrument listed herein: described in a Commercial Security Agreement dated September 17, 2014.

 

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs, personal representatives, successors and assigns, and shall inure to the benefit of the Lender and its successors as assigns.

 

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

 

PRIOR TO SIGNING THIS NOTE. BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE.

 

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

 

BORROWER:

 

LONE OAK CHIROPRACTIC, P.S.C.    
     
By:  

/s/ Matthew Collier Wallis

  By: 

/s/ Jason William Brame

  Matthew Collier Wallis, Director of Lone Oak Chiropractic, P.S.C.     Jason William Brame, Director of Lone Oak Chiropractic, P.S.C.

 

LENDER:

 

INDEPENDENCE BANK OF KENTUCKY  
   
By:

/s/ Shelly H. Aspery     

 
  Shelly H. Aspery, Location Manager NMLS #777365  

 

3
 

 

 

 

Loan No: 45392 PROMISSORY NOTE
Page 1

 

Principal Loan Date Maturity Loan No Call / Coll Account Officer Initials
$1,232,500.00 03-29-2018 09-29-2018 45392 4 / 60   JSJ  
               
References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item. Any item above containing “•••” has been omitted due to text length limitations.
 

Borrower: IMAC HOLDINGS, LLC
CHIROPRACTIC
2725 JAMES SANDERS BLVD
PADUCAH, KY 42001
Lender:

INDEPENDENCE BANK OF KENTUCKY
Paducah-Jefferson
Sq - NMLS #405645 PO BOX 1776

3143 BROADWAY STREET

PADUCAH, KY 42001

(270) 442-1716

 

 

Principal Amount:    $1,232,500.00 Interest Rate:    3.350% Date of Note:    March 29, 2018

 
PROMISE TO PAY. IMAC HOLDINGS, LLC (“Borrower”) promises to pay to INDEPENDENCE BANK OF KENTUCKY (“Lender”), or order, in lawful money of the United States of America, the principal amount of One Million Two Hundred Thirty-two Thousand Five Hundred & 501100 Dollars ($1,232,600.00), together with Interest on the unpaid principal balance from March 29, 2018, calculated as described in the “INTEREST CALCULATION METHOD” paragraph using an interest rate of 3,350 d per annum, until paid in full. The interest rate may change under the terms and conditions of the “INTEREST AFTER DEFAULT’ section.

 

PAYMENT. Borrower will pay this loan in one principal payment of $1,232,600.00 plus interest an September 29, 2018. This payment due on September 29, 2018, will be for all principal and all accrued interest not yet paid. in addition, Borrower wilt pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning April 29, 2018, with all subsequent interest payments to be due on the same day of each month after that. Unless otherwise agreed or required by applicable law, payments will be applied first to any late charges; then to any accrued unpaid Interest; then to principal; and then to any unpaid collection costs. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing.

 

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 3661366 simple interest basis; that Is, by applying the ratio of the interest rate over the number of days In a year (365 for all years, including leap years), multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

 

PREPAYMENT. Borrower agrees that all lean fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty ae or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked “paid in full’’, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay arty further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full’ of the amount owed or that Is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: INDEPENDENCE BANK OF KENTUCKY, Paducah-Jefferson Sq • NMLS #405645, PO BOX 1776, 3143 BROADWAY STREET, PADUCAH, KY 42001.

 

 
Loan No: 45392 PROMISSORY NOTE
(Continued)
Page 2

 

LATE CHARGE. If a payment is 10 days or mote late, Borrower will be charged 5.000% of the regularly scheduled payment or $25.00, whichever is greater.

 

INTEREST AFTER DEFAULT. Upon default, inducting failure to pay upon final maturity, the interest rate on this Note shall be increased to 18.000% per annum. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

 

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

 

Payment Default. Borrower fells to make any payment when due under this Note.

 

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform arty term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

 

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or Sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property or Borrower’s ability to repay this Note or perform Borrowers obligations under this Note or any of the related documents.

 

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

 

Death or Insolvency. The dissolution of Borrower (regardless of whether election to continue is made), any member withdraws from Borrower, or any other termination of Borrower’s existence as a going business or the death of any member. the insolvency of Borrower, the appointment of a receiver for any part of Borrowers property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

 

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any ether method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrowers accounts, including deposit accounts, with Lender. However. this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding. in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

 

Insufficient Account Balance. Failure to satisfy Lender’s requirement set forth in the insufficient Account Balance section of the Assignment of Deposit Account.

 

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note,

 

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

 

Insecurity. Lender in good faith believes itself insecure.

 

 
Loan No: 45392 PROMISSORY NOTE
(Continued)
Page 3

 

Cure Provisions. if any default, other than a default in payment or failure to satisfy Lender’s requirement in the Insufficient Account Balance section, is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after Lender sends written notice to Borrower demanding cure of such default: (1) cures the default within five (5) Clays; or (2) if the cure requires more than five (5) days, immediately initiates steps which Lender deem in Lender’s ode discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

 

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest Immediately due, and then Borrower will pay that amount.

 

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes. subject to any limits under applicable law, Lender’s reasonable attorneys’ fees and Lender’s legal expenses whether or not there is a lawsuit. including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

 

JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

 

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the Commonwealth of Kentucky without regard to its conflicts of law provisions. This Note has been accepted by Lender in the Commonwealth of Kentucky.

 

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $35.00 if Borrower makes a payment on Borrower’s loan and the check or preauthorized charge with which Borrower pays is later dishonored.

 

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts.

 

COLLATERAL. Borrower acknowledges this Note is secured by the following collateral described in the security instrument listed herein: certificates of deposit described in art Assignment of Deposit Account dated March 29, 2018.

 

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

 

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender rimy delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon arty change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability_ All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action !Seemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

 

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE.

 

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

 

 
Loan No: 45392 PROMISSORY NOTE
(Continued)
Page 4

 

BORROWER:

 

IMAC HOLDINGS, LLC  
   
By:

/s/ Jeff Ervin

 
  Jeff Ervin, Chief Operating Officer of IMAC  
  HOLDINGS, LLC  

 

LENDER:

 

INDEPENDENCE BANK OF KENTUCKY

 
   
By:

/s/ Scott Johnston

 
  Scott Johnston, Sr. Lender McCracken Co. NMLS #791065,  

 

 
 

 

 

Loan No: 37328 COMMERCIAL LINE OF CREDIT AGREEMENT
Page 1

 

Principal Loan Date Maturity Loan No Call / Coll Account Officer Initials
$150,000.00 07-09-2017 08-01-2018 37328 4 / 26   JSJ  
               
References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item. Any item above containing “•••” has been omitted due to text length limitations.

 

Borrower: INTEGRATED MEDICINE AND
CHIROPRACTIC REGENERATION
CENTER PSC
2725 JAMES SANDERS BLVD
PADUCAH, KY 42001
Lender:

INDEPENDENCE BANK OF KENTUCKY
Paducah-Jefferson
Sq - NMLS #405645 PO BOX 1776

3143 BROADWAY STREET

PADUCAH, KY 42001

(270) 442-1716

 

 

 

CREDIT LIMIT:    $150,000.00 DATE OF AGREEMENT:    July 9, 2017

 

Introduction. This Commercial Line of Credit Agreement (“Agreement”) governs Borrower’s line of credit (the “Credit Line” or the “Credit Line Account”) issued through INDEPENDENCE BANK OF KENTUCKY. Borrower agrees to the following terms and conditions:

 

Promise to Pay. Borrower promises to pay INDEPENDENCE BANK OF KENTUCKY, or order, the total of all credit advances and FINANCE CHARGES, together with all costs and expenses for which Borrower is responsible under this Agreement or under “a Security Agreement” which secures Borrower’s Credit Line. Borrower will pay Borrower’s Credit Line according to the payment terms set forth below. If there is more than one Borrower, each is jointly and severally liable on this Agreement. This means Lender can require any Borrower to pay all amounts due under this Agreement, including credit advances made to any Borrower. Each Borrower authorizes any other Borrower, on his or her signature alone, to cancel the Credit Line, to request and receive credit advances, and to do all other things necessary to carry out the terms of this Agreement. Lender can release any Borrower from responsibility under this Agreement, and the others will remain responsible.

 

Term. The term of Borrower’s Credit Line will begin as of the date of this Agreement (“Opening Date”) and will continue until August 1, 2018 (“Maturity Date”). All indebtedness under this Agreement, if not already paid pursuant to the payment provisions below, will be due and payable upon maturity. The draw period of Borrower’s Credit Line will begin on the Opening Date and will continue as follows: the Credit Line can be accessed up until the Maturity date. Borrower may obtain credit advances during this period (“Draw Period”). Borrower agrees that Lender may renew or extend the period during which Borrower may obtain credit advances or make payments. Borrower further agrees that Lender may renew or extend Borrower’s Credit Line Account.

 

Minimum Payment. Borrower’s “Regular Payment” will equal the amount of Borrower’s accrued FINANCE CHARGES, Borrower will make 12 of these payments. Borrower will then be required to pay the entire balance owing in a single balloon payment. If Borrower makes only the minimum payments, Borrower may not repay any of the principal balance by the end of this payment stream. Borrower’s payments will be due monthly. Borrower’s “Minimum Payment” will be the Regular Payment, plus any amount past due and all other charges. An increase in the ANNUAL PERCENTAGE RATE may increase the amount of Borrower’s Regular Payment. Borrower agrees to pay not less than the Minimum Payment on or before the due date.

 

Balloon Payment. Borrower’s Credit Line Account is payable in full upon maturity in a single balloon payment. Borrower must pay the entire outstanding principal, interest and any other charges then due. Unless otherwise required by applicable law, Lender is under no obligation to refinance the balloon payment at that time. Borrower may be required to make payments out of other assets Borrower owns or find a lender, which may be Lender, willing to lend Borrower the money. If Borrower refinances the balloon payment, Borrower may have to pay some or all of the closing costs normally associated with a new credit line account, even if Borrower obtains refinancing from Lender.

 

 
Loan No: 37328 COMMERCIAL LINE OF CREDIT AGREEMENT
(Continued)
Page 2

 

How Borrower’s Payments Are Applied. Unless otherwise agreed or required by applicable law, payments and other credits will be applied to accrued interest, late fees, and then to principal.

 

Credit Limit. This Agreement covers a revolving line of credit for the principal amount of One Hundred Fifty Thousand & 00/100 Dollars ($150,000.00), which will be Borrower’s “Credit Limit” under this Agreement. Borrower may borrow against the Credit Line, repay any portion of the amount borrowed, and re-borrow up to the amount of the Credit Limit. Borrower’s Credit Limit is the maximum amount Borrower may have outstanding at any one time. Borrower agrees not to attempt, request, or obtain a credit advance that will make Borrower’s Credit Line Account balance exceed Borrower’s Credit Limit. Borrower’s Credit Limit will not be increased should Borrower overdraw Borrower’s Credit Line Account. If Borrower exceeds Borrower’s Credit Limit, Borrower agrees to repay immediately the amount by which Borrower’s Credit Line Account exceeds Borrower’s Credit Limit. Any amount greater than the Credit Limit will be secured by the security agreement covering Borrower’s property.

 

Charges to Borrower’s Credit Line. Lender may charge Borrower’s Credit Line to pay other fees and costs that Borrower is obligated to pay under this Agreement, the security agreement or any other document related to Borrower’s Credit Line. In addition, Lender may charge Borrower’s Credit Line for funds required for continuing insurance coverage as described in the paragraph titled “Insurance” below or as described in the security agreement for this transaction. Any amount so charged to Borrower’s Credit Line will be a credit advance and will decrease the funds available, if any, under the Credit Line, However, Lender has no obligation to provide any of the credit advances referred to in this paragraph.

 

Credit Advances. Beginning on the Opening Date of this Agreement, Borrower may obtain credit advances under Borrower’s Credit Line as follows:

 

Officer Approval. Upon approval by an Independence Bank Loan Officer.

 

If there is more than one person authorized to use this Credit Line Account, Borrower agrees not to give Lender conflicting instructions, such as one Borrower telling Lender not to give advances to the other.

 

Transaction Requirements. The following transaction limitations will apply to the use of Borrower’s Credit Line:

 

Officer Approval Limitations. The following transaction limitations will apply to Borrower’s Credit Line and accessing by other methods.

 

Minimum Advance Amount. The minimum amount of any credit advance that can be made on Borrower’s Credit Line is $100.00.

 

Limitation on All Access Devices. You may not use any access device, whether described above or added in the future, for any illegal or unlawful transaction, and we may decline to authorize any transaction that we believe poses an undue risk of illegality or unlawfulness. Notwithstanding the foregoing, we may collect on any debt arising out of any illegal or unlawful transaction.

 

Future Credit Line Services. Borrower’s application for this Credit Line also serves as a request to receive any new services (such as access devices) which may be available at some future time as one of Lender’s services in connection with this Credit Line. Borrower understands that this request is voluntary and that Borrower may refuse any of these new services at the time they are offered. Borrower further understands that the terms and conditions of this Agreement, together with any specific terms covering the new service, will govern any transactions made pursuant to any of these new services.

 

Collateral. Borrower acknowledges this Agreement is secured by the following collateral described in the security instrument listed herein: (A) Collateral described in a Commercial Security Agreement.

 

Insurance. Borrower must obtain insurance on the Property securing this Agreement that is reasonably satisfactory to Lender. Borrower may obtain property insurance through any company of Borrower’s choice that is reasonably satisfactory to Lender. Borrower has the option of providing any insurance required under this Agreement through an existing policy or a policy independently obtained and paid for by Borrower, subject to Lender’s right, for reasonable cause before credit is extended, to decline any insurance provided by Borrower. Subject to applicable law, if Borrower fails to obtain or maintain insurance as required in the security agreement, Lender may purchase insurance to protect Lender’s own interest, add the premium to Borrower’s balance, declare the loan in default, or do any one or more of these things.

 

 
Loan No: 37328 COMMERCIAL LINE OF CREDIT AGREEMENT
(Continued)
Page 3

 

Right of Setoff. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account), including without limitation, all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Agreement against any and all such accounts.

 

When FINANCE CHARGES Begin to Accrue. Periodic FINANCE CHARGES for credit advances under Borrower’s Credit Line will begin to accrue on the date credit advances are posted to Borrower’s Credit Line. There is no “free ride period” which would allow Borrower to avoid a FINANCE CHARGE on Borrower’s Credit Line credit advances.

 

Method Used to Determine the Balance on Which the FINANCE CHARGE Will Be Computed. A daily FINANCE CHARGE will be imposed on all credit advances made under Borrower’s Credit Line imposed from the date of each credit advance based on the “daily balance” method. To get the daily balance, Lender takes the beginning balance of Borrower’s Credit Line Account each day, adds any new advances, and subtracts any unpaid FINANCE CHARGES and any payments or credits. This gives Lender the “daily balance.”

 

Method of Determining the Amount of FINANCE CHARGE. Any FINANCE CHARGE is determined by applying the “Periodic Rate” to the balance described herein. Then Lender adds together the periodic FINANCE CHARGES for each day in the statement cycle. This is Borrower’s FINANCE CHARGE calculated by applying a Periodic Rate.

 

Borrower also agrees to pay FINANCE CHARGES, not calculated by applying a Periodic Rate, as set forth below:

 

Loan Fee. Borrower will be charged a prepaid FINANCE CHARGE of $250.00, which is a flat fee. This amount is payable when Lender establishes Borrower’s Credit Line and may also be imposed upon any future increase in Borrower’s Credit Limit.

 

Periodic Rate and Corresponding ANNUAL PERCENTAGE RATE. The Periodic Rate and the corresponding ANNUAL PERCENTAGE RATE on Borrower’s Credit Line are subject to change from time to time based on changes in an independent index which is the Base Rate on corporate loans posted by at least 75% of the nation’s 30 largest banks known as the Wall Street Journal Prime Rate (the “Index”). The Index is not necessarily the lowest rate charged by Lender on Lender’s loans. If the Index becomes unavailable during the term of this Credit Line Account, Lender may designate a substitute index after notice to Borrower. The ANNUAL PERCENTAGE RATE on Borrower’s Credit Line is based upon the Index described below.

 

The Periodic Rate and the corresponding ANNUAL PERCENTAGE RATE on Borrower’s Credit Line will increase or decrease as the Index increases or decreases from time to time. Lender will determine the Periodic Rate and the corresponding ANNUAL PERCENTAGE RATE as follows: Lender starts with the current Index as disclosed below. To determine the Periodic Rate that will apply to Borrower’s account, Lender takes the value of the Index, then divides the value by the number of days in a year (daily). To obtain the ANNUAL PERCENTAGE RATE Lender multiplies the Periodic Rate by the number of days in a year (daily). This result is the ANNUAL PERCENTAGE RATE. In no event will the Periodic Rate result in a corresponding ANNUAL PERCENTAGE RATE that is less than 4.000%, nor will the Periodic Rate or corresponding ANNUAL PERCENTAGE RATE exceed the maximum rate allowed by applicable law. Adjustments to the Periodic Rate and the corresponding ANNUAL PERCENTAGE RATE resulting from changes in the Index will take effect daily. Today the Index is 4.250% per annum, and therefore the initial ANNUAL PERCENTAGE RATE and the corresponding Periodic Rate on Borrower’s Credit Line are as stated below:

 

 
Loan No: 37328 COMMERCIAL LINE OF CREDIT AGREEMENT
(Continued)
Page 4

 

Current Rates for the First Payment Stream

 

Range of Balance or Conditions   Margin Added to Index     ANNUAL
PERCENTAGE RATE
    Daily Periodic Rate  
All Balances     0.000 %     4.250 %     0.01164 %

 

Notwithstanding any other provision of this Agreement, Lender will not charge interest on any undisbursed loan proceeds.

 

Conditions Under Which Other Charges May Be Imposed. Borrower agrees to pay all the other fees and charges related to Borrower’s Credit Line as set forth below:

 

Returned Items. You may be charged $35.00 if you pay your Credit Line obligations with a check, draft, or other item that is dishonored for any reason, unless applicable law requires a lower charge or prohibits any charge.

 

Fee to Stop Payment. Borrower’s Credit Line Account may be charged $35.00 when Borrower requests a stop payment on Borrower’s account.

 

Right to Credit Advances. Beginning on the Opening Date, Lender will honor Borrower’s requests for credit advances up to Borrower’s Credit Limit so long as: (Al Borrower is not in default under the terms of this Agreement; (B) this Agreement has not been terminated or suspended.

 

Default. Lender may declare Borrower to be in default if any one or more of the following events occur: (A) Borrower fails to pay a Minimum Payment when due; (B) an event of default occurs under the security agreement for the Property; (C) the Property is further encumbered in any way, voluntarily or involuntarily; (D) Borrower dies; (E) Borrower makes any false or misleading statements on Borrower’s Credit Line application; (F) Borrower violates any provision of this Agreement or any other agreement with Lender; (G) any garnishment, attachment, or execution is issued against any material asset owned by Borrower; (H) Borrower exceeds Borrower’s Credit Limit; (I) Borrower files for bankruptcy or other insolvency relief, or an involuntary petition under the provisions of the Bankruptcy Code is filed against Borrower; (J) Lender in good faith believes itself insecure.

 

Lender’s Rights. If Borrower is in default, Lender will send notice to Borrower setting forth a time period of at least five (5) days within which such default may be cured. During this cure period, without notice, Lender may suspend Borrower’s Credit Line as provided below. If such default is not cured during this period, Lender may either terminate or continue suspension of Borrower’s Credit Line Account.

 

Suspension. If Lender suspends Borrower’s Credit Line, Borrower will lose the right to obtain further credit advances. However, all other terms of this Agreement will remain in effect and be binding upon Borrower, including Borrower’s liability for any further unauthorized use of any Credit Line access devices.

 

Termination. If Lender terminates Borrower’s Credit Line, Borrower’s Credit Line will be suspended and the entire unpaid balance of Borrower’s Credit Line Account will be immediately due and payable, without prior notice except as may be required by law, and Borrower agrees to pay that amount plus all FINANCE CHARGES and other amounts due under this Agreement.

 

Collection Costs. Lender may hire or pay someone else to help collect this Agreement if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender’s reasonable attorneys’ fees and Lender’s legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

 

 
Loan No: 37328 COMMERCIAL LINE OF CREDIT AGREEMENT
(Continued)
Page 5

 

Rate Increase. In addition to Lender’s other rights on default, Lender may increase the variable interest rate under this Agreement to 18.000 percent per annum. The interest rate will not exceed the maximum rate permitted by applicable law. If Lender does not increase the interest rate on default, it will continue at the variable rate in effect as of the date Lender declares a default.

 

Delay in Enforcement. Lender may delay or waive the enforcement of any of Lender’s rights under this Agreement without losing that right or any other right. If Lender delays or waives any of Lender’s rights, Lender may enforce that right at any time in the future without advance notice. For example, not terminating Borrower’s account for non-payment will not be a waiver of Lender’s right to terminate Borrower’s account in the future if Borrower has not paid.

 

Termination by Borrower. If Borrower terminates this Agreement, Borrower must notify Lender in writing at the address shown on Borrower’s periodic statement or other designated address. Despite termination, Borrower’s obligations under this Agreement will remain in full force and effect until Borrower has paid Lender all amounts due under this Agreement.

 

Prepayment. Borrower may prepay all or any amount owing under this Credit Line at any time without penalty, except Lender will be entitled to receive all accrued FINANCE CHARGES, and other charges, if any. Payments in excess of Borrower’s Minimum Payment will not relieve Borrower of Borrower’s obligation to continue to make Borrower’s Minimum Payments. Instead, they will reduce the principal balance owed on the Credit Line. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Agreement, and Borrower will remain obligated to pay any further amount owed to Lender, All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: INDEPENDENCE BANK OF KENTUCKY, Paducah-Jefferson Sq - NMLS #405645, PO BOX 1776, 3143 BROADWAY STREET, PADUCAH, KY 42001.

 

Notices. All notices will be sent to Borrower’s address as shown in Borrower’s Credit Line application. Notices will be mailed to Borrower at a different address if Borrower gives Lender written notice of a different address. Borrower agrees to advise Lender promptly if Borrower changes Borrower’s mailing address.

 

Credit Information and Related Matters. Borrower authorizes Lender to release information about Borrower to third parties as described in Lender’s privacy policy and Lender’s Fair Credit Reporting Act notice, provided Borrower did not opt out of the applicable policy, or as permitted by law. Borrower agrees that, upon Lender’s request, Borrower will provide Lender with a current financial statement, a new credit application, or both, on farms provided by Lender. Borrower also agrees Lender may obtain credit reports on Borrower at any time, at Lender’s sole option and expense, for any reason, including but not limited to determining whether there has been an adverse change in Borrower’s financial condition. Based upon a material adverse change in Borrower’s financial condition (such as termination of employment or loss of income), Lender may suspend Borrower’s Credit Line. Lender may require a new appraisal of the Property which secures Borrower’s Credit Line at any time, including an internal inspection, at Lender’s sole option and expense.

 

Transfer or Assignment. Without prior notice or approval from Borrower, Lender reserves the right to sell or transfer Borrower’s Credit Line Account and Lender’s rights and obligations under this Agreement to another lender, entity, or person, and to assign Lender’s rights under the security agreement, Borrower’s rights under this Agreement belong to Borrower only and may not be transferred or assigned. Borrower’s obligations, however, are binding on Borrower’s heirs and legal representatives. Upon any such sale or transfer, Lender will have no further obligation to provide Borrower with credit advances or to perform any other obligation under this Agreement.

 

Jury Waiver. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

 

 
Loan No: 37328 COMMERCIAL LINE OF CREDIT AGREEMENT
(Continued)
Page 6

 

Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the Commonwealth of Kentucky without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the Commonwealth of Kentucky.

 

Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

 

Interpretation. Borrower agrees that this Agreement, together with the security agreement, is the most reliable evidence of Borrower’s agreements with Lender. If a court finds that any provision of this Agreement is not valid or should not be enforced, that fact by itself will not mean that the rest of this Agreement will not be valid or enforced. Therefore, a court may enforce the rest of the provisions of this Agreement even if a provision of this Agreement may be found to be invalid or unenforceable. If Lender goes to court for any reason, Lender can use a copy, filmed or electronic, of any periodic statement, this Agreement, the security agreement or any other document to prove what Borrower owes Lender or that a transaction has taken place. The copy, microfilm, microfiche, or optical image will have the same validity as the original. Borrower agrees that, except to the extent Borrower can show there is a billing error, Borrower’s most current periodic statement is the most reliable evidence of Borrower’s obligation to pay.

 

Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality,
invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.

 

Acknowledgment and Amendments. Borrower understands and agrees to the terms and conditions in this Agreement. Borrower acknowledges that, subject to applicable laws, Lender has the right to change the terms and conditions of the Credit Line program, including without limitation, the Margin. Borrower also understands and agrees that Borrower may be subject to other agreements with Lender regarding transfer instruments or access devices which may access Borrower’s Credit Line. Any person signing below may request a modification to this Agreement, and, if granted, the modification will be binding upon all signers. By signing this Agreement, Borrower acknowledges that Borrower has read this Agreement. Borrower also acknowledges receipt of a completed copy of this Agreement.

 

BORROWER:

 

INTEGRATED MEDICINE AND CHIROPRACTIC REGENERATION CENTER PSC

 

By: /s/ Matthew Collier Wallis   By: /s/ Jason William Brame
  MATTHEW COLLIER WALLIS, Director of INTEGRATED MEDICINE AND CHIROPRACTIC REGENERATION CENTER PSC     JASON WILLIAM BRAME, Director of INTEGRATED MEDICINE AND CHIROPRACTIC REGENERATION CENTER PSC

 

ACCEPTED: INDEPENDENCE BANK OF KENTUCKY
     
By:   /s/ Scott Johnston  
  Scott Johnston, Sr. Lender McCracken Co. NMLS #791055  

 

 
 

 

PROMISSORY NOTE

 

Borrower: IMAC Regeneration Center of Nashville, P.C.   Lender: Pinnacle Bank
  IMAC Regeneration Management of Nashville, LLC     Brentwood
  205 N Thompson Lane     128 Franklin Rd
  Murfreesboro, TN 37129     Brentwood, TN 37027

 

Principal Amount: $150,000.00 Date of Note: November 15, 2017

 

PROMISE TO PAY. IMAC Regeneration Center of Nashville, P.C.; and IMAC Regeneration Management of Nashville, LLC (“Borrower”) jointly and severally promise to pay to Pinnacle Bank (“Lender”), or order, in lawful money of the United States of America, the principal amount of One Hundred Fifty Thousand & 00/100 Dollars ($150,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the data of each advance until repayment of each advance.

 

PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on November 14, 2018. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning December 15, 2017, with all subsequent interest payments to be due on the same day of each month after that. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; then to any unpaid collection costs; and then to any late charges. Borrower will pay Lander at Lender’s address shown above or at such other place as Lender may designate in writing.

 

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the Pinnacle Base Rate (the “Index”). The Index is not necessarily the lowest rate charged by Lender on its loans and is set by Lender in its sole discretion. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notifying Borrower. Lender will tell Borrower the current Index rate upon Borrower’s request. The interest rate change will not occur more often than each day. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 4.250% per annum. Interest on the unpaid principal balance of this Note will be calculated as described in the “INTEREST CALCULATION METHOD” paragraph using a rate of 2.000 percentage points over the Index, rounded to the nearest 0.125 percent, adjusted if necessary for any minimum and maximum rate limitations described below, resulting in an initial rate of 6.250% per annum based on a year of 360 days. NOTICE: Under no circumstances will the interest rate on this Note be less than 4.500% per annum or more than (except for any higher default rate shown below) the lesser of 20.500% per annum or the maximum rate allowed by applicable law.

 

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the Interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

 

PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments of accrued unpaid interest. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked “paid in full”, ‘‘without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: Pinnacle Bank, Attn: Payoff Department, P.O. Box 292487 Nashville, TN 37229-2487.

 

LATE CHARGE. If a payment is 16 days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment.

 

 
 

 

INTEREST AFTER DEFAULT. Upon default at Lender’s option, and if permitted by applicable law, Lender may add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). Upon default, the interest rate on this Note shall be increased to 20.500% per annum based on a year of 360 days. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

 

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

 

Payment Default. Borrower fails to make any payment when due under this Note.

 

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term. obligation, covenant or condition contained in any other agreement between Lender and Borrower.

 

False Statements . Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

 

Insolvency. The dissolution or termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

 

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding. self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

 

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

 

Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

 

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

 

Insecurity. Lender in good faith believes itself insecure.

 

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

 

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender’s attorneys’ fees and Lender’s legal expenses, whether or not there is a lawsuit, including attorneys’ fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

 

JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

 

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GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Tennessee without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of Tennessee.

 

CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender’s request to submit to the jurisdiction of the courts of Williamson County, State of Tennessee.

 

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00 if Borrower makes a payment on Borrower’s loan and the check or preauthorized charge with which Borrower pays is later dishonored.

 

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze an such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.

 

COLLATERAL. Borrower acknowledges this Note is secured by the following collateral described in the security instrument listed herein: inventory, chattel paper, accounts, equipment. general intangibles, fixtures, standing timber and mineral, oil and gas described in a Commercial Security Agreement dated November 15, 2017.

 

LINE OF CREDIT. This Note evidences a revolving line of credit Advances under this Note, as well as directions for payment from Borrower’s accounts, may be requested orally or in writing by Borrower or by an authorized person lender may, but need not, require that all oral requests be confirmed in writing. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower’s accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender’s internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (A) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (B) Borrower or any guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor’s guarantee of this Note or any other loan with Lender; (D) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (E) Lender in good faith believes itself insecure.

 

ARBITRATION. Borrower and Lender agree that any disputes, claims and controversies between them whether individual, joint, or class in nature, arising from this Note or otherwise, including without limitation contract and tort disputes, shall be arbitrated pursuant to the Rules of the American Arbitration Association in effect at the time the claim is filed, upon request of either party. No act to take or dispose of any collateral securing this Note shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement. This includes, without limitation, obtaining injunctive relief or a temporary restraining order; invoking a power of sale under any deed of trust or mortgage; obtaining a writ of attachment or imposition of a receiver; or exercising any rights relating to personal property, including taking or disposing of such property with or without judicial process pursuant to Article 9 of the Uniform Commercial Code. Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right, concerning any collateral securing this Note, including any claim to rescind, reform, or otherwise modify any agreement relating to the collateral securing this Note, shall also be arbitrated, provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of any party. Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. Nothing in this Note shall preclude any party from seeking equitable relief from a court of competent jurisdiction. The statute of limitations, estoppel, waiver, laches, and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of an action for these purposes. The Federal Arbitration Act shall apply to the construction, interpretation, and enforcement of this arbitration provision.

 

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FINANCIAL STATEMENT AND INFORMATION. Furnish Lender with such financial statements and other related information at such frequencies and in such detail as Lender may request or as required by the Loan Agreement or other related loan documents.

 

CROSS COLLATERAL. As security for any and all of the obligations hereunder, and all of our other indebtedness, obligations and liabilities to you, whether now existing or hereafter incurred, whether absolute or contingent, including any modifications, extensions and renewals thereof, all accrued interest and cost incurred thereon, we grant you a security interest in and hereby transfer and convey to you (a) any and all Documents and any goods covered thereby, and (b) any of our property, real or personal, according to the terms of, and as further described in, our security agreement and/or deed of trust pertaining thereto.

 

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

 

USURY SAVINGS CLAUSE. It is the intention of lender and Borrower to comply strictly with all applicable usury laws; and, accordingly, in no event and upon no contingency shall lender ever be entitled to charge, receive, collect, or apply as interest any interest, fees, charges, or other payments equivalent to interest, in excess of the maximum rate which the Lender may lawfully charge under applicable state and federal statutes and laws from time to time in effect; and, in the event that Lender ever receives, collects, or applies as interest, any such excess, such amount which, but for this provision, would be excessive interest shall be applied to the reduction of the unpaid principal amount of the Note: and, if said principal amount and all lawful interest thereon is paid in full, any remaining excess shall be refunded to Borrower. All interest paid or agreed to be paid shall, to the maximum extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the loan, including any renewals, until payment in full of the principal. Any provision hereof, or of any other agreement between Lender and Borrower, that operates to bind, obligate, or compel Borrower to pay interest in excess of such maximum lawful contract rate shall be construed to require the payment of the maximum rate only. The provisions of this paragraph shall be given precedence over any other provision contained herein or in any other agreement between Lender and Borrower that is in conflict with the provisions of this paragraph.

 

NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES. Borrower may notify lender if Lender reports any inaccurate information about Borrower’s account(s) to a consumer reporting agency. Borrower’s written notice describing the specific inaccuracy(ies) should be sent to Lender at the following address: Pinnacle Bank 150 Third Avenue South Nashville, TN 37201.

 

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Each Borrower understands and agrees that, with or without notice to Borrower, Lender may with respect to any other Borrower (a) make one or more additional secured or unsecured loans or otherwise extend additional credit; (b) alter, compromise, renew, extend, accelerate, or otherwise change one or more times the time for payment or other terms of any indebtedness, including increases and decreases of the rate of interest on the indebtedness: (c) exchange, enforce, waive, subordinate, fall or decide not to perfect, and release any security. with or without the substitution of new collateral; (d) apply such security and direct the order or manner of sale thereof, including without limitation, any non-judicial sale permitted by the terms of the controlling security agreements, as Lender In its discretion may determine; (e) release, substitute, agree not to sue, or deal with any one or more of Borrower’s sureties, endorsers, or other guarantors on any terms or in any manner Lender may choose: and (f) determine how, when and what application of payments and credits shall be made on any other indebtedness owing by such other Borrower. Borrower and any other person who signs. guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

 

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PRIOR TO SIGNING THIS NOTE, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS EACH BORROWER AGREES TO THE TERMS OF THE NOTE.

 

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

 

BORROWER:

 

IMAC REGENERATION CENTER OF NASHVILLE, P.C.  
   
By:

/s/ Jeffrey S. Ervin

 
  Jeffrey S. Ervin, Secretary of IMAC Regeneration  
  Center of Nashville, P.C.  

 

IMAC REGENERATION MANAGEMENT OF NASHVILLE, LLC

 

IMAC HOLDINGS, LLC, Member of IMAC Regeneration Management of Nashville, LLC
   
By:

/s/ Jeffrey S. Ervin

 
  Jeffrey S. Ervin, Member of IMAC Holdings, LLC  

 

5
 

 

 

Loan No: 37404 COMMERCIAL LINE OF CREDIT AGREEMENT Page 1

 

Principal Loan Date Maturity Loan No Call / Coll Account Officer Initials
$150,000.00 05-01-2018 08-01-2018 37404 4 / 26   JSJ  
               

References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item. Any item above containing “•••” has been omitted due to text length limitations.

 

Borrower:

INTEGRATED MEDICINE AND

CHIROPRACTIC REGENERATION

CENTER OF ST. LOUIS, LLC
2725 JAMES SANDERS BLVD
PADUCAH, KY 42001

  Lender:

INDEPENDENCE BANK OF KENTUCKY Paducah-Jefferson Sq

- NMLS #405645 PO BOX 1776

3143 BROADWAY STREET

PADUCAH, KY 42001

(270) 442-1716

 

CREDIT LIMIT: $150,000.00 DATE OF AGREEMENT: May 1, 2018

 

Introduction. This Commercial Lino of Credit Agreement (“Agreement”) governs Borrower’s line of credit (tee “Credit Line” or the “Credit Line Account’) issued through INDEPENDENCE BANK OF KENTUCKY. Borrower agrees to the following terms and conditions:

 

Promise to Pay. Borrower promises to pay INDEPENDENCE BANK OF KENTUCKY, or order, the total of all credit advances and FINANCE CHARGES, together with all costs and expenses for which Borrower Is responsible under this Agreement or under “a Security Agreement” which secures Borrower’s Credit Line. Borrower will pay Borrower’s Credit Line according to the payment terms set forth be ow. If there is more than one Borrower. each is jointly and severally gable on this Agreement. This means Lender can require any Borrower to pay all amounts due under this Agreement, including credit advances made to any Borrower. Each Borrower authorizes any other Borrower, on his or her signature alone, to cancel the Credit Line, to request and receive credit advances, and to do all other things necessary to carry out the terms of this Agreement. Lender can release any Borrower from responsibility under this Agreement, and the others will remain responsible.

 

Term. The term of Borrower’s Credit Line will begin as of the date of this Agreement (“Opening Date”) and will continue until August 1, 2018 (“Maturity Date”). All indebtedness under this Agreement, if not already paid pursuant to the payment provisions below, will be due and payable upon maturity. The draw period of Borrower’s Credit Line will begin on the Opening Date and will continue as follows: the Credit Line can be accessed up until the Maturity date. Borrower may obtain credit advances during this period (“Draw Period”). Borrower agrees that Lender may renew or extend the period during which Borrower may obtain credit advances or make payments. Borrower further agrees that Lender may renew or extend Borrower’s Credit Line Account.

 

Minimum Payment. Borrower’s “Regular Payment” will equal the amount of Borrower’s accrued FINANCE CHARGES. Borrower will make 2 of these payments. Borrower will then be required to pay the entire balance owing in a single balloon payment. It Borrower makes only the minimum payments, Borrower may not repay any of the principal balance by the end of this payment stream. Borrower’s payments will be due monthly. Borrower’s “Minimum Payment” will be the Regular Payment, plus any amount east due and all other charges. An increase in the ANNUAL PERCENTAGE RATE may increase the amount of Borrower’s Regular Payment. Borrower agrees to pay not less than the Minimum Payment on or before the due date.

 

Balloon Payment. Borrower’s Credit Line Account is payable in full upon maturity in a single balloon payment. Borrower must pay the entire outstanding principal, Interest and any other charges then due. Unless otherwise required by applicable law. Lender is under no obligation to refinance the balloon payment at that time. Borrower may be required to make payments out of other assets Borrower owns or find a lender, which may be Lender, willing to lend Borrower the money. If Borrower refinances the balloon payment, Borrower may have to pay some or all of the closing costs normally associated with a new credit line account, even if Borrower obtains refinancing from Lender.

 

 
Loan No: 37404

COMMERCIAL LINE OF CREDIT AGREEMENT

(Continued)

Page 2

 

How Borrower’s Payments Are Applied. Unless otherwise agreed or required by applicable taw, payments and cutter credits will be applied to accrued interest, late fees, and then to principal.

 

Credit Limit. This Agreement covers a revolving line of credit for the principal amount of Ono Hundred Fifty Thousand & 00/100 Dollars 0150,000.00e which will be Borrower’s “Credit Limit” under this Agreement. Borrower may borrow against the Credit Line, repay any portion of the amount borrowed, and re-borrow up to the amount of the Credit Limit. Borrower’s Credit Limit is the maximum amount Borrower may have outstanding at any one time. Borrower agrees not to attempt, request, or obtain a credit advance that will make Borrower’s Credit Line Account balance exceed Borrower’s Credit Limit. Borrower’s Credit Limit will not be Increased should Borrower overdraw Borrower’s Credit Line Account. If Borrower exceeds Borrower’s Credit Limit, Borrower agrees to repay immediately the amount by which Borrower’s Credit Line Account exceeds Borrower’s Credit Limit. Any amount greater than the Credit Limit will be secured by the security agreement covering Borrower’s property.

 

Collateral. Borrower acknowledges this Agreement is secured by the following collateral described in the security instrument listed herein:

 

(A) Collateral described in a Commercial Security Agreement.

 

Charges to Borrower’s Credit Line. Lender may charge Borrower’s Credit Line to pay other fees and costs that Borrower is obligated to pay under this Agreement, the security agreement or any other document related to Borrower’s Credit Line. In addition, Lender may charge Borrower’s Credit Line for funds required for continuing insurance coverage as described in the paragraph titled “Insurance” below or as described in the Security agreement for this transaction. Any amount so charged to Borrower’s Credit Line will be a credit advance end will decrease the funds available, if any, under the Credit Line. However, Lender has no obligation to provide any of the credit advances referred to in this paragraph.

 

Credit Advances. Beginning on the Opening Date of this Agreement, Borrower may obtain credit advances under Borrower’s Credit Line as follows:

 

Officer Approval. Upon approval by an Independence Bank Loan Officer.

 

If there is more than one person authorized to use this Credit Line Account, Borrower agrees not to give Lender conflicting instructions, such as one Borrower telling Lender not to give advances to the other.

 

Transaction Requirements. The following transaction limitations will apply to the use of Borrower’s Credit Line:

 

Officer Approval Limitations. The following transaction limitations will apply to Borrower’s Credit Line end accessing by other methods.

 

Minimum Advance Amount. The minimum amount of any credit advance that can be made on Borrower’s Credit Line is $100.00.

 

Limitation on All Access Devices. You may not use any access device, whether described above or added in the future, for any illegal or unlawful transaction, and we may decline to authorize any transaction that we believe poses an undue risk of Illegality or unlawfulness. Notwithstanding the foregoing, we tray collect on any debt arising out of any illegal or unlawful transaction.

 

Future Credit Line Services. Borrower’s application for this Credit Line also serves as a request to receive any new services (such as access devices) which may be available at some future time as one of Lender’s services in connection with this Credit Line. Borrower understands that this request is voluntary end that Borrower may refuse any of these new services at the time they are offered. Borrower further understands that the terms and conditions of this Agreement, together with any specific terms covering the new service, will govern any transactions made pursuant to any of these new services.

 

 
Loan No: 37404

COMMERCIAL LINE OF CREDIT AGREEMENT

(Continued)

Page 3

 

Insurance. Borrower must obtain insurance on the Property securing this Agreement that is reasonably satisfactory to Lender. Borrower may obtain property insurance through any company of Borrower’s choice that is reasonably satisfactory to Lender. Borrower has the option of providing any insurance required under this Agreement through an existing policy or a policy independently obtained and paid for by Borrower, subject to Lender’s right, for reasonable cause before credit is extended, to decline arty insurance provided by Borrower. Subject to applicable law, if Borrower fails to obtain or maintain insurance as required in the security agreement, Lender may purchase insurance to protect Lender’s own interest, add the premium to Borrower’s balance, declare the loan in default, or do any one or more of these things.

 

Right of Setoff. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account), including without limitation, all accounts Borrower may open in the future. However, this does not include any !RA or Keogh accounts. or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Agreement against any and all such accounts.

 

When FINANCE CHARGES Begin to Accrue. Periodic FINANCE CHARGES for credit advances under Borrower’s Credit Line will begin to accrue on the date credit advances are posted to Borrower’s Credit Line. There :s no “free ride period” which would allow Borrower to avoid a FINANCE CHARGE on Borrower’s Credit Line credit advances.

 

Method Used to Determine the Balance on Which the FINANCE CHARGE Will Be Computed. A daily FINANCE CHARGE will be imposed on all credit advances made under Borrower’s Credit Line imposed from the date of each credit advance based on the “daily balance’ method. To get the daily balance, Lender takes the beginning balance of Borrower’s Credit Line Account each day. adds any new advances, arid subtracts any unpaid FINANCE CHARGES and any payments or credits. This gives Lender the ‘daily balance.”

 

Method of Determining the Amount of FINANCE CHARGE. Any FINANCE CHARGE is determined by applying the “Periodic Rate” to the balance described herein. Then Lender adds together the periodic FINANCE CHARGES for each day in the statement cycle. This is Borrower’s FINANCE CHARGE calculated by applying a Periodic Rate.

 

Borrower also agrees to pay FINANCE CHARGES, not calculated by applying a Periodic Rate, as set forth below:

 

Loan Fee. Borrower will be charged a prepaid FINANCE CHARGE of $250.00, which is a flat fee. This amount is payable when Lender establishes Borrower’s Credit Lire and may also be imposed upon any future increase in Borrower’s Credit Limit.

 

Periodic Rate and Corresponding ANNUAL PERCENTAGE RATE. The Periodic Rate and the corresponding ANNUAL PERCENTAGE RATE on Borrower’s Credit Line are subject to change from time to lime based on changes in an independent index which is the Base Rate on corporate loans posted by at least 75% of the nation’s 30 largest banks known as the Wall Street Journal Prime Rate (the “Index”). The Index is not necessarily the lowest rate charged by Lender on Lender’s loans. If the index becomes unavailable during the term of this Credit Line Account, Lender may designate a substitute index after notice to Borrower. The ANNUAL PERCENTAGE RATE on Borrower’s Credit Line Is based upon the Index described below.

 

 
Loan No: 37404

COMMERCIAL LINE OF CREDIT AGREEMENT

(Continued)

Page 4

 

The Periodic Rate and the corresponding ANNUAL PERCENTAGE RATE on Borrower’s Credit Line will Increase or decrease as the index increases or decreases from time to time. Lender wit determine the Periodic Rate and the corresponding ANNUAL PERCENTAGE RATE as follows: Lender starts with the current Index as disclosed below. To determine the Periodic Rate that will apply to Borrower’s account, Lender takes the value of the Index, then divides the value by the number of days in a year (daily). To obtain the ANNUAL PERCENTAGE RATE Lender multiplies the Periodic Rote by the number of days in a year (daily). This result is the ANNUAL PERCENTAGE RATE. In no event will the Periodic Rate result in a corresponding ANNUAL PERCENTAGE RATE that .s less than 4.000%, nor will the Periodic Rate or corresponding ANNUAL PERCENTAGE RATE exceed the maximum rate allowed by applicable law. Adjustments to the Periodic Rate and the corresponding ANNUAL PERCENTAGE RATE resulting from changes in the Index will take effect daily. Today the Index is 5.000% per annum, and therefore the initial ANNUAL PERCENTAGE RATE and the corresponding Periodic Rate on Borrower’s Credit Line are as stated below:

 

Current Rates for the First Payment Stream
 
Range of Balance or Conditions   Margin Added to Index  

ANNUAL

PERCENTAGE RATE

  Daily Periodic Rate
All Balances   0.000%   5.000%   0.01370%

 

Notwithstanding any other provision of this Agreement. Lender will not charge interest on any undisbursed loan proceeds.

 

Conditions Under Which Other Charges May Be Imposed. Borrower agrees to pay all the other fees and charges related to Borrower’s Credit Line as set forth below:

 

Returned Items. You may be charged $35.00 if you pay your Credit Line obligations with e check, draft, or other item that is dishonored for any reason, unless applicable law requires a lower charge or prohibits any charge.

 

Fee to Stop Payment. Borrower’s Credit Line Account may be charged $35.00 when Borrower requests a stop payment on Borrower’s account.

 

Right to Credit Advances. Beginning on rho Opening Date, Lender will honor Borrower’s requests for credit advances up to Borrower’s Credit Limit so long as. (A) Borrower is not in default under the terms of this Agreement; (B) this Agreement has not been terminated or suspended.

 

Default. Lender may declare Borrower to be in default if any one or more of the following events occur: (A) Borrower fails to pay a Minimum Payment when due; 181 an event of default occurs under the security agreement for the Property; (C) the Property is further encumbered in any way, voluntarily or involuntarily; (D) Borrower dies; (E) Borrower makes any false or misleading statements on Borrower’s Credit Lire application; (F) Borrower violates any provision of this Agreement or any other agreement with Lender: (G) any garnishment, attachment, or execution is issued against any material asset owned by Borrower; (H) Borrower exceeds Borrower’s Credit Limit; (l) Borrower files for bankruptcy or other insolvency relief, or an involuntary petition under the provisions of the Bankruptcy Code is filed against Borrower; (J) Lender in good faith believes itself insecure.

 

Lender’s Rights. If Borrower is in default, Lender will send notice to Borrower setting forth a time period of at least five (51 days within which such default may be cured. During this cure period, without notice. Lender may suspend Borrower’s Credit Line as provided below. If such default is not cured during this period. Lender may either terminate or continue suspension of Borrower’s Credit Line Account.

 

Suspension. If Lender suspends Borrower’s Credit Line, Borrower will lose the right to obtain further credit advances. However, all other terms of this Agreement will remain in effect and be binding upon Borrower, including Borrower’s liability for any further unauthorized use of any Credit Lino access devices.

 

Termination. If Lender terminates Borrower’s Credit Line, Borrower’s Credit Line will be suspended and the entire unpaid balance of Borrower’s Credit Line Account will be immediately due and payable, without prior notice except as may be required by law, and Borrower agrees to pay that amount plus all FINANCE CHARGES and other amounts due under this Agreement.

 

Collection Costs. Lender may hire or pay someone else to help collect this Agreement if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender’s reasonable attorneys’ fees and Lender’s legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law. Borrower also will pay any court costs, in addition to all other sums provided by law.

 

 
Loan No: 37404

COMMERCIAL LINE OF CREDIT AGREEMENT

(Continued)

Page 5

 

Rate Increase. In addition to Lender’s other rights on default, Lender may increase the variable Interest rate under this Agreement to 18.000 percent per annum. The interest rate will not exceed the maximum rate permitted by applicable law. If Lender does not Increase the interest rate on default, it will continue at the variable rate in effect as of the date Lender declares a default.

 

Delay in Enforcement. Lender may delay or waive the enforcement of any of Lender’s rights under this Agreement without losing mat right or any other right. if Lender delays or waives any of Lender’s rights, Lender may enforce that right at any time in the future without advance notice. For example, not terminating Borrower’s account for non-payment will not ben waiver of Lender’s right to terminate Borrower’s account In the future if Borrower has not paid.

 

Termination by Borrower. If Borrower terminates this Agreement, Borrower must notify Lender in writing at the address shown on Borrower’s periodic statement or other designated address. Despite termination, Borrower’s obligations under this Agreement will remain in full force and effect until Borrower hos paid Lender all amounts due under this Agreement.

 

Prepayment. Borrower may prepay al or any amount owing under this Credit Line at any time without penalty. except Lender will be entitled to receive at accrued FINANCE CHARGES, and other charges, if any. Payments in excess of Borrower’s Minimum Payment will not relieve Borrower of Borrower’s obligation to continue to make Borrower’s Minimum Payments. Instead, they will reduce the principal balance owed on the Credit Line. Borrower agrees not to send Lender payments marked “paid In full”, “without recourse”, or similar language. If Borrower sends such a payment. Lender may accept it without losing any of Lender’s rights under this Agreement. and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: INDEPENDENCE BANK OF KENTUCKY, Paducah-Jefferson Sq NMLS #405645, PO BOX 1776. 3143 BROADWAY STREET, PADUCAH, KY 42001.

 

Notices. All notices will be sent to Borrower’s address as shown in Borrower’s Credit Line application. Notices will be mailed to Borrower at a different address if Borrower gives Lender written notice of a different address. Borrower agrees to advise Lender promptly if Borrower changes Borrower’s mailing address.

 

Credit Information and Related Matters. Borrower authorizes Lender to release information about Borrower to third parties as described in Lender’s privacy policy arid Lender’s Fair Credit Reporting Act notice, provided Borrower did not opt out of the applicable policy, or as permitted by law. Borrower agrees that. upon Lender’s request. Borrower will provide Lender with a current financial statement, a now credit application, or both, on forms provided by Lender. Borrower also agrees Lender may obtain credit reports on Borrower at any time, at Lender’s sole option and expense, for any reason, including but not limited to determining whether there has been an adverse change in Borrower’s financial condition. Based upon a material adverse change in Borrower’s financial condition (such as termination of employment or loss of income), Lender may suspend Borrower’s Credit Line. Lender may require a new appraisal of the Property which secures Borrower’s Credit Line at any time, including an internal inspection, at Lender’s sole option and expense.

 

Transfer or Assignment. Without prior notice or approval from Borrower, Lender reserves the right to sell or transfer Borrower’s Credit Line Account and Lender’s rights and obligations under this Agreement to another lender, entity, or person, and to assign Lender’s rights under the security agreement. Borrower’s rights under this Agreement belong to Borrower only end may not be transferred or assigned. Borrower’s obligations, however, are binding on Borrower’s heirs and legal representatives. Upon any such sale or transfer, Lender will have no further obligation to provide Borrower with credit advances or to perform any other obligation under this Agreement.

 

 
Loan No: 37404

COMMERCIAL LINE OF CREDIT AGREEMENT

(Continued)

Page 6

 

Jury Waiver. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

 

Prior Credit Agreement. This is a renewal of loan #37404.

 

Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the Commonwealth of Kentucky without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the Commonwealth of Kentucky.

 

Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

 

Interpretation. Borrower agrees that this Agreement, together with the security agreement, :s the most reliable evidence of Borrower’s agreements with Lender. If a court finds that any provision of this Agreement is not valid or should not be enforced, that fact by itself will not mean that the rest of this Agreement will not be valid or enforced. Therefore. a court may enforce the rest of the provisions of this Agreement even if a provision of this Agreement may be found to be invalid or unenforceable. If Lender goes to court for any reason, Lender can use a copy, filmed or electronic, of any periodic statement, this Agreement, the security agreement or any other document to prove what Borrower owes Lender or that a transaction has taken place. The copy. microfilm, microfiche, or optical image will have the same validity as the original. Borrower agrees that, except to the extent Borrower can show there is a billing error, Borrower’s most current periodic statement is the most reliable evidence of Borrower’s obligation to pay.

 

Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shalt not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not effect the legality, validity or enforceability of any other provision of this Agreement.

 

Acknowledgment and Amendments. Borrower understands and agrees to the terms and conditions in this Agreement. Borrower acknowledges that, subject to applicable laws. Lender has the right to change the terms and conditions o’ the Credit Line program, including without limitation. the Margin. Borrower also understands and agrees that Borrower may be subject to other agreements with Lender regarding transfer instruments or access devices which may access Borrower’s Credit Lino. Any person signing below may request a modification to this Agreement, and, if granted, the modification will be binding upon all signers. By signing this Agreement, Borrower acknowledges that Borrower has road this Agreement. Borrower also acknowledges receipt of e completed copy of this Agreement.

 

BORROWER:

 

INTEGRATED MEDICINE AND CHIROPRACTIC REGENERATION CENTER OF ST. LOUIS, LLC
     
By: /s/ Jeff Ervin  
  Jeff Ervin, Chief Operating Officer of IMAC Holdings, LLC  

 

 
Loan No: 37404

COMMERCIAL LINE OF CREDIT AGREEMENT

(Continued)

Page 7

 

ACCEPTED: INDEPENDENCE BANK OF KENTUCKY
     
By: /s/ Scott Johnston  
  Scott Johnston, Sr. Lender McCracken Co. NMLS #791055  

 
 
 
   

 

Loan No: 37166

PROMISSORY NOTE

Page 1

 

Principal Loan Date Maturity Loan No Call / Coll Account Officer Initials
$200,000.00 05-04-2016 05-04-2021 37166 4 / 26   SHA  

 

References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item. Any item above containing “•••” has been omitted due to text length limitations.

 

Borrower:

INTEGRATED MEDICINE AND CHIROPRACTIC REGENERATION CENTER OF ST LOUIS, LLC 13339-13353 OLIVE BLVD

ST LOUIS, MO 63017

Lender:

INDEPENDENCE BANK OF KENTUCKY Paducah-Jefferson Sq -

NMLS #405645 PO BOX 1776

3143 BROADWAY STREET

PADUCAH, KY 42001

(270) 442-1716

 

 

Principal Amount: $200,000.00 Interest Rate: 4.250% Date of Note:

May 4, 2016

 

PROMISE TO PAY. INTEGRATED MEDICINE AND CHIROPRACTIC REGENERATION CENTER OF ST LOUIS, LLC (“Borrower”) promises to pay to INDEPENDENCE BANK OF KENTUCKY (“Lender”), or order, in lawful money of the United States of America, the principal amount of Two Hundred Thousand & 00/100 Dollars (5200,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance.

 

PAYMENT. Borrower will pay this loan in accordance with the following payment schedule, which calculates interest on the unpaid principal balances as described in the “INTEREST CALCULATION METHOD” paragraph using the interest rates described in this paragraph: 3 monthly consecutive interest payments, beginning June 4, 2016, with interest calculated on the unpaid principal balances using an interest rate of 4.250% per annum; 56 monthly consecutive principal and interest payments of $3,881.21 each, beginning September 4, 2016, with Interest calculated on the unpaid principal balances using an interest rate of 4.250% per annum; and one principal and interest payment of $3,881.28 on May 4, 2Q21, with interest calculated on the unpaid principal balances using an interest rate of 4.250% per annum. This estimated final payment is based on the assumption that all payments will be made exactly as scheduled; the actual final payment will be for all principal and accrued interest not yet paid, together with any other unpaid amounts under this Note. Unless otherwise agreed or required by applicable law, payments will be applied first to any late charges; then to any accrued unpaid interest; than to principal; and then to any unpaid collection costs. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing

 

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/365 simple interest basis; that is, by applying the ratio of the interest rate over the number of days in a year, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

 

PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due and may result in Borrower’s making fewer payments. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. if Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, inducing any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: INDEPENDENCE BANK OF KENTUCKY, Paducah-Jefferson Sq - NMLS #405645, PO BOX 1776, 3143 BROADWAY STREET, PADUCAH, KY 42001.

 

     
Loan No: 37166

PROMISSORY NOTE

(Continued)

Page 2

 

LATE CHARGE. if a payment is 10 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $25.00, whichever is greater.

 

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest rate on this Note shall be increased to 18.000% per annum. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

 

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

 

Payment Default. Borrower fails to make any payment when due under this Note.

 

Other Defaults. Borrower fails to comply with o’ to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

 

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in, favor of any other creditor or person that may materially affect any of Borrower’s property or Borrower’s ability to repay this Note or perform Borrower’s obligations under this Note or any of the related documents.

 

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

 

Death or Insolvency. The dissolution of Borrower (regardless of whether election to continue is made), any member withdraws from Borrower, or any other termination of Borrower’s existence as a going business or the death of any member, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type Of creditor workout, Or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

 

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

 

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

 

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

 

Insecurity. Lender in good faith believes itself insecure.

 

Cure Provisions. If any default, other than a default in payment, is curable and if Borrower has not been given a notice of a broach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after Lender sends written notice to Borrower demanding cure of such default: (11 cures the default within five t5) days; or (21 if the cure requires more than five (5) days, immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and compotes all reasonable arid necessary steps sufficient to produce compliance as soon as reasonably practical.

 

     
Loan No: 37166

PROMISSORY NOTE

(Continued)

Page 3

 

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

 

COLLATERAL. Borrower acknowledges this Note is secured by Collateral described in Commercial Security Agreement.

 

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable taw, Lender’s reasonable attorneys’ fees and Lender’s legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

 

JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

 

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the Commonwealth of Kentucky without regard to its conflicts of law provisions. This Note has been accepted by Lender in the Commonwealth of Kentucky.

 

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $35.00 if Borrower makes a payment on Borrower’s loan and the check preauthorized charge with which Borrower pays is later dishonored.

 

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and 811 accounts Borrower may open In the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to tie extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts.

 

LINE OF CREDIT. This Note evidences a straight line of credit. Once the total amount of principal has been advanced, Borrower is not entitled to further loan advances. Borrower agrees to be liable for al. sums either: (A; advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower’s accounts with Lender. The unpaid principal balance owing or, this Note at any time may be evidenced by endorsements on this Note or by Lender’s internal records, including daily computer print-outs.

 

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

 

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this filet will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note. and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties area that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

 

     
Loan No: 37166

PROMISSORY NOTE

(Continued)

Page 4

 

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE.

 

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

 

BORROWER:

 

INTEGRATED MEDICINE AND CHIROPRACTIC REGENERATION CENTER OF ST LOUIS, LLC

 

IMAC HOLDINGS, LLC, Member of INTEGRATED MEDICINE AND CHIROPRACTIC REGENERATION CENTER OF ST LOUIS, LLC

 
     
By: /s/ Jeff Ervin  
  Jeff Ervin, Manager/Chief Operating Officer of IMAC HOLDINGS, LLC                                     

 

LENDER:

 

INDEPENDENCE BANK OF KENTUCKY

 
                                      
By: /s/ Shelly H Aspery  
  Shelly H Aspery, Location Manager NMLS #777365  

 

     
     

 

 

PROMISSORY NOTE

 

Borrower:

IMAC Holdings, LLC

2725 James Sanders Blvd.

Paducah, KY 42001

Lender:

Edward S. Bredniak Revocable Trust U/A Dated 8/14/15

 

Principal: $500,000 Rate: 5.00%
Loan Date: 12/1/2016 Maturity: 11/30/2019

 

PROMISE TO PAY. IMAC Holdings, LLC (“Borrower”) promises to pay to Edward S. Bredniak Revocable Trust U/A Dated 8/14/15 (“Lender”), or order, in lawful money of the United States of America, the principal amount of Five Hundred Thousand & 00/100 Dollars ($500,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance.

 

PAYMENT. Borrower will pay this loan in accordance with the following payment schedule, which calculates interest on the update principal balances as described in the “INTEREST CALCULATION METHOD” paragraph using the interest rates descried in this paragraph: 36 consecutive principal and interest payments of $8,534.39 each, beginning December 1, 2016, with interest calculated on the unpaid principal balances using and interest rate of 5.00% per annum; and one principal and interest payment of $258,534.39 on November 30, 2019, with interest calculated on the unpaid balances using an interest rate of 5.00% per annum. This estimated final payment is based on the assumption that all payments will be made exactly as scheduled; the actual final payment will be for the principal and accrued interest not yet paid, together with any other unpaid amounts under this Note. Unless otherwise agreed or required by applicable law, payments will be applied first to any late charges; then to any accrued unpaid interest; then to principal; and then to any unpaid collection costs. Borrower will pay Lender at Lender’s address shown above or such other place as Lender may designate in writing.

 

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 360/360 simple interest basis; that is, by applying the ratio of interest rate over the number of days in a year, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

 

PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due and may result in Borrower’s making fewer payments. Borrower agrees not to send Lender payments market “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to Lender address of record.

 

LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.00% of the regularly scheduled payment.

 

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest rate on this Note shall be increased to 18.00% per annum. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

 

DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

 

Payment Default. Borrower fails to make any payment when due under this Note.

 

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

 

 
 

 

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property of Borrower’s ability to repay this Note or perform Borrower’s obligations under this Note or any of the related documents.

 

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

 

Death or Insolvency. The dissolution of Borrower (regardless of whether election to continue is made) any member withdraws from Borrower, or any other termination of Borrower’s existence as a going business or the death of any member, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, of the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

 

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor or Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by the Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

 

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

 

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

 

Insecurity. Lender in good faith believes itself insecure.

 

Cure Provisions. If any default, other than a default in payment, is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after Lender sends written notice to Borrower demanding cure of such default: (1) cures the default within five (5) days; or (2) if the cure requires more than five (5) days, immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

 

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

 

COLLATERAL. Borrower acknowledges this Note is secured by Assets of IMAC Holdings, LLC.

 

ATTORNEY’S FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law. Lender’s reasonable attorneys’ fees and Lender’s legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

 

JURY WAIVER. Lender and Borrower herby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

 

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the Commonwealth of Kentucky without regard to its conflicts of law provisions. This Note has been accepted by Lender in the Commonwealth of Kentucky.

 

 
 

 

LINE OF CREDIT. This Note evidences a straight line of credit. Once the total amount of principal has been advanced, Borrower is not entitled to further loan advances. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower’s accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender’s internal records, including daily computer print-outs.

 

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs, representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

 

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

 

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE. 

 

BORROWER: IMAC Holdings, LLC  

LENDER: Edward S. Bredniak Revocable Trust U/A

Dated 8/14/15

         
By: /s/ Jeff Ervin   By: /s/ Edward S. Bredniak
  Jeff Ervin, CEO     Edward S. Bredniak

 

 
 

 

PROMISSORY NOTE

 

Borrower:

IMAC Holdings, Inc.

1605 Westgate Circle

Brentwood, TN 37027

Lender:

The Edward S. Bredniak Revocable Trust

u/a dated 8/14/2015

 

Principal: Up to $2,000,000

Rate: 10.00%

Loan Date: 06/1/2018

Maturity: 11/30/2018

 

PROMISE TO PAY. IMAC Holdings, Inc. (“Borrower”) promises to pay to The Edward S. Bredniak Revocable Trust u/a dated 8/14/2015 (“Lender”), or order, in lawful money of the United States of America, the amount of Two Million & 00/100 Dollars ($2,000,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance.

 

ADVANCE. Requested amounts must be in increments of Fifty Thousand & 00/100 Dollars ($50,000.00) and requested in writing with one week notice to Lender. The first Advance must be in an amount that, when added to the Existing Debt, creates a balance rounded to the nearest thousands.

 

EXISTING DEBT. Any outstanding debt balance existing between Borrower and Lender must be retired. The current debt obligation of $379,675.60 shall be converted into the terms of this Promissory Note, and any prior note(s) shall be null and void.

PAYMENT. Borrower will pay this loan in accordance with the following payment schedule, which calculates interest on the update principal balances as described in the “INTEREST CALCULATION METHOD” paragraph at the earliest occurrence of the events described in this paragraph: the date of a change of ownership control, the closing of an equity sale over Two Million & 00/100 Dollars ($2,000,000.00), or November 30, 2018, with interest calculated on the unpaid balances using the Rate. Unless otherwise agreed or required by applicable law, payments will be applied first to any late charges; then to any accrued unpaid interest; then to principal; and then to any unpaid collection costs. Borrower will pay Lender at Lender’s address shown above or such other place as Lender designates in writing.

 

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 360/360 simple interest basis; that is, by applying the ratio of interest rate over the number of days in a year, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

 

PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due and may result in Borrower’s making fewer payments. Borrower agrees not to send Lender payments market “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to Lender address of record.

 

INTEREST AFTER DEFAULT. Upon default and so long as in default, including failure to pay upon final maturity, the interest rate on this Note shall be increased to 18.00% per annum. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

 

DEFAULT. Subject to the core provisions below, each of the following shall constitute an event of default (“Event of Default”) under this Note:

 

 
 

 

Payment Default. Borrower fails to make any payment when due under this Note.

 

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

 

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property of Borrower’s ability to repay this Note or perform Borrower’s obligations under this Note or any of the related documents.

 

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower under this Note is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

 

Death or Insolvency. The dissolution of Borrower (regardless of whether election to continue is made) any member withdraws from Borrower, or any other termination of Borrower’s existence as a going business or the death of any member, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, of the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

 

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor or Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by the Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

 

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

 

Cure Provisions. If any default, other than a default in payment, is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after Lender sends written notice to Borrower demanding cure of such default: (1) cures the default within five (5) days; or (2) if the cure requires more than five (5) days, immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

 

LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

 

COLLATERAL. Borrower acknowledges this Note is secured by Assets of IMAC Holdings, LLC.

 

ATTORNEY’S FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law. Lender’s reasonable attorneys’ fees and Lender’s legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

 

JURY WAIVER. Lender and Borrower herby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

 

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the Commonwealth of Kentucky without regard to its conflicts of law provisions. This Note has been accepted by Lender in the Commonwealth of Kentucky.

 

 
 

 

LINE OF CREDIT. This Note evidences a straight line of credit. Once the total amount of principal has been advanced, Borrower is not entitled to further loan advances. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower’s accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender’s internal records, including daily computer print-outs.

 

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heirs, representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

 

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

 

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE.

 

BORROWER: IMAC Holdings, LLC   LENDER: The Edward S. Bredniak Revocable Trust
      u/a dated 8/14/2015
       
By: /s/ Jeff Ervin   By: /s/ Edward S. Bredniak
  Jeff Ervin, CEO     Edward S. Bredniak, Trustee

 

 
 

 

 

EXHIBIT 14.1

 

IMAC HOLDINGS, INC.

(the “Company”)

CODE OF BUSINESS CONDUCT AND ETHICS

 

Introduction

 

This Code of Business Conduct and Ethics (the “Code”) covers a wide range of business practices and procedures. It does not cover every issue that may arise, but it sets out basic principles to guide the directors, officers, and employees of the Company. All Company directors, officers, and employees should conduct themselves accordingly and seek to avoid even the appearance of improper behavior in any way relating to the Company. In appropriate circumstances, this Code should also be provided to and followed by the Company’s agents and representatives, including consultants.

 

Any director or officer who has any questions about this Code should consult with the Chief Executive Officer or the General Counsel as appropriate in the circumstances. If an employee has any questions about this Code, the employee should ask his or her supervisor how to handle the situation, or if the employee prefers, the Chief Executive Officer or General Counsel.

 

Scope of Code

 

This Code is intended to deter wrongdoing and to promote the following:

 

  honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
     
  full, fair, accurate, timely, and understandable disclosure in reports and documents the Company files with, or submits to, the Securities and Exchange Commission (the “SEC”), and in other communications made by the Company;
     
  compliance with applicable governmental laws, rules, and regulations;
     
  the prompt internal reporting of violations of this Code to the appropriate person or persons identified in this Code;
     
  accountability for adherence to this Code; and
     
  adherence to a high standard of business ethics.

 

 

 

 

Compliance with Laws, Rules, and Regulations

 

Obeying the law, both in letter and in spirit, is the foundation on which the Company’s ethical standards are built. All directors, officers, and employees should respect and obey all laws, rules, and regulations applicable to the business and operations of the Company. Although directors, officers, and employees are not expected to know all of the details of these laws, rules, and regulations, it is important to know enough to determine when to seek advice from the Chief Executive Officer, the General Counsel, supervisors, managers, other officers or other appropriate Company personnel.

 

Conflicts of Interest

 

A “conflict of interest” exists when an individual’s private interest interferes in any way – or even appears to conflict – with the interests of the Company. A conflict of interest situation can arise when a director, officer, or employee takes actions or has interests that may make it difficult to perform his or her work on behalf of the Company in an objective and effective manner. Conflicts of interest may also arise when a director, officer, or employee, or a member of his or her family, receives improper personal benefits as a result of his or her position with the Company. Loans to, or guarantees of obligations of, employees and their family members may create conflicts of interest.

 

Service to the Company should never be subordinated to personal gain and advantage. Conflicts of interest, whenever possible, should be avoided. In particular, clear conflict of interest situations involving directors, officers, and employees who occupy supervisory positions or who have discretionary authority in dealing with any third party may include the following:

 

  any significant ownership interest in any supplier or customer;
     
  any consulting or employment relationship with any customer, supplier, or competitor;
     
  any outside business activity or other interests that detracts from an individual’s ability to devote appropriate time and attention to his or her responsibilities to the Company or affects the individuals motivation or performance as an Employee;
     
  the receipt of non-nominal gifts or excessive entertainment from any organization with which the Company has current or prospective business dealings
     
  being in the position of supervising, reviewing, or having any influence on the job evaluation, pay, or benefit of any family member; and
     
  selling anything to the Company or buying anything from the Company, except on the same terms and conditions as comparable directors, officers, or employees are permitted to so purchase or sell.

 

It is almost always a conflict of interest for a Company officer or employee to work simultaneously for a competitor, customer, or supplier. No officer or employee may work for a competitor as a consultant or board member. The best policy is to avoid any direct or indirect business connection with the Company’s customers, suppliers, and competitors, except on the Company’s behalf.

 

2

 

 

Conflicts of interest are prohibited as a matter of Company policy, except under guidelines approved by the Board of Directors. Conflicts of interest may not always be clear-cut and further review and discussions may be appropriate. Any director or officer who becomes aware of a conflict or potential conflict should bring it to the attention of the Chief Executive Officer and the General Counsel as appropriate in the circumstances. Any employee who becomes aware of a conflict or potential conflict should bring it to the attention of the Chief Executive Officer, the General Counsel, supervisor, manager, or other appropriate personnel. Supervisors and all employees are obligated to make the Chief Executive Officer and the General Counsel aware of any conflict or potential conflict that they may be aware of regarding any employee of the Company.

 

Insider Trading

 

Directors, officers, and employees who have access to confidential information relating to the Company are not permitted to use or share that information for stock trading purposes or for any other purpose except the conduct of the Company’s business. All non-public information about the Company should be considered confidential information. To use non-public information for personal financial benefit or to “tip” others who might make an investment decision on the basis of this information is not only unethical and against Company policy but is also illegal. Directors, officers, and employees also should comply with insider trading standards and procedures adopted by the Company. If a question arises, the director, officer, or employee should consult with the Company’s General Counsel. The Company, with the approval of the Board of Directors, may establish policies and periods where directors or employees may buy or sell Company stock so long as the director or employee conforms to applicable laws, Company policies and attests that the individual does not have access or possess any material non-public information.

 

Corporate Opportunities

 

Directors, officers, and employees are prohibited from taking for themselves personally or directing to a third party any opportunity that is discovered through the use of corporate property, information, or position without the consent of the Board of Directors. No director, officer, or employee may use corporate property, information, or position for improper personal gain, and no director, officer, or employee may compete with the Company directly or indirectly. Directors, officers, and employees owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises.

 

Competition and Fair Dealing

 

The Company seeks to compete in a fair and honest manner. The Company seeks competitive advantages through superior performance rather than through unethical or illegal business practices. Stealing proprietary information, possessing trade secret information that was obtained without the owner’s consent, or inducing such disclosures by past or present employees of other companies is prohibited. Each director, officer, and employee should endeavor to respect the rights of and deal fairly with the Company’s customers, suppliers, service providers, competitors, and employees, including the making of unfair comments about competitor’s products. No director, officer, or employee should take unfair advantage of anyone relating to the Company’s business or operations through manipulation, concealment, or abuse of privileged information, misrepresentation of material facts, or any unfair dealing practice.

 

3

 

 

To maintain the Company’s valuable reputation, compliance with the Company’s quality processes and safety requirements is essential. In the context of ethics, quality requires that the Company’s products and services meet reasonable customer expectations and applicable published industry and governmental standards. All inspection and testing documents must be handled in accordance with all applicable regulations, and every employee is obligated to assure complete and accurate record keeping and documentation.

 

Illegal Discrimination and Sexual and Other Verbal or Physical Harassment

 

The Company is firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or illegal sexual and other illegal verbal or physical harassment of any kind based on sex, age, race, color, religion, national origin, disability, ancestry, marital or veteran status, or any other legally protected status. Any director or employee who is aware of any such conduct or perceived conduct must be promptly reported to the Chief Executive Officer, the General Counsel or the head of human resources, who will promptly conduct an investigation. The Company may terminate for cause any employee who, as a result of its investigation, it judges has violated this or other such Company policy. Employees shall treat all persons with respect and fairness, and all relationships (whether written, oral or electronic) shall be businesslike and free of any illegal bias, prejudice, harassment, and retaliation.

 

Health and Safety

 

The Company strives to provide each employee with a safe and healthful work environment. Each officer and employee has responsibility for maintaining a safe and healthy workplace for all employees by following safety and health rules and practices and reporting accidents, injuries, and unsafe equipment, practices, or conditions.

 

Violence and threatening behavior are not permitted. Officers and employees should report to work in a condition to perform their duties, free from the influence of illegal drugs or alcohol. The use of illegal drugs in the workplace will not be tolerated and must be promptly reported to the Chief Executive Officer or the General Counsel, who will promptly conduct an investigation. The Company may terminate for cause any employee who, as a result of its investigation, it judges has violated this or other such Company policy.

 

Record-Keeping

 

The Company requires honest and accurate recording and reporting of information in order to make responsible business decisions.

 

Directors, officers and employees regularly use business expense accounts, which must be documented and recorded accurately. If an officer or employee is not sure whether a certain expense is legitimate, the employee should ask his or her supervisor or the Company’s controller. Rules and guidelines are available from the Accounting Department.

 

All of the Company’s books, records, accounts, and financial statements must be maintained in reasonable detail, must appropriately reflect the Company’s transactions, and must conform both to applicable legal requirements and to the Company’s system of internal controls. Unrecorded or “off the books” funds or assets should not be maintained unless permitted by applicable law or regulation.

 

4

 

 

Business records and communications often become public, and the Company and its officers and employees in their capacity with the Company should avoid exaggeration, derogatory remarks, guesswork, or inappropriate characterizations of people and companies that can be misunderstood. This applies equally to e-mail, internal memos, and formal reports. The Company’s records should always be retained or destroyed according to the Company’s record retention policies. In accordance with those policies, in the event of litigation or governmental investigation, directors, officers, and employees should consult with the Company’s General Counsel before taking any action because it is critical that any impropriety or possible appearance of impropriety be avoided.

 

Confidentiality

 

Directors, officers, and employees must maintain the confidentiality of confidential information entrusted to them by the Company or its customers, suppliers, joint venture partners, or others with whom the Company is considering a business or other transaction except when disclosure is authorized by an executive officer or required or mandated by laws or regulations. Confidential information includes all non-public information that might be useful or helpful to competitors or harmful to the Company or its customers and suppliers, if disclosed. It also includes information that suppliers and customers have entrusted to the Company. The obligation to preserve confidential information continues even after employment ends. Every employee must sign the then current employee confidentially, non-disclosure and assignment of invention agreement as a condition of employment and continued employment.

 

Protection and Proper Use of Company Assets

 

All directors, officers, and employees should endeavor to protect the Company’s assets and ensure their efficient use. Theft, carelessness, and waste have a direct impact on the Company’s profitability. Any suspected incident of fraud or theft should be immediately reported to the General Counsel for investigation. Company assets should be used for legitimate business purposes and should not be used for non-Company business.

 

The obligation to protect the Company’s assets includes its proprietary information. Proprietary information includes intellectual property, such as trade secrets, patents, trademarks, and copyrights, as well as business, marketing and service plans, engineering and manufacturing ideas, designs, databases, records, salary information, and any unpublished financial data and reports. Unauthorized use or distribution of this information would violate Company policy. It could also be illegal and result in civil or even criminal penalties.

 

Entertainment, Gifts, Favors, and Gratuities

 

The purpose of business entertainment and gifts in a commercial setting is to create good will and sound working relationships, not to gain unfair advantage with customers. No gift or entertainment should ever be offered, given, provided, or accepted by a director, officer, or employee, family member of a director, officer, or employee, or agent relating to the individual’s position with the Company unless it (1) is not a cash gift, (2) is consistent with customary business practices, (3) is not excessive in value, (4) cannot be construed as a bribe or payoff, and (5) does not violate any laws or regulations. A director or officer should discuss with the Chief Executive Officer or General Counsel, and an employee should discuss with his or her supervisor, or if he prefers, the Chief Executive Officer or General Counsel, any gifts or proposed gifts that the individual is not certain are appropriate. Anything having an aggregate value in excess of $100 may create the possibility of a conflict and should be graciously declined with an explanation that acceptance would be in violation of Company policy, unless approved by the Chief Executive Officer and the General Counsel.

 

5

 

 

Political Contributions

 

The Company will not contribute directly or indirectly to political parties or candidates for office unless approved by the Board of Directors or the Audit Committee, and by the CEO and the General Counsel, and only in accordance with applicable laws.

 

Payments to Government Personnel

 

The U.S. Foreign Corrupt Practices Act prohibits giving anything of value, directly or indirectly, to officials of foreign governments or foreign political candidates in order to obtain or retain business. It is strictly prohibited to make illegal payments to government officials of any country.

 

In addition, the U.S. government has a number of laws and regulations regarding business gratuities that may be accepted by U.S. government personnel. The promise, offer, or delivery to an official or employee of the U.S. government of a gift, favor, or other gratuity in violation of these rules would not only violate Company policy but could also be a criminal offense. State and local governments, as well as foreign governments, may have similar rules.

 

Corporate Disclosures

 

All directors, officers, and employees should support the Company’s goal to have full, fair, accurate, timely, and understandable disclosure in the periodic reports required to be filed by the Company with the SEC. Although most employees hold positions that are far removed from the Company’s required filings with the SEC, each director, officer, and employee should promptly bring to the attention of the Chief Executive Officer, the Chief Financial Officer, the General Counsel, the Controller, or the Audit Committee, as appropriate in the circumstances, any of the following:

 

  Any material information to which such individual may become aware that affects the disclosures made by the Company in its public filings or would otherwise assist the Chief Executive Officer, the Chief Financial Officer, the General Counsel, the Controller, and the Audit Committee in fulfilling their responsibilities with respect to such public filings.
     
  Any information the individual may have concerning (a) significant deficiencies in the design or operation of internal controls that could adversely affect the Company’s ability to record, process, summarize, and report financial data or (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s financial reporting, disclosures, or internal controls.
     
  Any information the individual may have concerning any violation of this Code, including any actual or apparent conflicts of interest between personal and professional relationships, involving any management or other employees who have a significant role in the Company’s financial reporting, disclosures, or internal controls.
     
  Any information the individual may have concerning evidence of a material violation of the securities or other laws, rules, or regulations applicable to the Company and the operation of its business, by the Company or any agent thereof, or of violation of this Code.

 

6

 

 

Corporate Communications, Public Relations and Investor Relations

 

Only the Chief Executive Officer and the Chief Financial Officer or their specific designee are authorized to communicate on behalf of the Company with shareholders, prospective investors, bankers, the press, broadcast media of the general public. Any inquiries from these sources should promptly be referred to on of these individuals without further comment.

 

Contracts

 

Only proper officers of the Company specifically designated by the CEO or CFO are authorized to enter into and execute contracts (whether written or oral) on behalf of the Company. All contracts must be approved by the General Counsel and by the CFO or Controller. No other director, officer, employee or agent of the Company has any authority (express, apparent, implied) to obligate the Company in any manner, or hold himself or herself out to any third party as having such authority.

 

Using Company Computer and Communication Resources

 

Employees may use the Company’s electronic equipment at their desk or work station for incidental personal matters, however, employees are not guaranteed personal privacy on the Company’s communications systems or of the information sent to, from, or stored in Company communications. All documents, including all electronic communications, whether business or personal related, are the Company’s property, and they are subject to review by the Company at any time, whether in your presence or not.

 

  Employees may not use Company computer and communication resources for communications that contain or promote any of the following:
     
  abusive or objectionable language;
     
  information that is illegal, obscene, or pornographic;
     
  messages that are likely to result in the loss or damage of the recipient’s work or system;
     
  messages that are defamatory;
     
  use that interferes with the work of the employee or others; or
     
  solicitation of employees for any unauthorized purpose.

 

Right to Monitor/Right to Privacy

 

The Company reserves the right to monitor any Company mail systems, including electronic mail, computers, software, files or any other internal documents in any media, including electronic and hard copy. Employees do not have the right to privacy at his/her desk or work station and computer.

 

7

 

 

Waivers of the Code of Conduct

 

Any waiver of this Code for directors or executive officers may be made only by the Board of Directors or a committee of the Board and will be promptly disclosed to stockholders as required by applicable laws, rules, and regulations, including the rules of the SEC and under applicable exchange or Nasdaq rules. Any such waiver also must be disclosed in a Form 8-K.

 

Alcohol and Controlled Substances Abuse

 

The Company recognizes that alcoholism and other drug addiction are illnesses that are not easily resolved by personal effort and may require professional assistance and treatment. Employees with alcohol or other drug problems are strongly encouraged to take advantage of the diagnostic, referral, counseling and preventive services available through our health insurance plan that have been developed to assure confidentiality of participation.

 

Controlled substance or alcohol abuse does not excuse Employees from neglect of their employment responsibilities. Individuals whose work performance is impaired as the result of the use or abuse of alcohol or other drugs may be required to participate in an appropriate diagnostic evaluation and treatment plan. Employees are prohibited from engaging in the unlawful possession, use or distribution of alcohol or other illegal drugs on Company property or as part Company activities. Further, use of alcohol or controlled substantives off Company premises that in any way impairs work performance is also prohibited.

 

The unlawful manufacture, distribution, dispensation, possession or use of controlled substances is prohibited on Company property or as a part of Company activities. Individuals violating this policy are subject disciplinary action, as well as termination and possible referral for criminal prosecution.

 

Workplace Violence and Weapons

 

It is a violation of this policy to engage in Workplace Violence or use or to possess a Weapon, as defined below, at any time on Company premises, including common areas in the office building and in the parking lot or immediate surrounding areas.

 

Workplace Violence includes, but is not limited to, intimidation, threats, physical attack or property damage.

 

  Intimidation: Includes but is not limited to stalking or engaging in actions intended to frighten, coerce, or induce duress.
     
  Threat: The expression of intent to cause physical or mental harm. An expression constitutes a threat without regard to whether the party communicating the threat has the present ability to carry it out and without regard to whether the expression is contingent, conditional or future.
     
  Physical Attack: Unwanted or hostile physical contact such as hitting, fighting, pushing, shoving or throwing objects.
     
  Property Damage: Intentional damage to property which includes property owned by the Company, employees, visitors or vendors.

 

8

 

 

Weapons are defined as: (1) a loaded or unloaded firearm, whether operable or inoperable, (2) a knife, stabbing instrument, brass knuckles, blackjack, club, or other object specifically designed or customarily carried or possessed for use as a weapon, (3) an object that is likely to cause death or bodily injury when used as a weapon and that is used as a weapon or carried or possessed for use as a weapon, or (4) an object or device that is used or fashioned in a manner to lead a person to believe the object or device is a firearm or an object which is likely to cause death or bodily injury. Employees must report any real or reasonably perceived suspicious activities or intimidating verbal or physical threats immediately to the local police and to the CEO, the General Counsel or any other Company officer.

 

Reporting any Illegal or Unethical Behavior or Violations of this Code of Ethics

 

Directors and officers are encouraged to talk to the Chief Executive Officer or the General Counsel, and employees are encouraged to talk to Chief Executive Officer, the General Counsel, supervisors, managers, or other appropriate personnel when in doubt about the best course of action in a particular situation. Directors, officers, and employees should report any observed illegal or unethical behavior and any perceived violations of laws, rules, regulations, or this Code to the Chief Executive Officer or General Counsel or directly to any member of the Audit Committee of the Board of Directors. It is the policy of the Company not to allow retaliation for reports of misconduct by others made in good faith. Directors, officers, and employees are expected to cooperate in internal investigations of misconduct.

 

The Company maintains a Whistleblower Policy attached hereto and incorporated herein as Schedule A for (1) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters and (2) the confidential, anonymous submission by the Company’s employees of concerns regarding questionable accounting or auditing matters.

 

Enforcement

 

The Board of Directors, the Audit Committee, or the CEO in consultation with the General Counsel, and when they deem it appropriate, with the Board of Directors or the Audit Committee, shall determine appropriate actions to be taken in the event of violations of this Code. Such actions shall be reasonably designed to deter wrongdoing and to promote accountability for adherence to this Code and to these additional procedures, and may include written notices to the individual involved that the Board has determined that there has been a violation, censure by the Board, demotion or re-assignment of the individual involved, suspension with or without pay or benefits (as determined by the Board), and termination of the individual’s employment or position. In determining the appropriate action in a particular case, the Board of Directors or such designee shall take into account all relevant information, including the nature and severity of the violation, whether the violation was a single occurrence or repeated occurrences, whether the violation appears to have been intentional or inadvertent, whether the individual in question had been advised prior to the violation as to the proper course of action, and whether or not the individual in question had committed other violations in the past.

 

Publicly Available: This Code shall be posted on the Company’s website.

 

9

 

 

Schedule A

 

IMAC HOLDINGS, INC. - WHISTLEBLOWER POLICY

Introduction

 

The Company has adopted a Code of Business Conduct and Ethics applicable to all employees that urges employees promptly to discuss with or disclose to their supervisor, the CEO, the General Counsel, or the Chairman of the Audit Committee events of questionable, fraudulent, or illegal nature. In addition, the Company recently adopted a Code of Ethics for the Chief Executive Officer and senior financial officers that, among other things, requires prompt internal reporting of violations of that Code, the Code of Business Conduct and Ethics, fraud, and a variety of other matters.

 

As an additional measure to support our commitment to ethical conduct, the Audit Committee of our Board of Directors has adopted the following policies and procedures for (i) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal controls, or auditing matters; and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

 

1. Reporting of Concerns or Complaints Regarding Accounting, Internal Controls, or Auditing Matters.

 

Taking action to prevent problems is part of the Company’s culture. If you observe possible unethical or illegal conduct, you are encouraged to report your concerns. Employees and others involved with the Company are urged to come forward with any such information, without regard to the identity of position of the suspected offender.

 

Employees and others may choose any of the following modes of communicating suspected violations of law, policy, or other wrongdoing, as well as any concerns regarding questionable accounting or auditing matters (including deficiencies in internal controls):

 

  Report the matter to your supervisor; or
     
  Report the matter to the Company’s CEO or General Counsel; or
     
  Report the matter to the Chairman of the Audit Committee.

 

2. Confidentiality.

 

The Company will treat all communications under this Policy in a confidential manner, except to the extent necessary (a) to conduct a complete and fair investigation, or (b) for reviews of Company operations by the Company’s Board of Directors, its Audit Committee, and the Company’s independent public accountants and the Company’s outside legal counsel.

 

Moreover, if your situation requires that your identity be protected, you are still encouraged to please submit an anonymous report to the Audit Committee Chairman. Please call or have someone else call the CEO or General Counsel requesting the name and address of the Audit Committee member, and if they for any reason fail to provide you with the information at the time you speak to one of them, call the Company’s external auditors to obtain such information. In the alternative, you may contact Jeffrey S. Ervin, the Company’s Chief Executive Officer, directly by sending a letter addressed as follows: “Mr. Jeffrey S. Ervin, Chief Executive Officer, IMAC Holdings, Inc., 1605 Westgate Circle, Brentwood, Tennessee 37027.”

 

10

 

 

Retaliation

 

Any individual who in good faith reports a possible violation of the Company’s Code of Business Conduct and Ethics, the Code of Ethics for the Chief Executive Officer and senior financial officers, or of law, or any concerns regarding questionable accounting or auditing matters, even if the report is mistaken, or who assists in the investigation of a reported violation, will be protected by the Company. Retaliation in any form against these individuals will not be tolerated. Any act of retaliation should be reported immediately and will be disciplined appropriately.

 

Specifically, the Company will not discharge, demote, suspend, threaten, harass, or in any other manner discriminate or retaliate against any employee in the terms and conditions of the employee’s employment because of any lawful act done by that employee to either (a) provide information, cause information to be provided, or otherwise assist in any investigation regarding any conduct that the employee reasonably believes constitutes a violation of any Company code of conduct, law, rule, or regulation, including any rule or regulation of the Securities and Exchange Commission or any provision of Federal law relating to fraud against shareholders, or (b) file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed or, to the employee’s knowledge, about to be filed relating to an alleged violation of any such law, rule, or regulation.

 

11

 

 

 

 

EXHIBIT 14.2

 

IMAC HOLDINGS, INC.

 

(the “Company”)

 

CODE OF ETHICS FOR THE CEO AND SENIOR FINANCIAL OFFICERS

 

The Company has a Code of Business Conduct and Ethics applicable to all directors and employees of the Company. The Chief Executive Officer and all senior financial officers, including the Chief Financial Officer and principal accounting officer and Controller are bound by the provisions set forth therein relating to ethical conduct, conflicts of interest, and compliance with law. In addition to the Code of Business Conduct and Ethics, the Chief Executive Officer and senior financial officers are subject to the following additional specific policies:

 

1. The Chief Executive Officer and all senior financial officers are responsible for full, fair, accurate, timely, and understandable disclosure in the periodic reports required to be filed by the Company with the SEC. Accordingly, it is the responsibility of the Chief Executive Officer and each senior financial officer promptly to bring to the attention of the General Counsel or, if appropriate, to outside counsel, and if applicable, to the Audit Committee any material information of which he or she may become aware that affects the disclosures made by the Company in its public filings or otherwise assist the General Counsel and the Audit Committee in fulfilling their responsibilities.
     
2. The Chief Executive Officer and each senior financial officer shall promptly bring to the attention of the General Counsel or, if appropriate, to outside counsel, if applicable, and the Audit Committee any information he or she may have concerning (a) significant deficiencies in the design or operation of internal controls that could adversely affect the Company’s ability to record, process, summarize, and report financial data or (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s financial reporting, disclosures or internal controls.
     
3. The Chief Executive Officer and each senior financial officer shall promptly bring to the attention of the General Counsel or, if appropriate, to outside counsel, and to the Audit Committee any information he or she may have concerning any violation of this Code or the Company’s Code of Business Conduct and Ethics, including any actual or apparent conflicts of interest between personal and professional relationships, involving any management or other employees who have a significant role in the Company’s financial reporting, disclosures, or internal controls.
     
4. The Chief Executive Officer and each senior financial officer shall promptly bring to the attention of the General Counsel or, if appropriate, to outside counsel, and if applicable, and the Audit Committee any information he or she may have concerning evidence of a material violation of the securities or other laws, rules, or regulations applicable to the Company and the operation of its business, by the Company or any agent thereof, or of violation of the Code of Business Conduct and Ethics or of these additional procedures.

 

 
 

 

5. The Board of Directors or the Audit Committee shall determine, or designate appropriate persons to determine, appropriate actions to be taken in the event of violations of the Code of Business Conduct and Ethics or of these additional procedures by the Chief Executive Officer and the Company’s senior financial officers. Such actions shall be reasonably designed to deter wrongdoing and to promote accountability for adherence to the Code of Business Conduct and Ethics and to these additional procedures, and may include written notices to the individual involved that the Board has determined that there has been a violation, censure by the Board, demotion or re-assignment of the individual involved, suspension with or without pay or benefits (as determined by the Board), and termination of the individual’s employment. In determining the appropriate action in a particular case, the Board of Directors or such designee shall take into account all relevant information, including the nature and severity of the violation, whether the violation was a single occurrence or repeated occurrences, whether the violation appears to have been intentional or inadvertent, whether the individual in question had been advised prior to the violation as to the proper course of action, and whether or not the individual in question had committed other violations in the past.

 

Publicly Available: This Code shall be posted on the Company’s website.

 

2
 

 

 

EXHIBIT 21.1

 

SUBSIDIARIES OF THE REGISTRANT

 

Name of Subsidiary   Name of Parent Company   Subsidiary State of Organization
         
IMAC of St. Louis, LLC   IMAC Holdings, Inc.   Missouri
         
IMAC Regeneration Management of Nashville, LLC   IMAC Holdings, Inc.   Tennessee
         
IMAC Management Services LLC   IMAC Holdings, Inc.   Kentucky
         
IMAC Regeneration Management, LLC   IMAC Holdings, Inc.   Texas

 

 
 


 

Exhibit 23.2

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

IMAC Holdings, Inc.

Brentwood, Tennessee

 

We hereby consent to the use of our report dated May 31, 2018 (except for Note 1 to which the date is June 1, 2018), on the consolidated financial statements of IMAC Holdings, Inc. for the years ended December 31, 2017 and 2016, included herein on this registration statement of IMAC Holdings, Inc. on Form S-1 and to the reference to our firm under the heading “Experts” in the Prospectus.

 

/s/ Daszkal Bolton LLP

 

 

Boca Raton, Florida

September 17, 2018

 

 
 

 

EXHIBIT 23.3

 

CONSENT

 

Pursuant to Rule 438 under the Securities Act of 1933, as amended, the undersigned hereby consents to being named in the Registration Statement on Form S-1 of IMAC Holdings, Inc. (the “Company”) as a person about to become a director of the Company.

 

Dated: September 17, 2018  
   
  /s/ David Ellwanger
  David Ellwanger

 

     
 

 

EXHIBIT 23.4

 

CONSENT

 

Pursuant to Rule 438 under the Securities Act of 1933, as amended, the undersigned hereby consents to being named in the Registration Statement on Form S-1 of IMAC Holdings, Inc. (the “Company”) as a person about to become a director of the Company.

 

Dated: September 17, 2018  
   
  /s/ George Hampton
  George Hampton

 

     
 

 

EXHIBIT 23.5

 

CONSENT

 

Pursuant to Rule 438 under the Securities Act of 1933, as amended, the undersigned hereby consents to being named in the Registration Statement on Form S-1 of IMAC Holdings, Inc. (the “Company”) as a person about to become a director of the Company.

 

Dated: September 17, 2018  
   
  /s/ Dean Weiland
  Dean Weiland