UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 16, 2020
MEDAVAIL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delaware
|
|
000-53298
|
|
90-0772394
|
(State or other jurisdiction of
incorporation or organization)
|
|
(Commission File Number)
|
|
(I.R.S. Employer
Identification Number)
|
6665 Millcreek Dr. Unit 1,
Mississauga ON Canada
L5N 5M4
(Address of principal executive offices)
+1 (905) 812-0023
(Registrant’s telephone number, including area code)
MYOS RENS Technology Inc.
45 Horsehill Road
Suite 106
Cedar Knolls, New Jersey 07927
(Former name, former address and former fiscal year, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
|
|
|
|
|
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
Common stock, par value $0.001 per share
|
MDVL
|
The Nasdaq Stock Market LLC
|
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
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 13(a) of the Exchange Act. ☐
Introductory Note
On November 17, 2020, MedAvail Holdings, Inc. (f/k/a MYOS RENS Technology Inc.), a Delaware corporation (the “Company”), consummated the previously announced business combination pursuant to that certain Agreement and Plan of Merger and Reorganization, dated as of June 30, 2020 (the “Merger Agreement”), by and among the Company, MedAvail, Inc. (“MedAvail”), and Matrix Merger Sub, Inc. (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub merged with and into MedAvail, with MedAvail surviving as a wholly-owned subsidiary of the Company (the “Merger”, and together with the Reverse Stock Split of MYOS, the Spin Out Transaction, and the Reincorporation (as such terms are defined below) and the other transactions contemplated by the Merger Agreement, the “Business Combination”). The Business Combination was consummated on November 18, 2020 (the “Business Combination Closing Date”).
In connection with the consummation of the Business Combination (the “Business Combination Closing”), the registrant changed its name from MYOS RENS Technology Inc. to MedAvail Holdings, Inc. Unless the context otherwise provides, “MYOS” refers to the registrant prior to the Business Combination Closing, and “we,” “us,” “our,” “MedAvail,” and the “Company” refer to the registrant and, where appropriate its subsidiaries following the Business Combination Closing.
Item 1.01 Entry into a Material Definitive Agreement
Assignment and Assumption Agreement
Prior to the effective time of the Merger (the “Effective Time”), on November 16, 2020, MYOS entered into an assignment and assumption agreement (the “Assignment and Assumption Agreement”) with MYOS Corp., a Delaware corporation (“MYOS Corp.”), pursuant to which MYOS contributed substantially all of MYOS’s assets and liabilities to MYOS Corp. in exchange for all the outstanding shares of common stock MYOS Corp. On November 18, 2020, before the Business Combination Closing, the MYOS shareholders of record existing as of October 2, 2020 were issued a pro rata dividend of all the outstanding shares of MYOS Corp. (the “Spin Out Transaction”).
The foregoing description of the Assignment and Assumption Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Assignment and Assumption Agreement, a copy of which is attached hereto as Exhibit 2.2 to this Current Report on Form 8-K and is incorporated herein by reference.
Amended and Restated Investors’ Rights Agreement
In connection with the Business Combination Closing, on November 18, 2020, the Company executed and delivered a joinder to that certain Amended and Restated Investors’ Rights Agreement, dated as of October 9, 2020 (the “Rights Agreement”), by and among MedAvail, certain legacy stockholders of MedAvail (the “New Holders”) and upon the delivery of such joinder, the Company. Under the Rights Agreement, the Company is obligated within 75 days after the Business Combination Closing, to file one or more registration statements with the Securities and Exchange Commission (the “SEC”) to register the resale of the shares of the Company’s common stock, $0.001 par value per share (“Common Stock”) held by the New Holders (the “Resale Registration Statements”). The Company agreed to use commercially reasonable efforts to have the Resale Registration Statements become effective as soon as practicable after the filing thereof and within 180 days of the Business Combination Closing.
The foregoing description of the Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Rights Agreement, a copy of which is attached hereto as Exhibit 4.2 to this Current Report on Form 8-K and is incorporated herein by reference.
Securities Purchase Agreement
In connection with the Business Combination Closing, on November 18, 2020, the Company executed a joinder to that certain Securities Purchase Agreement dated as of October 9, 2020 (the “Securities Purchase Agreement”), by and among the pre-Merger MedAvail company and the persons and entities set forth therein, whereby the Company became bound by certain provisions set forth thereunder, mutatis mutandis, and comply with the provisions therein
applicable to the Company, in each case, in the same manner as if the Company were an original signatory to the Securities Purchase Agreement.
The foregoing description of the Securities Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Securities Purchase Agreement, a copy of which is attached hereto as Exhibit 10.16 to this Current Report on Form 8-K and is incorporated herein by reference.
Indemnification Agreements
On the Business Combination Closing Date, the Company entered into indemnification agreements with Messrs. Ed Kilroy, Ryan Ferguson, Dave Rawlins, Neil Prezioso, Will Misloski, Fraser Mackay, Gerard van Hamel Platerink, Gerald Gradwell, Glen Stettin, Rob Faulkner and Michael Kramer and Ms. Helen Ciesielski, each of whom is a director and/or officer of the Company following the Business Combination. These indemnification agreements provide the directors and officers with contractual rights to indemnification and advancement for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of their services as one of the Company’s directors or executive officers.
The foregoing description of the indemnification agreements does not purport to be complete and is qualified in its entirety by reference to the full text of the form of indemnification agreement, a copy of which is attached as Exhibit 10.15 to this Current Report on Form 8-K and is incorporated herein by reference.
Item 2.01. Completion of Acquisition or Disposition of Assets.
The information set forth in the “Introductory Note” above is incorporated into this Item 2.01 by reference. The Business Combination was approved by the shareholders of MYOS at the special meeting held on November 16, 2020 (the “Special Meeting”). The Business Combination was consummated on November 18, 2020 through a series of transactions as described below.
On November 16, 2020, in connection with the Business Combination and prior to the closing of the Merger, MYOS contributed substantially all of MYOS’s assets and liabilities to MYOS Corp. in exchange for all the outstanding shares of common stock of MYOS Corp. On November 18, 2020, all the outstanding shares of MYOS Corp. were issued as a pro rata dividend as described below.
On November 17, 2020 and in connection with the transactions contemplated by the Business Combination, the Company effected a reverse stock split at a ratio of one new share for every 12 shares of Common Stock outstanding (the “Reverse Stock Split”).
On November 17, 2020, subsequent to the Reverse Stock Split and at the Effective Time of the Merger, MYOS issued shares of its Common Stock to MedAvail’s stockholders pursuant to the terms of the Merger Agreement, at an exchange ratio of approximately 1.26 shares of Common Stock (post Reverse Stock Split), in exchange for each share of MedAvail common stock outstanding as of the Effective Time. The Company also assumed all of the stock options issued and outstanding under the MedAvail 2012 Equity Incentive Plan and the MedAvail 2018 Equity Incentive Plan (the “MedAvail Plans”) and issued and outstanding warrants of MedAvail, with such stock options and warrants henceforth representing the right to purchase a number of shares of Common Stock equal to approximately 1.26 multiplied by the number of shares of MedAvail common stock previously represented by such stock options and warrants, as applicable.
In connection with the Merger, on November 17, 2020, the Company paid MYOS Corp. a cash payment of $2.0 million and issued to MYOS Corp. a promissory note in the amount of $3.0 million, payable in three installments within one year of the Closing Date. On November 17, 2020, the Company paid MYOS Corp. the first $1.0 million of the principal balance of such promissory note.
November 18, 2020, the Company issued a pro rata dividend of all the outstanding shares of MYOS Corp. to the MYOS shareholders of record existing on October 2, 2020. As a result of the Spin Out Transaction, MYOS Corp., as a private company, will continue the pre-Merger business of MYOS.
On November 18, 2020, in connection with the transactions contemplated by the Business Combination, the Company reincorporated as a Delaware corporation (the “Reincorporation”) and changed its name to “MedAvail Holdings, Inc.” Following the consummation of the Business Combination, the business that is conducted by the Company became the business that was conducted by MedAvail prior to the Effective Time, which is a technology-enabled pharmacy company that brings access to pharmacy services and pharmacists directly into the care clinic.
Immediately following the Business Combination, there were approximately 31.7 million shares of Common Stock outstanding (post Reverse Stock Split). Immediately following the Business Combination Closing, the former MedAvail stockholders, warrantholders and optionholders owned approximately 97.2% of the Company, with MYOS’s stockholders, warrantholders and optionholders immediately prior to the Business Combination, whose warrants, options and shares of Common Stock remain outstanding after the Business Combination, owning approximately 2.8% of the Company.
The issuance of the shares of Common Stock to the former stockholders of MedAvail was registered with the SEC on a Registration Statement on Form S-4 (Reg. No. 333-248566) (the “Registration Statement”). The issuance of the shares of Common Stock to holders of stock options issued, or to be issued, under the MedAvail Plans will be registered with the SEC on a Registration Statement on Form S-8. Prior to the Business Combination Closing, the Company’s shares of Common Stock were listed on The Nasdaq Capital Market (“Nasdaq”) under the ticker symbol “MYOS”. The Company commenced trading on Nasdaq under the new ticker symbol “MDVL” on November 18, 2020. The Company’s Common Stock has a new CUSIP number, 58406B103.
The foregoing descriptions of the Merger and the Merger Agreement do not purport to be complete and are qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 30, 2020 and is incorporated herein by reference.
On November 18, 2020, the Company issued a press release announcing the completion of the Business Combination. A copy of the press release is attached hereto as Exhibit 99.2
In connection with the Business Combination described in this Current Report on Form 8-K, the Company provides the following information related to MedAvail set forth in this Item 2.01.
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS
|
|
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Current Report on Form 8-K and the information and documents incorporated herein by reference contain forward-looking statements. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as the Company cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “would,” “could,” “should,” “seeks,” “intends,” “plans,” “pro forma,” “goal,” “target,” “strategy,” “future,” “likely,” “potential,” “possible,” “forecast,” “estimates,” or “anticipates” or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. For example, forward-looking statements in this Current Report on Form 8-K and in any document incorporated herein by reference may include, but are not limited to statements about:
•the Company's ability to maintain and gain market share in its industry;
•the Company’s plans, strategies and objectives of management for future operations, including the execution and timing of integration plans;
•the Company’s proposed new products, services or developments;
•the Company’s future economic conditions or performance;
•the Company’s expectations regarding government and third-party payer coverage and reimbursement;
•the Company’s ability to retain and recruit key personnel;
•the Company’s ability to obtain and maintain intellectual property protection for its products and its business;
•the Company’s ability to manufacture sufficient quantities with sufficient quality;
•the Company’s compliance with extensive Nasdaq requirements and government laws, rules and regulations both in the United States and internationally;
•the Company’s estimates of its expenses, ongoing losses, future revenue, capital requirements and its need for, or ability to obtain additional financing;
•the Company’s expectations regarding the impact of the COVID-19 pandemic on its business;
•other factors detailed under the section titled “Risk Factors” of this Current Report on Form 8-K and incorporated herein by reference; and
•the Company’s belief and assumptions underlying any of the foregoing.
If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, the results of the Company could differ materially from the forward-looking statements. All forward-looking statements in this Current Report on Form 8-K are current only as of the date on which the statements were made. The Company does not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.
BUSINESS
Overview
MedAvail is a telehealth-enabled pharmacy-technology company that brings access to pharmacy services and pharmacists directly into the care clinic. Using its proprietary MedAvail MedCenter™ kiosk and software, patients
access MedAvail’s remote pharmacy team via a live audio-visual connection. MedAvail’s remote pharmacy team has the ability to provide all required functions to safely and securely dispense prescription medications directly to the patient while in the clinic. MedAvail supplements its in-clinic dispensing capability with a free home delivery service, creating a multi-channel distribution system designed to meet all the patients’ needs.
As a technology-enabled healthcare company, MedAvail is able to scale quickly and cost effectively, unencumbered by legacy physical assets such as retail stores. Embedding pharmacy directly into points of care not only creates a convenient pharmacy experience but importantly helps improve medication adherence, a major and well-recognized clinical challenge.
Although MedAvail’s technology is uniquely suited for any point-of-care environment, MedAvail has chosen to focus on Medicare-focused clinics. MedAvail’s pharmacy platform brings unique and high value to this market in a number of ways:
•Being embedded in the clinic allows MedAvail to be a member of the care team impacting adherence and health outcomes.
•Medicare members are on multiple chronic medications and adherence is critical to their well-being.
•MedAvail is able to share data with the healthcare practitioners with regard to adherence of the patient base to quickly resolve any issues in real-time improving service and customer health outcomes.
•MedAvail’s onsite MedCenter allows real time access to its pharmacy team to not only dispense medications but answer any questions from patients and care providers.
•MedAvail’s high touch model allows us to reach out to patients to arrange for refill medication delivery via its onsite MedCenter or its free courier home delivery.
•MedAvail offers extremely competitive cash pay alternatives for patients who need that service.
•MedAvail combines an in-clinic presence with a set of adherence programs executed by its centralized pharmacy team designed to support superior medication adherence and customer support for its customers. Combining regular refill reminders via text, phone or email along with MedAvail’s highly convenient in-clinic MedCenter or free home courier delivery creates a high touch customer focused pharmacy solution with superior outcomes.
The value proposition for the clinic owners and associated health plans is a true pharmacy partner working hand-in-hand to improve health outcomes. It is a true partnership where the value MedAvail brings improves health outcomes for the Medicare members which can improve overall reimbursement to the clinic.
MedAvail currently deploys its MedCenter solution through two distinct commercialization channels. First, MedAvail owns and operates its full-service retail pharmacy platform in the U.S., under the name SpotRx. The SpotRx™ pharmacy business is structured as a hub-and-spoke model where a central pharmacy supports and operates a network of MedCenter kiosks that are embedded in clinics. MedAvail’s second commercialization channel is a direct sell-to model, in which MedAvail sells its MedCenter kiosk and licenses its proprietary software directly to large healthcare providers and retail pharmacies, such as Sam’s Club, for use within their pharmacy operations.
MedAvail’s MedCenter kiosks come in two models: the M4 MedCenter and the M5 MedCenter. The M4 MedCenter is a smaller kiosk designed to fit in waiting rooms, hallways, or clinic lobbies. The M5 MedCenter is a much larger kiosk designed as a full pharmacy replacement with the ability to serve 3-4 customers simultaneously and can be configured for drive thru dispensing, much like a bank’s ATM drive through lanes.
Pharmacy as part of the healthcare team
Numerous studies have demonstrated the value of an embedded pharmacy within a healthcare location (e.g. Aguilar et al, 2015). Deployments have typically been through a health plan’s proprietary clinic network to provide
onsite pharmacy services embedded with the care team. Although valuable and effective, this in-person model is not cost effective and therefore not widely deployed. Additionally, since there is usually no partnership between traditional retail pharmacies and the care providers the opportunity to improve patient care is missed. SpotRx solves for this problem through MedAvail’s pharmacy platform, its proprietary technology and its in-clinic partnership with the care providers.
Being an embedded part of the care team allows SpotRx to address a number of challenges including but not limited to:
•Improving adherence. A prescription e-prescribed to us by the doctor can be filled by the patient prior to leaving the clinic. In the US retail pharmacy as a whole, about 28% of all prescriptions written are not filled (Fischer et al. 2010). MedAvail’s first fill adherence rates are typically over 85%, which is significantly higher than the average.
•Medicare health plans and providers are measured by CMS via the Star Rating system with a 1-5 rating, where 5 is the highest. Medication adherence has a significant impact on the overall Star Ratings and the resulting impact on clinic reimbursement. MedAvail can therefore help clinics improve their Star Ratings and health plan reimbursement rates.
•A portion of Medicare members have challenges with transportation and have to pay for either home delivery of medication or travel to the pharmacy. MedAvail can help solve for this with its in-clinic pharmacy platform and free home delivery service.
•MedAvail’s onsite pickup or courier home delivery solution allows patients to avoid crowded retail stores that typically have long in-store wait times.
•MedAvail’s clinical data sharing with the providers allows MedAvail pharmacists to offer input and insights into the medication therapy or potential gaps in care.
•As demonstrated by its high Star Rating results, MedAvail can contribute to better outcomes and improved reimbursement.
•MedAvail’s NPS score of 90+ is indicative of the overall patient experience and their high level of satisfaction with its pharmacy service.
In summary, MedAvail’s technology-enabled pharmacy platform provides significant value to all major stakeholders; the patient, the healthcare provider and the payer. Its platform is highly scalable and repeatable across markets within the US, and focused on the high growth and attractive Medicare demographic.
MedAvail solves the information sharing gap by providing timely feedback data on patient fill adherence and other data-driven insights back to care providers.
MedAvail Pharmacy Inc., an Arizona corporation (“SpotRx”), is a wholly owned subsidiary of MedAvail, and does business under the trade name “SpotRx Pharmacy”. Under SpotRx, MedAvail operates the SpotRx Pharmacy business through deployment of its M4 MedCenter in medical clinics providing onsite dispensing of prescriptions, which significantly improves access and convenience for the medical clinic’s patients. The network of M4 MedCenters in a given region is supported by a physical, central pharmacy from which the SpotRx pharmacy team operates. MedAvail has physical SpotRx pharmacies in Arizona and California, with plans to expand in Michigan, Florida, Texas and Illinois subject to future operational build-out. MedAvail’s SpotRx Pharmacy business is primarily focused on the Medicare (65+ year old) market and the medical clinics where they receive care.
For each site where MedAvail deploys a MedCenter, MedAvail generally staffs that site with a Clinic Account Manager (“CAM”), who is a full-time SpotRx employee who works with patients and clinic staff to ensure they receive the best service possible from the pharmacy. This includes assisting with use of the on-site MedCenter, scheduling and confirming that the appropriate medications are available onsite when the patient comes for their medical appointment. The CAM can also assist with the transfer of a customer’s medications to the pharmacy. Additionally, MedAvail engages in several, ongoing communications activities with each customer, such as text or phone reminders of refills due, a three day follow up call to check on the patient status. Through a combination of its in-clinic service, localized fulfillment and its centralized call center, MedAvail enables its customers achieve a higher level of adherence to their prescribed medication regimen. High medication adherence metrics have been shown by research performed by the Centers for Medicare & Medicaid Services, or CMS, to facilitate better health outcomes, which in turn lowers the overall cost to the healthcare system. As such, CMS uses these adherence metrics, among other factors, to drive reimbursement payments to healthcare plans and, in many cases, the physician/healthcare provider. CMS uses a system called Star Ratings to measure the performance of health plans who treat Medicare patients. CMS rates performance of a health plan on a scale of 1-5, with 5 being the highest score, and approximately one-third of a health plan’s rating is impacted by medication adherence in three key medication categories for the Medicare population: diabetes, hypertension and cholesterol. A health plan that improves from a 3 to 4 Star Rating can see reimbursement increases of 13 – 17% (Source: https://www.ajmc.com/contributor/jason rose/2019/08/medication adherence the lever to improve Medicare advantage star ratings).
The SpotRx pharmacy solution includes:
1.A MedAvail M4 MedCenter that is installed in the medical clinic and gives the physician clinic or other location an onsite, embedded pharmacy capability;
2.A full-time “Clinic Account Manager” (“CAM”) to directly support the medical clinic’s staff and patients; and
3.A central physical SpotRx pharmacy in each geographic region or market and which provides the pharmacy staff that supports each of the M4 MedCenters in the central pharmacy’s area. This staff answers all audio visual calls coming in from the MedCenters, identifies and counsels patients and approves the medication to dispense. This central pharmacy also facilitates MedAvail’s accompanying medication home delivery service and is responsible for replenishing inventory of each MedCenter under their control.
4.Centralized call centers support MedAvail’s central pharmacies by following up with its customers to help them with filling and or transferring prescriptions, scheduling delivery and other customer service activities.
Published studies have shown that medical clinics and other health care sites with an embedded pharmacy have higher patient medication adherence, with resulting improved health outcomes (Wright & Gorman 2016). Deploying a traditional, retail pharmacy in a medical clinic is costly, since floor space, a licensed pharmacist and pharmacy staff are required onsite for all hours of operation. Most medical clinics do not have the volume of patients to support the cost of establishing and then running a physical pharmacy. The SpotRx pharmacy model, through the use of MedAvail’s MedCenters, solves for this cost issue, while enabling onsite pharmacy services. MedAvail does this by deploying its M4 MedCenter kiosk, with its small physical presence, in the medical clinic, with support from the centralized pharmacy and its pharmacy support team. MedAvail thereby minimizes the capital cost of opening a pharmacy and enables sharing of centralized resources to reduce pharmacy operating costs. SpotRx currently has 43 MedCenters deployed nationwide, with 27 in Arizona and 16 in California. MedAvail has six physical centralized pharmacies to support these sites, two in Arizona, three in California and one under construction in Michigan.
MedAvail intends to continue to grow its presence in both Arizona and California with plans to expand into Illinois, Michigan, Florida and Texas over the next 24 months.
MedAvail Technologies
Many large healthcare systems and large retail pharmacy operators are looking for solutions that allow them to extend their pharmacy capabilities without having to incur the expense, risk, and time delay of building, staffing, and managing a traditional retail pharmacy assets. The MedAvail MedCenter provides this capability, and consequently MedAvail is working with a number of these large healthcare systems and retail pharmacy chains to benefit from the upfront and ongoing costs savings that its MedCenter provides. Through MedAvail Technologies (US) Inc. (MTI), MedAvail sells or leases its MedCenters, licenses the accompany software, and sells ongoing maintenance and support services to a select group of large clients, all of which are currently in the United States. MedAvail will sell or lease its kiosk hardware technology, but MedAvail only licenses its Remote Dispensing System, MedPlatform® Enterprise Software, and Client Pharmacy Management System software, to help protect the intellectual property that MedAvail has developed for those systems. Maintenance for the hardware is provided by MedAvail personnel as well as third parties with which MedAvail contracts. Software support is provided by MedAvail employees. The corporate client provides and conducts all pharmacy staff and pharmacy operations, such as managing and re-stocking inventory of the MedCenters, and procuring and packaging all medications for the MedCenter. Also, the engagement with a large corporate client typically also requires an initial engagement for development and engineering work to integrate their pharmacy systems with and into its hardware and software, and MedAvail typically receives non-recurring development and engineering fees for this service.
The major steps of MedAvail’s deployment process include integration with the pharmacy software of the client, education and training of their pharmacy staff, and the physical site determination and installation of the MedCenter. This integration process can take 3-4 months, based on the software development, integration, testing, and deployment required. Education typically takes place over 1-2 weeks, and results in the corporate client having a trained staff capable to further train any new staff they may bring on board. The physical MedCenter installation usually takes a few days.
The initial capital cost of opening a physical pharmacy can range from between $500,000 to up to $1 million or more. Staffing these physical pharmacies require a full-time pharmacist at all times the pharmacy is open as well as 1-2 pharmacy technicians depending the on the State board of pharmacy regulations. According to the US bureau of labor statistics the average pharmacist earns $120,270 per year, and job posting for pharmacy technicians indicate an annual salary of approximately $29,000 ranging up to $42,000 in the highest States.
Market Opportunity
MedAvail is pursuing two general commercialization strategies through its SpotRx Pharmacy and its MedAvail Technologies subsidiaries.
SpotRx Pharmacy currently has MedCenter deployments in medical clinics in Arizona and California. MedAvail primarily targets medical clinics that write at least 10,000 Medicare prescription claims per year. Based on CMS data, there are 262 clinics in Arizona and 1,196 clinics in California that would qualify as potential sites for a SpotRx Pharmacy. Based on this data, MedAvail estimates that these potential SpotRx Pharmacy sites write prescriptions with a total value of approximately $0.5B for Arizona and approximately $4.5B for California, per annum. This represents what MedAvail views as its total addressable market for these two states. As MedAvail plans expansion into other states, it will evaluate the number of potential medical clinic sites for its SpotRx Pharmacy and the correlating total addressable market. Currently SpotRx is focused on six key states: Arizona, California, Illinois, Michigan, Florida and Texas. The total medication spend for Medicare patients in these states was $40 billion according to a 2018 CMS study. Total Medicare part D spend in the US in this same period was
$100 billion. As MedAvail enters a state, it focuses its partnership activities on the largest medical chains supporting mainly a Medicare population and then seek to grow within those chains.
For MTI and MedAvail’s large, corporate sales and licensing strategy, the market size is based upon the number of potential deployment sites owned and operated by its clients and potential clients. MedAvail estimates that there are in excess of 30,000 potential deployment sites in the United States for just those large corporate customers with whom MedAvail has already entered either a testing or trial arrangement or a commercialization contract, including Sam’s Club, Texas Health Resources, Ascension, and Hospital Corporation of America (HCA). This represents an annualized market opportunity of approximately $1B of recurring revenue.
The COVID-19 pandemic has highlighted certain of the benefits of MedAvail’s MedCenter-based solution. As a result, health systems such as Texas Health Resources have begun to deploy MedAvail’s technology to increase their pharmacy footprint with an initial focus on their emergency departments. Additionally, MedAvail has seen large states change their regulations to allow its technology (e.g. Florida and Washington implemented new laws effective July 1, 2020), while Texas has deployed temporary laws to allow MedCenter deployments and which allow for creation of new permanent laws in late 2020 or early 2021.
Sales and Marketing
SpotRx currently has a Sales and Business Development team consisting of MedAvail’s Chief Commercial Officer, Vice President of Business Development and Business Development Manager who identify and engage with large Medicare focused primary care and specialty clinic chains as well as independent physician groups in Arizona and California. The largest 20 clinic chains in MedAvail’s target states write between 20%-50% of all claims written so its business development is highly focused on these large groups. This team executes contracts that allow for the deployment of MedAvail’s technology and its Clinic Account Managers (CAM) onsite at these clinics. These contracts typically contain agreements to pay a rent or sub-lease (based on fair market rates) for the space taken up in compliance with the safe harbor provisions of the Anti-Kickback statute. They also allow for the sharing of data and patient information between the parties in order that MedAvail can drive improved medication adherence for the patients of the clinic.
The medical clinics that MedAvail targets are typically exposed to ‘at risk’ or ‘quality based’ contracts with either Medicare Advantage health plans or directly with CMS that provide incentives for health outcomes such as medication adherence. Clinics that typically write prescriptions that are filled in the traditional retail pharmacy
channel have very few tools to improve medication adherence. MedAvail’s SpotRx platform offers the opportunity for improved outcomes without major investment or heavy integration by the clinics.
Patient (customer) education, marketing and acquisition activities are primarily focused upon the patients who visit the clinics at which the SpotRx Pharmacy is deployed. The activities are performed by and driven by MedAvail’s onsite Clinic Account Manager (CAM), who is further supported with in-clinic marketing materials. MedAvail has found that its most effective customer acquisition pathway is through the CAM’s in-clinic presence as it allows them to clearly explain the value of MedAvail’s pharmacy over current alternatives. MedAvail also executes a limited amount of digital and social media marketing campaigns that specifically target the zip codes of its clinic deployments and are designed to support the onsite presence.
MedAvail intends to add a few dedicated sales-leaders to the company in the next 12 months. Its target list of clients is narrow and typically handled by one or more members of MedAvail’s executive team. Each of its current engaged clients has deployed several initial sites with the opportunity to expand substantially over time. MedAvail’s clients typically start with 5-10 initial sites, prove out the concept then put multi-year deployment plan in place to enable a large deployment. At this time, most MedAvail clients are in their initial stage of operations.
MedAvail’s ability to supply MedCenters is limited at this time as it onboards a new contract manufacturer, and MedAvail expects additional MedCenters to be available in the early second quarter of 2021.
Research and development
All key research and development related to MedAvail hardware and software technology is done within MedAvail. MedAvail has a team of software architects and developers employed by MedAvail who work closely with its product management team. MedAvail also has a team of hardware engineers employed by MedAvail who design and prototype all of its MedCenter hardware technology, and which includes mechanical, electrical, robotics and firmware engineers.
MedAvail’s design process begins with feedback from its customers and SpotRx to its product team who then package and review with its software and hardware teams to prioritize development projects and timelines.
MedAvail manufactures its hardware through an agreement with a contract manufacturer who specializes in complex electronic kiosk manufacturing. MedAvail’s hardware engineering team works closely with its contract manufacturer to ensure that the transfer of knowledge and information from its teams to the contract manufacturer’s teams and to ensure that they are fully educated on how to properly assemble the MedCenter.
Manufacturing
MedAvail currently outsources the manufacturing and assembly of its MedCenters. Previously, MedAvail contracted with a electronics manufacturer in South Carolina for the manufacturing and assembly of its MedCenters. MedAvail’s agreement with this contract manufacturer ended in 2019.
In August 2020, MedAvail signed a manufacturing and supply agreement with a new contract manufacturer, Kitron Technologies (“Kitron”). Under this agreement, it is expected that Kitron will manufacturer MedAvail’s MedCenters for an initial term of three years. Globally, Kitron had approximately 1,700 employees with factories in Norway, Sweden, Lithuania, China, Germany, and USA. Kitron’s US manufacturing facility that will be producing MedAvail’s MedCenters is located in Windber, Pennsylvania. The Windber factory has approximately 140 employees and 115,000 sf of manufacturing space. Manufacturing competencies in this facility that align to MedAvail’s needs include industrial, medical, data/telecom, electronics assembly, box build, robotics and testing.
As MedAvail’s contract manufacturer, Kitron will provide the following:
1.Build an assembly line dedicated to the MedCenter
2.Create production related documentation
3.Train staff on proper assembly practices related to MedAvail products
4.Procure all parts required to manufacture the MedCenter with assistance from MedAvail engineers and procurement team; and
5.Assemble the MedCenter and execute quality assurance testing before approval to release and ship to a client
6.Ensure a viable business continuity plan
MedAvail has already begun working with Kitron to ready a manufacturing line for production, with the first delivery of new MedCenters expected in the beginning of Q2 2021.
All engineering design, prototyping and initial testing is done by MedAvail engineers at our site in Mississauga, Ontario, Canada.
The software and firmware required to run the MedAvail MedCenter is manufactured and maintained by MedAvail employees at our Mississauga, Ontario, Canada site. Development, testing and defect resolution are self-provisioned activities. These processes are maintained by MedAvail to ensure efficiency of process and security of intellectual property.
Shipping from the contract manufacturer’s facility to the destination clinic is governed on an Ex Works (EXW) basis, allowing MedAvail to select the carrier and appropriate service levels relative to the installation schedule.
Intellectual Property
MedAvail owns or has licensed rights to certain know-how, proprietary information and technology, copyrights, patents, and other intellectual property upon which the business depends. To protect our intellectual property rights, MedAvail relies on trade secret laws, patents, copyrights, trademarks and confidentiality agreements and contracts with employees, consultants and other parties.
Currently MedAvail has the following issued patents and trademarks issued and pending:
1.12 US patents, 4 Canadian patents, 1 European patent
2.9 US trademarks, 7 US trademarks pending
3.4 Canadian trademarks, 1 Canadian trademark pending
4.4 European registered trademarks.
Competition
MedAvail believes that its hardware, software, and services products, centered on its proprietary MedCenters, offers a unique solution in the pharmacy market. MedAvail’s ability to execute prescription dispensing from first-fill to refills, utilize automated pick-up and provide total control of our system through a remote licensed pharmacist, all differentiates us and can be commercialized by the company either through pharmacy sales to patients through our SpotRx pharmacy business or through our sale of the MedCenter kiosks and the license of software directly to end customers.
While the model of embedding pharmacies in a medical clinic is not proprietary and there are competitors in the markets such as Genoa, Walgreens, CVS, Rite Aid and independent pharmacies, SpotRx is uniquely able to embed automated drug dispensing within the clinic through our MedCenters and, thereafter, work with the clinic to drive adherence for their specific patients. MedAvail’s technology provides us with a unique cost advantage over other competitors in the market, as far as we are aware. Given the size and continued growth of the Medicare market, MedAvail expects competition to emerge, but it is not aware of any third-party pharmacy solution that includes onsite automated dispensing with the associated reduced costs, efficiencies, and services that its technology allows it to provide to its customers.
For MedAvail Technologies’ commercial customer market, which buys our technology direct from us prior to running it themselves, MedAvail also believes it has the only turnkey technology platform that can achieve the many requirements of this complicated offering.
Competition for MedAvail’s MedCenters, both through its SpotRx Pharmacy business and for MedCenters operating directly through its large commercial customers, also comes from home delivery services, such as Capsule, Alto, Amazon/Pill pack and mail order operators. Home delivery operators can compete with MedAvail’s SpotRx Pharmacy service, but typically do not also offer in-clinic automated dispensing solutions, onsite support, workflow integration, clinical data sharing and other concierge services for the patient.
Government Regulation
SpotRx Pharmacy is a prescription drug dispensing solution that is regulated on a state-by-state basis by the board of pharmacy of each state, and each state has its own distinct rules. These rules typically govern the marketing and deployment of the SpotRx Pharmacy and its services, and not the technology itself. The boards of pharmacy view the MedCenter as an extension of the physical pharmacy, with the MedCenter being a remote dispensing device for a licensed physical pharmacy within the applicable state. The Board of Pharmacy for many states will perform a physical site visit to see the MedCenter prior to licensing, perform an inspection of the physical pharmacy, and review the policies and procedures associated with the MedCenter. This process is consistent whether the MedCenter is being operated by SpotRx or a larger commercial client through MTI.
When analyzing the US market, MedAvail views states as:
1.Open to deploy
2.Regulation in process to be open to deploy in 2020
3.Regulation in process to be open to deploy in 2021
4.Favorable waiver rules in place to allow deployment
5.Restrictive or unfavorable rules
Federally, MedAvail is regulated by the United States Drug Enforcement Agency with respect to controlled substances that are dispensed through its MedCenters and SpotRx Pharmacies services. At this time, MedAvail cannot dispense any controlled substances through the MedCenter. SpotRx customers requiring controlled
substances have these medicines delivered to them through our home delivery service, which is executed by the SpotRx central pharmacy for the applicable area.
Professional Licensure
Pharmacists, nurses and certain other healthcare professionals employed by MedAvail are required to be individually licensed or certified under applicable state law. MedAvail performs criminal, government exclusion and other background checks on employees and take steps to ensure that our employees possess all necessary licenses and certifications, and MedAvail believes that our employees comply, in all material respects, with applicable licensure laws.
Pharmacy Licensing and Registration
State laws require that each of MedAvail’s pharmacy locations be appropriately licensed and/or registered to dispense pharmaceuticals in that state. MedAvail is licensed in all states that require such licensure and believe that it substantially complies with all state licensing laws applicable to its business. Where required by law, MedAvail also has pharmacists licensed in all states in which it dispenses.
Laws enforced by the U.S. Drug Enforcement Administration (“DEA”), as well as some similar state agencies, require our pharmacy locations to individually register to handle controlled substances, including prescription pharmaceuticals. A separate registration is required at each principal place of business where MedAvail dispenses controlled substances. Federal and state laws also require that MedAvail follows specific labeling, reporting and record-keeping requirements for controlled substances. MedAvail maintains DEA registrations for each of our facilities that require such registration and follow procedures intended to comply with all applicable federal and state requirements regarding controlled substances.
Food, Drug and Cosmetic Act
Certain provisions of the federal Food, Drug and Cosmetic Act govern the handling and distribution of pharmaceutical products. This law exempts many pharmaceuticals and medical devices from federal labeling and packaging requirements as long as they are not adulterated or misbranded and are dispensed in accordance with and pursuant to a valid prescription. MedAvail believes that it complies with all applicable requirements.
Fraud and Abuse Laws — Anti-Kickback Statute
The federal Anti-Kickback Statute prohibits individuals and entities from knowingly and willfully paying, offering, receiving, or soliciting money or anything else of value in order to induce the referral of patients or to induce a person to purchase, lease, order, arrange for, or recommend services or goods covered by Medicare, Medicaid, or other federal healthcare programs. The federal courts have held that an arrangement violates the Anti-Kickback Statute if any one purpose of the remuneration is to induce the referral of patients covered by the Medicare or Medicaid programs, even if another purpose of the payment is to compensate an individual for rendered services. The Anti-Kickback Statute is broad and potentially covers many standard business arrangements. Violations can lead to significant penalties, including criminal fines of up to $25,000 per violation and/or five years imprisonment, civil monetary penalties of up to $50,000 per violation plus treble damages and/or exclusion from participation in Medicare, Medicaid and other federal healthcare programs. Certain types of payments are excluded from the statutory prohibition. Additionally, in an effort to clarify the conduct prohibited by the Anti-Kickback Statute, the Office of the Inspector General of HHS (the “OIG”) publishes regulations that identify a limited number of safe harbors. Business arrangements that satisfy all of the elements of a safe harbor are immune from criminal enforcement or civil administrative actions. The Anti-Kickback Statute is an intent-based statute and the failure of a business relationship to satisfy all of the elements of a safe harbor does not, in and of itself, mean that the business relationship violates the Anti-Kickback Statute. The OIG, in its commentary to the safe harbor regulations, has recognized that many business arrangements that do not satisfy a safe harbor nonetheless operate without the type of abuses the Anti-Kickback Statute is designed to prevent. MedAvail attempts to structure our business relationships to satisfy an applicable safe harbor. However, in those situations where a business relationship does not fully satisfy the elements of a safe harbor, MedAvail attempts to satisfy as many elements of an applicable safe harbor as
possible. The OIG is authorized to issue advisory opinions regarding the interpretation and applicability of the Anti-Kickback Statute, including whether an activity constitutes grounds for the imposition of civil or criminal sanctions.
Several states have statutes and regulations that prohibit the same general types of conduct as those prohibited by the Anti-Kickback Statute described above. Some state anti-fraud and anti-kickback laws apply only to goods and services covered by Medicaid. Other state anti-fraud and anti-kickback laws apply to all healthcare goods and services, regardless of whether the source of payment is governmental or private. Where applicable, MedAvail attempts to structure our business relationships to comply with these statutes and regulations.
Fraud and Abuse Laws — False Claims Act
MedAvail is subject to state and federal laws that govern the submission of claims for reimbursement. These laws generally prohibit an individual or entity from knowingly and willfully presenting a claim or causing a claim to be presented for payment from a federal healthcare program that is false or fraudulent. The standard for “knowing and willful” may include conduct that amounts to a reckless disregard for the accuracy of information presented to payers. Penalties under these statutes include substantial civil and criminal fines, exclusion from the Medicare or Medicaid programs and imprisonment. One of the most prominent of these laws is the federal False Claims Act, which may be enforced by the federal government directly or by a private plaintiff by filing a qui tam lawsuit on the government’s behalf. Under the False Claims Act, the government and private plaintiffs, if any, may recover monetary penalties in the amount of $5,500 to $11,000 per false claim, as well as an amount equal to three times the amount of damages sustained by the government as a result of the false claim. Several states, including states in which MedAvail operates, have adopted their own false claims statutes as well as statutes that allow individuals to bring qui tam actions. In recent years, federal and state government authorities have launched several initiatives aimed at uncovering practices that violate false claims or fraudulent billing laws, and they have conducted numerous investigations of pharmaceutical manufacturers, PBMs, pharmacies and healthcare providers with respect to false claims, fraudulent billing and related matters. MedAvail believes that it has procedures in place to ensure the accuracy of our claims.
Ethics in Patient Referrals Law — Stark Law
The federal Physician Self-Referral Prohibition, commonly known as the Stark Law, generally prohibits a physician from ordering Designated Health Services for Medicare and Medicaid patients from an entity with which the physician or an immediate family member has a financial relationship and prohibits the entity from presenting or causing to be presented claims to Medicare or Medicaid for those referred services, unless an exception applies. A financial relationship is generally defined as an ownership, investment, or compensation relationship. Designated Health Services include, but are not limited to, outpatient pharmaceuticals, parenteral and enteral nutrition products, home health services, durable medical equipment, physical and occupational therapy services, and inpatient and outpatient hospital services. Among other sanctions, a civil monetary penalty of up to $15,000 may be imposed for each bill or claim for a service a person knows or should know is for a service for which payment may not be made due to the Stark Law. Such persons or entities are also subject to exclusion from the Medicare and Medicaid programs. Any person or entity participating in a circumvention scheme to avoid the referral prohibitions is liable for a civil monetary penalty of up to $100,000. A $10,000 fine may be imposed for failure to comply with reporting requirements regarding an entity’s ownership, investment and compensation arrangements for each day for which reporting is required to have been made under the Stark Law.
The Stark Law is a broad prohibition on certain business relationships, with detailed exceptions. However, unlike the Anti-Kickback Statute under which an activity may fall outside a safe harbor and still be lawful, a referral for Designated Health Services that does not fall within an exception is strictly prohibited by the Stark Law. MedAvail attempts to structure all of our relationships with physicians who make referrals to us in compliance with an applicable exception to the Stark Law.
In addition to the Stark Law, many of the states in which MedAvail operates has comparable restrictions on the ability of physicians to refer patients for certain services to entities with which they have a financial relationship. Certain of these state statutes mirror the Stark Law while others may be more restrictive. MedAvail attempts to structure all of our business relationships with physicians to comply with any applicable state self-referral laws.
HIPAA and Other Privacy and Confidentiality Legislation
MedAvail’s activities involve the receipt, use and disclosure of confidential health information, including disclosure of the confidential information to a patient’s health benefit plan, as permitted in accordance with applicable federal and state privacy laws. In addition, MedAvail uses and discloses de-identified data for analytical and other purposes. Many state laws restrict the use and disclosure of confidential medical information, and similar new legislative and regulatory initiatives are underway at the state and federal levels.
HIPAA imposes extensive requirements on the way in which healthcare providers that engage in certain actions covered by HIPAA, as well as healthcare clearinghouses (each known as “covered entities”) and the persons or entities that create, receive, maintain, or transmit protected health information (“PHI”) on behalf of covered entities (known as “business associates”) and their subcontractors, use, disclose and safeguard PHI, including requirements to protect the integrity, availability and confidentiality of electronic PHI. Many of these obligations were expanded under the Health Information Technology for Economic and Clinical Health Act (“HITECH”), passed as part of the American Recovery and Reinvestment Act of 2009. In January 2013, the Office for Civil Rights of HHS issued a final rule under HITECH that makes significant changes to the privacy, security, breach notification and enforcement regulations promulgated under HIPAA (the “Final Omnibus Rule”), and which generally took effect in September 2013. The Final Omnibus Rule enhances individual privacy protections, provides individuals new rights to their health information and strengthens the government’s ability to enforce HIPAA.
The privacy regulations (the “Privacy Rule”) issued by the Office of Civil Rights of HHS pursuant to HIPAA give individuals the right to know how their PHI is used and disclosed, as well as the right to access, amend and obtain information concerning certain disclosures of PHI. Covered entities, such as pharmacies and health plans, are required to provide a written Notice of Privacy Practices to individuals that describes how the entity uses and discloses PHI, and how individuals may exercise their rights with respect to their PHI. For most uses and disclosures of PHI other than for treatment, payment, healthcare operations and certain public policy purposes, HIPAA generally requires that covered entities obtain a valid written individual authorization. In most cases, use or disclosure of PHI must be limited to the minimum necessary to achieve the purpose of the use or disclosure. The Final Omnibus Rule modifies the content of Notice of Privacy Practices in significant ways, requiring, among other things, statements informing individuals of their rights to receive notifications of any breaches of unsecured PHI and to restrict disclosures of PHI to a health plan where the individual pays out of pocket.
MedAvail is a covered entity under HIPAA in connection with our operation of specialty service pharmacies. To the extent that MedAvail provides services other than as a covered entity and it performs a function or activity, or provide a service to, a covered entity that involves PHI, the covered entity may be required to enter into a business associate agreement with us. Business associate agreements mandated by the Privacy Rule create a contractual obligation for us, as a business associate, to perform our duties for the applicable covered entity in compliance with the Privacy Rule. In addition, HITECH subjects us to certain aspects of the Privacy Rule and the HIPAA security regulations when MedAvail acts as a business associate, including imposing direct liability on business associates for impermissible uses and disclosures of PHI and the failure to disclose PHI to the covered entity, the individual, or the individual’s designee (as specified in the business associate agreement), as necessary to satisfy a covered entity’s obligations with respect to an individual’s request for an electronic copy of PHI. The Final Omnibus Rule also extends the business associate provisions of HIPAA to subcontractors where the function, activity, or service delegated by the business associate to the subcontractor involves the creation, receipt, maintenance, or transmission of PHI. As such, business associates are required to enter into business associate agreements with subcontractors for services involving access to PHI and may be subject to civil monetary penalties for the acts and omissions of their subcontractors.
Importantly, the Final Omnibus Rule greatly expands the types of product- and service-related communications to patients or enrollees that will require individual authorizations by requiring individual authorization for all treatment and healthcare operations communications where the covered entity receives payment in exchange for the communication from or on behalf of a third-party whose product or service is being described. While the Office of Civil Rights of HHS has established limited exceptions to this rule where individual authorization is not required, the marketing provisions finalized in the Final Omnibus Rule could potentially have an adverse impact on our business and revenues.
If MedAvail fails to comply with HIPAA or its policies and procedures are not sufficient to prevent the unauthorized disclosure of PHI, it could be subject to liability, fines and lawsuits under federal and state privacy laws, consumer protection statutes and other laws. Criminal penalties and civil sanctions may be imposed for failing to comply with HIPAA standards either as a covered entity or business associate, and these penalties and sanctions have significantly increased under HITECH. In addition to imposing potential monetary penalties, HITECH also requires the Office of Civil Rights of HHS to conduct periodic compliance audits and empowers state attorneys general to bring actions in federal court for violations of HIPAA on behalf of state residents harmed by such violations. Several such actions have already been brought, and continued enforcement actions are likely to occur in the future.
The transactions and code sets regulation promulgated under HIPAA requires that all covered entities that engage in certain electronic transactions, directly or through a third-party agent, use standardized formats and code sets. MedAvail, in our role as a business associate of a covered entity, must conduct such transactions in accordance with such transaction rule and related regulations that require the use of operating rules in connection with HIPAA transactions. In MedAvail’s role as a specialty pharmacy operator, it must also conduct such transactions in accordance with such regulations or engage a clearinghouse to process our covered transactions. HHS promulgated a National Provider Identifiers (“NPI”) Final Rule that requires covered entities to utilize NPIs in all standard transactions. NPIs replaced National Association of Boards of Pharmacy numbers for pharmacies, DEA numbers for physicians and similar identifiers for other healthcare providers for purposes of identifying providers in connection with HIPAA standard transactions. Covered entities may be excluded from federal healthcare programs for violating these regulations.
The security regulations issued pursuant to HIPAA mandate the use of administrative, physical and technical safeguards to protect the confidentiality of electronic PHI. Such security rules apply to covered entities and business associates.
MedAvail must also comply with the “breach notification” regulations, which implement provisions of HITECH. In the case of a breach of “unsecured PHI,” covered entities must promptly notify affected individuals and the HHS Secretary, as well as the media in cases where a breach affects more than 500 individuals. Breaches affecting fewer than 500 individuals must be reported to the HHS Secretary on an annual basis. The regulations also require business associates of covered entities to notify the covered entity of such breaches by the business associate.
Final regulations governing the accounting of disclosures implementing provision in HITECH are forthcoming, but have been subject to significant delay. The initial proposed rule, if finalized, would require covered entities to develop systems to monitor and record: (1) which of their employees and business associates access an individual’s electronic PHI contained in a designated record set; (2) the time and date access occurs; and (3) the action taken during the access session (e.g., modification, deletion, viewing). The final regulations could impose significant burdens on covered entities and business associates.
The Health Reform Laws (as defined in “Health Reform Legislation” below) require the HHS Secretary to develop new health information technology standards that could require changes to our existing software products. For example, the statute requires the establishment of interoperable standards and protocols to facilitate electronic enrollment of individuals in federal and state health and human services programs and provides the government with authority to require incorporation of these standards and protocols in health information technology investments as a condition of receiving federal funds for such investments.
HIPAA generally preempts state laws, except when state laws are more protective of PHI or are more restrictive than HIPAA requirements. Therefore, to the extent states continue to enact more protective or restrictive legislation, MedAvail could be required to make significant changes to our business operations. In addition, independent of any statutory or regulatory restrictions, individual health plan clients could increase limitations on our use of medical information, which could prevent us from offering certain services.
Medicare Part D
The Medicare Part D program, which makes prescription drug coverage available to eligible Medicare beneficiaries, regulates various aspects of the provision of Medicare drug coverage, including enrollment,
formularies, pharmacy networks, marketing and claims processing. The Centers for Medicare & Medicaid Services (“CMS”) imposed restrictions and consent requirements for automatic prescription delivery programs, and further limited the circumstances under which Medicare Part D plans may recoup payments to pharmacies for claims that are subsequently determined not payable under Medicare Part D. CMS sanctions for non-compliance may include suspension of enrollment and even termination from the program.
The Medicare Part D program has undergone significant legislative and regulatory changes since its inception. Medicare Part D continues to attract a high degree of legislative and regulatory scrutiny, and applicable government rules and regulations continue to evolve. For example, CMS may issue regulations that limit the ability of Medicare Part D plans to establish preferred pharmacy networks.
Health Reform Legislation
Congress passed major health reform legislation, including the Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Reconciliation Act of 2010 (the “Health Reform Laws”), which enacted a number of significant healthcare reforms. President Donald Trump has stated his intentions to support the repeal and possible replacement of the Health Reform Laws during his term of office. While Congress has not passed repeal legislation, the Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Health Reform Laws on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Congress may consider other legislation to repeal or replace elements of the Health Reform Laws. While not all of these reforms, or their repeal or replacement, affect our business directly, they could affect the coverage and plan designs that are or will be provided by many of our health plan clients. As a result, these reforms, or their repeal or replacement, could impact many of our services and business practices. There is considerable uncertainty as to the continuation of these reforms, their repeal, or their replacement.
Managed Care Reform
In addition to health reforms enacted by the Health Reform Laws, legislation has been considered, proposed and/or enacted at the state level, aimed at providing additional rights and access to drugs to individuals enrolled in managed care plans. This legislation may impact the design and implementation of prescription drug benefit plans sponsored by our PBM health plan clients and/or the services MedAvail provides to them. Both the scope of the managed care reform proposals considered by state legislatures and reforms enacted by states to date vary greatly, and the scope of future legislation that may be enacted is uncertain.
21st Century Cures Act
The 21st Century Cures Act (“Cures Act”), enacted in December 2016, among other things implemented Average Sales Price pricing for Part B DME infusion drugs in January 2017 and delayed payment for the home infusion services necessary to administer these drugs until January 2021. Given its current understanding of the Cures Act, MedAvail does not believe that it will have a significant impact on its business.
Employees
As of September 30, 2020, MedAvail had 181 employees (159 full time, 22 contractors), located as follows:
1.85 are located in Arizona, 30 in California, two in Illinois and one in Michigan. Across these states, 85 employees work in Retail Pharmacy Services (DBA SpotRx), and 33 work in various general support and administrative roles, such as Finance, Marketing, Compliance, Human Resources, and Information Technology.
2.63 are located in Canada, of which 36 employees are engaged in product (hardware and software) development, and 27 work in various support roles such as Quality Assurance, Accounting, and Information Technology.
Formation
The Company was incorporated in the State of Nevada on April 11, 2007 as MYOS Corporation. On March 17, 2016, the Company completed a merger with its wholly-owned subsidiary, MYOS RENS Technology Inc., and formally assumed the subsidiary’s name by filing Articles of Merger with the Secretary of State of the State of Nevada. The subsidiary was incorporated solely for the purpose of effecting the name change and the merger did not affect the Company’s governing documents or corporate structure in any other way. On November 17, 2020, the Company merged its wholly-owned subsidiary, Matrix Merger Sub, Inc., with and into MedAvail, Inc. Following the Merger and in connection with the Business Combination, the Company reincorporated as a Delaware corporation and changed its name from “MYOS RENS Technology Inc.” to “MedAvail Holdings, Inc.”
MedAvail Technologies, Inc., a wholly-owned subsidiary of MedAvail, was formed in May of 2012 through the purchase of assets from Pharmatrust, a Canadian company.
MedAvail Technologies (US) Inc., a wholly-owned subsidiary of MedAvail, was formed in July 2014 and is a sales subsidiary for third-party MedCenter sales in the US.
MedAvail Pharmacy Inc., DBA SpotRx, a wholly-owned subsidiary of MedAvail, was formed in July 2017 and is a pharmacy operations subsidiary for servicing customers under the SpotRx brand in the US.
MedAvail initially operated out of its Mississauga, Ontario, Canada offices. Initially MedAvail’s focus was the continued development of the technology’s hardware and software. This process resulted in the design and build of the current offering, the MedAvail MedCenter M4. This initial process took approximately two years leading up to our first live deployment in June of 2014, in an emergency department in Chicago, Illinois.
In 2015 MedAvail opened its own independent pharmacy, [On the Spot Rx. Inc.], in Ontario, Canada and began a deployment across multiple types of sites in Ontario such as universities, employer sites, emergency departments and clinics. It was determined in October of 2019 that its operation in Ontario was not strategic to the company as MedAvail has shifted to the Medicare market in the US. As such, MedAvail ceased operation in Ontario and de-installed the MedCenters in market and redeployed in the US.
In 2017 MedAvail opened MedAvail Pharmacy Inc., an Arizona corporation (“SpotRx”), its first independent pharmacy in the US in Tucson, Arizona. SpotRx does business under the trade name “SpotRx Pharmacy”. The intent was to deploy a network of MedCenters within the Tucson area. Initially MedAvail deployed into a number of customer sites including Medicare clinics, as well as retail stores and Medicaid clinics. Its experience led MedAvail to refine its pharmacy offering and marketing effort in the Medicare market.
Facilities
MedAvail currently leases approximately 23,430 square feet for our corporate headquarters, development and storage facility located in Ontario, under lease agreement which terminates in November 2021. MedAvail plans to sublease 6,835 square feet of the 23,420 as it was vacated in late 2019 when the company closed its Canadian pharmacy operations in order to focus on the large addressable market in the US. MedAvail believes that this facility is sufficient to meet its current and future near term needs and that additional space can be obtained on commercially reasonable terms as needed and in other locations as needed to support the business.
MedAvail additionally leases space for its pharmacies as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central Pharmacy Location
|
|
Square Feet
|
|
Lease Termination
|
Phoenix, Arizona
|
|
1,920
|
|
|
8/31/2021
|
Tucson, Arizona
|
|
1,565
|
|
|
12/31/2022
|
Buena Park, California
|
|
2,700
|
|
|
11/30/2022
|
Laguna Hills, California
|
|
4,551
|
|
|
1/31/2023
|
San Fernando, California
|
|
946
|
|
|
1/31/2023
|
Southfield, Michigan
|
|
3,038
|
|
|
9/30/2025
|
Legal Proceedings
Following MYOS’s and MedAvail’s announcement of the execution of the Merger Agreement on June 30, 2020, MYOS received separate litigation demands from purported MYOS stockholders on September 16, 2020 and October 20, 2020, respectively seeking certain additional disclosures in the Form S-4 Registration Statement filed with the Securities and Exchange Commission on September 2, 2020 (collectively, the “Demands”). Thereafter, on September 23, 2020, a complaint regarding the transactions contemplated within the Merger Agreement was filed in the Supreme Court of the State of New York, County of New York, captioned Faasse v. MYOS RENS Technology Inc., et. al., Index No.: 654644/2020 (NY Supreme Ct., NY Cnty., September 23, 2020) (the “New York Complaint”). On October 12, 2020, a second complaint regarding the transactions was filed in the District Court of Nevada, Clark County Nevada, captioned Vigil v. Mannello, et. al., Case No. A-20-822848-C (the “Nevada Complaint,” and collectively with the New York Complaint and Demands, the “Litigation”).
The Demands and the Complaints that currently comprise the Litigation generally allege that the directors of MYOS breached their fiduciary duties by entering into the Merger Agreement, and MYOS and MedAvail disseminated an incomplete and misleading Form S-4 Registration Statement. The New York Complaint also alleges MedAvail aided and abetted such breach of fiduciary duties.
MYOS and MedAvail believe that the claims asserted in the Litigation are without merit, and believe that the Form S-4 Registration Statement disclosed all material information concerning the Merger and no supplemental disclosure is required under applicable law. However, in order to avoid the risk of the Litigation delaying or adversely affecting the Merger and to minimize the costs, risks and uncertainties inherent in litigation, and without admitting any liability or wrongdoing, MYOS determined to voluntarily supplement the Form S-4 Registration Statement as described in the Current Report on Form 8-K on November 2, 2020. The Litigation currently remains pending. MYOS and MedAvail specifically deny all allegations in the Litigation and/or that any additional disclosure was or is required.
From time to time MedAvail may become involved in additional legal proceedings or investigations, which could have an adverse impact on MedAvail’s reputation, business and financial condition and divert the attention of its management from the operation of its business.
RISK FACTORS
An investment in our securities has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial conditions and/or operating results. If any of these risks actually occur, our business, operating results and financial condition could be harmed, and the value of our stock could go down. This means you could lose all or a part of your investment.
Risk Factors Summary
We face many risks and uncertainties, as more fully described in this section under the heading “Risk Factors.” Some of these risks and uncertainties are summarized below. The summary below does not contain all of the
information that may be important to you, and you should read this summary together with the more detailed discussion of these risks and uncertainties contained in “Risk Factors.”
Our business operations are subject to numerous risks, factors and uncertainties, including those outside of our control, that could cause our actual results to be harmed, including risks regarding the following:
Risks Related to the Company’s Business and Operations
•our limited operating history;
•our history of net losses and any inability to achieve or sustain profitability in the future;
•the limited operating history of the Company’s retail pharmacy, which comprises a substantial portion of our current revenue;
•the availability, pricing and safety profiles of prescription drugs that we purchase and sell;
•our reliance on a limited number of prescription drug wholesalers;
•any governmental enforcement actions, regulatory proceedings, inquiries and investigations, or similar actions, or similar private proceedings, that would alter how drug manufacturers promote or sell products and services.
•the reputation of our products and business;
•reduced access to payer networks;
•the growth and developing of our administrative and operational infrastructures;
•our dependence on access to clinics;
•our ability to successfully manage ongoing organizational change and business transformation and achieve cost savings and operating efficiency initiatives;
•our ability to attract and retain talented employees and manage succession for, and retention of key executives;
•actual or perceived security or privacy breaches, as well as defects, errors or vulnerabilities in our technology and that of third-party providers;
•our development and implementation of improvements in our technology;
•product liability, product recall, personal injury or other health and safety issues;
•changes in economic conditions;
•changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters;
•our registration requirements under an outstanding registration rights agreement;
•the impact of the COVID-19 pandemic;
•natural disasters, economic downturns, public health crises or political crises;
Risks Related to Insurance and Payments and Pricing and Reimbursement Plans
•significant and increasing pressure from third-party payers to limit reimbursements;.
•DIR fees charged by PBMs;
•shifts in pharmacy mix toward lower margin drugs;
•changes in industry pricing benchmarks;
•our revenues from government funded programs;
•the introduction of new brand name and generic prescription drugs as well as increases in the cost to procure prescription drugs;
Risks Related to the Company’s Industry
•the competition in our industries;
•the consolidation in the healthcare industry;
•the evolving business environments in which each of our segments operates;
•fluctuations in pharmaceutical prices;
Regulatory and Legal Risks
•changes in laws and the adoption and interpretation of administrative rules and regulations;
•compliance with laws and regulations;
•changes in healthcare regulatory environments;
•litigation and other legal proceedings;
•intellectual property litigation;
•assertions from taxing authorities that we should have collected or in the future should collect additional taxes;
•our ability to maintain an effective system of disclosure controls and internal control over financial reporting;
•costs related to operating as a public company;
Risks Related to the Company’s Relationships with Manufacturer’s, Providers, Suppliers and Vendors
•the interruption of our and/or our vendors’ operations;
•our reliance on a single third-party manufacturer for our MedCenter Kiosks;
Risks Related to the Company’s Intellectual Property
•our ability to protect our intellectual property;
•claims of intellectual property infringement;
Risks Related to Ownership of the Company’s Securities
•our future capital requirements;
•provisions of Delaware law and our certificate of incorporation and bylaws that may make a merger, takeover or proxy contest difficult;
•the volatility of the market price of our Common Stock;
•sales of substantial amounts of our Common Stock;
•our intention not to pay dividends for the foreseeable future;
•the publication of research about us by analysts;
•our intended use of net proceeds from the Private Placement; and
•our status as a “smaller reporting company”.
Risks Related to the Company’s Business and Operations
The Company is an early-stage company with a history of net losses, and expects to incur operating losses in the future and may not be able to achieve or sustain profitability. The Company has a limited history operating as a commercial company.
The Company has incurred net losses since its inception in 2012. For the years ended December 31, 2019 and 2018, it had a net loss of $21.5 million, and $17.0 million, respectively, and the Company expects to continue to incur additional losses in the future. As of December 31, 2019, the Company had an accumulated deficit of $121.2 million. To date, the Company has financed its operations primarily through equity and debt financings and from deployments of its MedCenter kiosk solution and the operation of its full-service retail pharmacy platform. The losses and accumulated deficit have primarily been due to the substantial investments that the Company has made to develop its products, as well as for costs related to general research and development, including clinical and regulatory initiatives to obtain marketing approval, sales and marketing efforts and infrastructure improvements.
The Company began commercializing its products in the United States in 2016 and therefore does not have a long history operating as a commercial company. Over the next several years, the Company expects to continue to devote a substantial amount of its resources to, among other matters, expand commercialization efforts and increase adoption for its products and develop additional products. In addition, as a public company, the Company will incur significant legal, accounting and other expenses that it did not incur as a private company. Accordingly, the Company expects to continue to incur operating losses for the foreseeable future and it cannot assure you that we will achieve profitability in the future or that, if the Company becomes profitable, that it will sustain profitability. The Company’s failure to achieve and sustain profitability in the future will make it more difficult to finance its business and accomplish its strategic objectives, which would have a material adverse effect on the Company’s business, financial condition and results of operations and cause the market price of its common stock to decline. In addition, failure of the Company’s products to significantly penetrate the target markets would negatively affect its business, financial condition and results of operations.
The Company’s core technology the MedCenter has been in market since 2015 at limited volume. Over the past two years the Company opened its own retail pharmacy, SpotRx Pharmacy, which focuses on the Medicare
Provider market. This new focus which comprise a substantial portion of its current revenue, and thus the model has a limited operating history; this makes it difficult to predict its future operating results.
The Company began shipping its first products in 2015. Given the constantly evolving market for retail pharmacy, regulatory changes to government healthcare programs and the constant competitive pressures in this market, its limited operating history with this market provides a limited basis upon which to evaluate its ability to accomplish its business objectives. The Company is in the early stages of deployment, and there are many risks associated with the rapidly changing retail pharmacy and Medicare market. The Company may not be successful in addressing these risks; and its limited operating history adds to the difficulty in forecasting its future revenue and planning expenses accordingly and, therefore, predicting its future operating results.
The Company faces risks relating to the availability, pricing and safety profiles of prescription drugs that it purchases and sells.
The Company’s path to profitability is dependent upon the utilization of prescription drug products. It dispenses significant volumes of brand name and generic drugs. Its revenues, operating results and cash flows may decline if physicians cease writing prescriptions for drugs or the utilization of drugs is reduced due to:
•increased safety risk profiles or regulatory restrictions;
•manufacturing or other supply issues;
•certain products being withdrawn by their manufacturers or transitioned to over-the-counter products;
•future FDA rulings restricting the supply or increasing the cost of products;
•the introduction of new and successful prescription drugs or lower-priced generic alternatives to existing brand name products; or
•inflation in the price of brand name drugs.
In addition, increased utilization of generic drugs, which normally yield a higher gross profit rate than equivalent brand name drugs, has resulted in pressure to decrease reimbursement payments to the Company and pharmacies in general for generic drugs, causing a reduction in its margins on sales of generic drugs. Consolidation within the generic drug manufacturing industry and other external factors may enhance the ability of manufacturers to sustain or increase pricing of generic drugs and diminish its ability to negotiate reduced generic drug acquisition costs. Any inability to offset increased brand name or generic prescription drug acquisition costs or to modify its activities to lessen the financial impact of such increased costs could have a significant adverse effect on its operating results.
The Company purchases a significant amount of prescription drugs from a limited number of wholesalers. The loss of any of these relationships could disrupt its business and adversely impact its revenues for one or more fiscal quarters.
The loss of any of these relationships, the failure by the suppliers to fulfill its purchase orders on a timely basis or at all, or a contractual dispute could significantly disrupt its business and adversely impact its revenues for one or more fiscal quarters. In the event of a contractual dispute, it could become involved in litigation, the outcome of which may be uncertain or difficult to predict and could result in its incurrence of substantial costs regardless of the outcome.
The Company’s business could also be harmed by any governmental enforcement actions, regulatory proceedings, inquiries and investigations, or similar actions, or similar private proceedings, that would alter how drug manufacturers promote or sell products and services.
The specialty pharmacy and pharmacy benefit managers, or PBM, industries are highly litigious and future litigation or other proceedings could subject the Company to significant monetary damages or penalties or require
the Company to change its business practices, which could impair its reputation and result in a material adverse effect on its business.
The Company is subject to risks relating to litigation, enforcement actions, regulatory proceedings, government inquiries and investigations, and other similar actions in connection with its business operations. While the Company is currently not subject to any material litigation of this nature relating to its business operations, such litigation is not unusual in its industry. Further, while certain costs are covered by insurance, the Company may incur uninsured costs related to the defense of such proceedings that could be material to its financial performance. In addition, as a public company, any material decline in the market price of its common stock may expose it to purported class action lawsuits that, even if unsuccessful, could be costly to defend or indemnify (to the extent not covered by insurance) and a distraction to management. The results of legal proceedings are often uncertain and difficult to predict, and the Company could from time to time incur judgments, enter into settlements, materially change its business practices or technologies or revise its expectations regarding the outcome of certain matters. In addition, the costs incurred in litigation can be substantial, regardless of the outcome. If one or more of these proceedings or any future proceeding has an unfavorable outcome, the Company cannot provide any assurance it would not have a material adverse effect on its business and results of operations, including its ability to attract and retain clients as a result of any negative reputational impact of such an outcome.
The Company’s products, both hardware and software, are complex and require precision in design and manufacturing. Any errors in product performance could result in significant harm to its reputation and its business.
The development and production of new products with high technology content, such as the Company’s MedCenter Kiosk, is complicated and often involves problems with software, components and manufacturing methods. The Company’s products have contained and may continue to contain one or more undetected errors, defects or security vulnerabilities. Some errors in its products may only be discovered after a product has been installed and used by consumers. The Company suspects that errors, including potentially serious errors, may be found from time to time in its products. The Company’s MedCenter Kiosk may suffer degradation of performance and reliability over time. Furthermore, because it outsources the manufacturing of almost all of the key hardware components of its MedCenter Kiosk, the Company may also be subject to product performance problems as a result of the acts or omissions of these third parties.
If reliability, quality or other problems develop, a number of negative effects on the Company’s business could result, including:
•costs associated with fixing or replacing products;
•reduced orders from existing customers; and
•declining interest from potential customers.
Reduced access to payer networks would have significant impact to the Company’s business.
Access to payer networks which reimburse the Company’s pharmacy upon dispense is renewed on an annual basis. Any inability to renew in a network would exclude the Company from filling prescriptions for those Medicare patients and impact its ability to operate.
The Company has experienced significant growth, and if it is unable to manage its administrative and operational infrastructures in view of this growth, then it will suffer significant harm.
The Company will require further expansion of its infrastructure and headcount if it is to achieve planned expansion of its product offerings and planned increases in its customer base. Its growth has placed, and is expected to continue to place, a significant strain on its administrative and operational infrastructure. The Company’s ability to manage its operations and growth will require it to continue to refine its operational, financial and management controls, human resource policies, and reporting systems and procedures.
The Company may not be able to implement improvements to its management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and controls. If it is unable to manage future expansion, its ability to provide high quality products and services could be harmed, which would damage its reputation and brand and substantially harm its business and results of operations.
The Company depends on access to clinics and needs to maintain good working relationships with the clinics in order to continue to grow its business.
The Company is dependent upon access to clinics to acquire customers and runs its MedCenter Kiosks at sites where treatment is rendered and prescriptions generated. The Company needs to continue to have access to clinics in order to acquire new customers to grow its business. It must maintain good working relationships with the managers of those clinics. In the event that the Company does not maintain those relationships it may lose access to clinics and that may have a material and adverse relationship on its ability to grow and will negatively impact its results of operations as a result.
The Company’s business results depend on its ability to successfully manage ongoing organizational change and business transformation and achieve cost savings and operating efficiency initiatives.
If the Company is unable to continually obtain productivity improvements, while continuing to invest in business growth, or if the volume and nature of change overwhelms available resources, its business operations and financial results could be materially and adversely impacted. Its ability to successfully manage and execute these initiatives and realize expected savings and benefits in the amounts and at the times anticipated is important to its business success. Any failure to do so, which could result from its inability to successfully execute organizational change and business transformation plans, changes in global or regional economic conditions, competition, changes in the industries in which it competes, unanticipated costs or charges, loss of key personnel and other factors described herein, could have a material adverse effect on its businesses, financial condition and results of operations.
The Company faces significant competition in attracting and retaining talented employees. Further, managing succession for, and retention of, key executives is critical to its success, and its failure to do so could adversely affect its businesses, operating results and/or future performance.
The Company’s ability to attract and retain qualified and experienced employees is essential to meet its current and future goals and objectives. There is no guarantee it will be able to attract and retain such employees or that competition among potential employers will not result in increased compensation and/or benefits costs. In addition, the Company’s success is highly dependent on the continued services of key members of our executive management team and others in key management positions. Any of the Company’s employees may terminate their employment with the Company at any time. If the Company loses one or more key employees, is unable to retain existing employees or attract additional employees, or it experiences an unexpected loss of leadership, then the Company may experience difficulties in competing effectively, developing its technologies, or implementing its business strategy, and, as a result, the Company could experience a material adverse effect on its businesses, operating results and/or future performance.
In addition, its failure to adequately plan for succession of senior management and other key management roles or the failure of key employees to successfully transition into new roles could have a material adverse effect on its businesses, operating results and/or future performance. The succession plans it has in place and its employment arrangements with certain key executives do not guarantee the services of these executives will continue to be available to it.
If the Company or the businesses it interacts with do not maintain the privacy and security of sensitive customer and business information, it could damage the Company’s reputation and the Company could suffer a loss of revenue, incur substantial additional costs and become subject to litigation and regulatory scrutiny.
The protection of customer, employee, and Company data is critical to the Company’s businesses. Cybersecurity and other information technology security risks, such as a significant breach of customer, employee, or company data, could create significant workflow disruption, attract a substantial amount of media attention, damage the Company’s customer relationships, reputation and brand, and result in lost sales, fines or lawsuits.
Throughout the Company’s operations, it receives, retains and transmits certain personal information that its customers and others provide to purchase products or services, fill prescriptions, enroll in promotional programs, participate in its customer loyalty programs, register on the Company websites, or otherwise communicate and interact with the Company. In addition, aspects of its operations depend upon the secure transmission of confidential information over public networks. Like other global companies, the Company and businesses it interacts with have experienced threats to data and systems, including by perpetrators of random or targeted malicious cyber-attacks, computer viruses, worms, bot attacks or other destructive or disruptive software and attempts to misappropriate customer information, including credit card information, and cause system failures and disruptions. Any compromise of its data security systems or of those of businesses with whom it interacts, which results in confidential information being accessed, obtained, damaged or used by unauthorized or improper persons, could harm its reputation and expose it to regulatory actions, customer attrition, remediation expenses, and claims from customers, financial institutions, payment card associations and other persons, any of which could materially and adversely affect its business operations, financial condition and results of operations. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may not immediately produce signs of intrusion, it may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, a security breach could require that it expend substantial additional resources related to the security of information systems and disrupt its businesses.
The Company depends on and interacts with the information technology networks and systems of third-parties for many aspects of its business operations, including payers, strategic partners and cloud service providers. These third parties may have access to information it maintains about the Company or its operations, customers, employees and vendors, or operating systems that are critical to or can significantly impact its business operations. Like the Company, these third-parties are subject to risks imposed by data breaches and cyber-attacks and other events or actions that could damage, disrupt or close down their networks or systems. Any expansion of information technology outsourcing, including through arrangements with its strategic partners, may increase vulnerabilities and weaknesses relating to cybersecurity and data management. Security processes, protocols and standards that it has implemented and contractual provisions requiring security measures that it may have sought to impose on such third-parties may not be sufficient or effective at preventing such events, which could result in unauthorized access to, or disruptions or denials of access to, or misuse of, information or systems that are important to its business, including proprietary information, sensitive or confidential data, and other information about its operations, customers, employees and suppliers, including personal information.
The regulatory environment surrounding data security and privacy is increasingly demanding, with the frequent imposition of new and changing requirements across businesses and geographic areas. The Company is required to comply with increasingly complex and changing data security and privacy regulations in the United States and in other jurisdictions in which it operates that regulate the collection, use and transfer of personal data, including the transfer of personal data between or among countries. In the United States, for example, HIPAA imposes extensive privacy and security requirements governing the transmission, use and disclosure of health information by covered entities in the health care industry, including health care providers such as pharmacies. In addition, the California Consumer Privacy Act, which went into effect on January 1, 2020, imposes stringent requirements on the use and treatment of “personal information” of California residents, which term is broadly defined to include, among other things, information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked to a consumer or household. Other U.S. states have enacted, or are proposing similar laws related to the protection of personal data. In addition, the U.S. federal government is considering federal privacy legislation. Outside the United States, many of its business units operate in countries with stringent data protection regulations, and these laws continue to change. For example, the European Union’s General Data Protection Regulation, which became effective in May 2018, greatly increased the jurisdictional reach of European Union data protection laws and added a broad array of requirements for handling personal data, including the public disclosure of significant data breaches, and provides for greater penalties for noncompliance. Other countries have enacted or are considering enacting data localization laws that require certain data to stay within their borders. Complying with changing regulatory requirements requires the Company to incur substantial costs and may require changes to its business practices in certain jurisdictions, any of which could materially and adversely affect its business operations and operating results. It may also face audits or investigations by one or more domestic or foreign government agencies relating to its compliance with these regulations. Compliance with changes in privacy and information security laws
and standards may result in significant expense due to increased investment in technology and the development of new operational processes. If the Company or those with whom it shares information fail to comply with these laws and regulations or experience a data security breach, its reputation could be damaged and it could be subject to additional litigation and regulatory risks, particularly to the extent the breach relates to sensitive data. The Company’s security measures may be undermined due to the actions of outside parties, employee error, malfeasance, or otherwise, and, as a result, an unauthorized party may obtain access to its data systems and misappropriate business and personal information. Any such breach or unauthorized access could result in significant legal and financial exposure, damage to its reputation and credibility, and potentially have a material adverse effect on its business operations, financial condition and results of operations.
The Company’s business success and operating results depend in part on effective information technology systems and on continuing to develop and implement improvements in technology. Pursuing multiple initiatives simultaneously could make this continued development and implementation significantly more challenging.
Many aspects of the Company’s operations are dependent on its information systems and the information collected, processed, stored, and handled by these systems. The Company relies heavily on its computer systems to manage its ordering, pricing, point-of-sale, pharmacy fulfillment, inventory replenishment, claims processing, customer loyalty and subscription programs, finance and other processes. Throughout the Company’s operations, it collects, processes, maintains, retains, evaluates, utilizes and distributes large amounts of confidential and sensitive data and information, including personally identifiable information and protected health information, that its customers, members and other constituents provide to purchase products or services, enroll in programs or services, register on its websites, interact with its personnel, or otherwise communicates with the Company. In addition, for these operations, the Company depends in part on the secure transmission of confidential information over public networks.
The Company has many different information and other technology systems supporting its businesses. Its businesses depend in large part on these systems to adequately price its products and services; accurately establish reserves, process claims and report operating results; and interact with providers, employer plan sponsors, customers, members, consumers and vendors in an efficient and uninterrupted fashion. In addition, recent trends toward greater consumer engagement in health care require new and enhanced technologies, including more sophisticated applications for mobile devices. Certain of its technology systems, including software, are older, legacy systems that are less flexible, less efficient and require a significant ongoing commitment of capital and human resources to maintain, protect and enhance them and to integrate them with its other systems. The Company must re-engineer and reduce the number of these systems to meet changing consumer and vendor preferences and needs, improve its productivity and reduce its operating expenses. The Company also needs to develop or acquire new technology systems, contract with new vendors or modify certain of its existing systems to support the consumer-oriented and transformation products and services its developing, operating and expanding and/or to meet current and developing industry and regulatory standards, including to keep pace with continuing changes in information processing technology and emerging cybersecurity risks and threats. If it fails to achieve these objectives, the Company’s ability to profitably grow its business and/or its operating results may be adversely affected.
In addition, information technology and other technology and process improvement projects frequently are long-term in nature and may take longer to complete and cost more than the Company expects and may not deliver the benefits it projects once they are complete. If the Company does not effectively and efficiently secure, manage, integrate and enhance its technology portfolio, including vendor sourced systems, it could, among other things, have problems determining health care and other benefit cost estimates and/or establishing appropriate pricing, meeting the needs of customers, consumers, providers, members and vendors, developing and expanding its consumer-oriented products and services or keeping pace with industry and regulatory standards, and its operating results may be adversely affected.
The Company could be adversely affected by product liability, product recall, personal injury or other health and safety issues.
The Company could be adversely impacted by the supply of defective or expired products, including the infiltration of counterfeit products into the supply chain, errors in re-labeling of products, product tampering, product recall and contamination or product mishandling issues. Errors in the dispensing and packaging of pharmaceuticals, including related counseling could lead to serious injury or death. Product liability or personal injury claims may be asserted against the Company with respect to any of the products or pharmaceuticals it sells or services it provides. For example, from time to time, the FDA issues statements alerting patients that products in the Company’s and other pharmacies supply chains may contain impurities or harmful substances, and claims relating to the sale or distribution of such products may be asserted against the Company or arise from these statements. Should a product or other liability issue arise, the coverage limits under its insurance programs and third-party indemnification amounts available to it may not be adequate to protect the Company against claims and judgments. The Company also may not be able to maintain this insurance on acceptable terms in the future.
Changes in economic conditions could adversely affect consumer buying practices.
The Company’s performance has been, and may continue to be, adversely impacted by changes in global, national, regional or local economic conditions and consumer confidence. These conditions can also adversely affect its key vendors and customers. External factors that affect consumer confidence and over which the Company exercises no influence include the impact of COVID-19 and any future pandemics, unemployment rates, inflation, levels of personal disposable income, levels of taxes and interest and global, national, regional or local economic conditions, as well as acts of war or terrorism. Changes in economic conditions and consumer confidence could adversely affect consumer preferences, purchasing power and spending patterns, which could lead to a decrease in overall consumer spending as well as in prescription drug and health services utilization and which could be exacerbated by the increasing prevalence of high-deductible health insurance plans and related plan design changes.
The Company could be adversely impacted by changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters.
Generally Accepted Accounting Principles, or GAAP, and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to the Company’s businesses, including, but not limited to, revenue recognition, asset impairment, impairment of goodwill and other intangible assets, inventories, equity method investments, vendor rebates and other vendor consideration, lease obligations, self-insurance liabilities, pension and postretirement benefits, tax matters, unclaimed property laws and litigation and other contingent liabilities are highly complex and involve many subjective assumptions, estimates and judgments. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments could significantly change the Company’s reported or expected financial performance or financial condition. For example, changes in accounting standards and the application of existing accounting standards particularly related to the measurement of fair value as compared to carrying value for the Company’s reporting units, including goodwill, intangible assets and investments in equity interests, may have an adverse effect on the Company’s financial condition and results of operations. Factors that could lead to impairment of goodwill and intangible assets include significant adverse changes in the business climate and declines in the financial condition of a reporting unit. Factors that could lead to impairment of investments in equity interests of the companies in which the Company invested include a prolonged period of decline in their operating performance or adverse changes in the economic, regulatory and legal environments of the countries in which they operate.
New accounting guidance also may require changes to the Company’s processes, accounting systems and internal controls that could increase its operating costs and/or significantly change its financial statements. For example, in February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-02, Leases (Topic 842), which supersedes Topic 840, Leases. This ASU, which became effective for the Company in fiscal years beginning after December 15, 2019 (fiscal year 2020), and for interim periods beginning after December 15, 2020, seeks to increase the transparency and comparability of organizations by recognizing operating lease assets and operating lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The adoption approach for these accounting standards affect the
comparability of the Company’s consolidated financial statements. Implementing new accounting guidance may require the Company to make significant changes to and investments in its accounting systems and processes, which could result in significant adverse changes to its financial statements.
The Company may be required to pay significant penalties if it is not able to fulfill all of its registration requirements under an outstanding registration rights agreement.
The Company has registration rights obligations with respect to shares of Common Stock held by legacy MedAvail stockholders. Pursuant to these obligations, the Company will be required to file a registration statement within a certain time period following the closing of the Business Combination and then have the registration statement declared effective within a certain time period thereafter and to maintain the effectiveness of such registration statement. The failure to do so could result in the payment of liquidated damage by the Company, which could be as much as approximately $150,000 per month until the certain registration statement is declared effective. There can be no assurance that the Company will not incur damages with respect to such agreement.
Risks Related to Insurance and Payments and Pricing and Reimbursement Plans
Significant and increasing pressure from third-party payers to limit reimbursements could materially and adversely impacts the Company’s profitability, results of operations and financial condition.
The continued efforts of health maintenance organizations, managed care organizations, pharmacy benefit managers, or PBMs, government programs (such as Medicare, Medicaid and other federal and state funded programs), and other third-party payers to limit pharmacy reimbursements, as well as litigation and other legal proceedings or governmental regulation related to how drugs are priced, may adversely impact its profitability. While manufacturers have increased the price of drugs, payers have generally decreased reimbursement rates as a percentage of drug cost.
Pharmacy Benefit Managers:
The Company derives a significant portion of its sales from prescription drug sales reimbursed through prescription drug plans administered by a limited number of PBM companies and health plans. PBM companies typically administer multiple prescription drug plans that expire at various times and provide for varying reimbursement rates, and often limit coverage to specific drug products on an approved list, known as a formulary, which might not include all of the approved drugs for a particular indication. Reimbursements received from PBMs are determined pursuant to agreements. Should PBMs seek to negotiate reduced reimbursement rates or to adjust reimbursement rates downward, or change products covered under their formulary, this could negatively impact the Company’s profitability. In addition, PBMs may not be willing to accept or otherwise restrict the Company’s participation in networks of pharmacy providers to comply with PBM demands. The Company may elect not to continue or enter into participation in a pharmacy provider network if reimbursements are too low. Should it exit a pharmacy provider network and later resume participation, it may not achieve the same level of business and clients or the PBMs may not choose to include it again in the pharmacy network for their plans. In such events, it may incur increased marketing and other costs to offset these client losses through other strategic initiatives. As a result, it may lose sales, and if it is unable to replace any such lost sales, its operating results could be materially and adversely affected.
Medicare and Medicaid:
Reimbursement from government programs is subject to a myriad of requirements, including but not limited to statutory and regulatory, administrative rulings, interpretations, retroactive payment adjustments, governmental funding restrictions, and changes to, or introduction of, legislation, all of which may materially affect the amount and timing of reimbursement payments to the Company. These changes may reduce its revenue and profitability on services provided to Medicare and Medicaid patients and increase its working capital requirements.
The utilization of Medicare Part D by cash and state Medicaid customers, with established pharmacy network payments based on actual acquisition cost, has resulted in increased utilization and decreased pharmacy gross margin rates. In addition, changes to Medicare Part D, such as the elimination of the tax deductibility of the retiree
drug subsidy payment received by sponsors of retiree drug plans, could result in the Company’s PBM clients deciding to discontinue providing prescription drug benefits to their Medicare-eligible members. To the extent this occurs, the adverse effects of increasing customer migration into Medicare Part D may outweigh the benefits the Company realize from the growth of its Medicare Part D business.
Given the significant competition in the industry, the Company has limited bargaining power to counter payer demands for reduced reimbursement rates. If the Company is unable to negotiate for acceptable reimbursement rates or replace unfavorable contracts with new business on acceptable terms, its revenues and business could be adversely affected. Should it experience a loss of sales as a result of reduced reimbursement rates and be unable to appropriately adjust staffing levels in a timely and efficient manner, this may negatively impact its financial condition or results of operations.
There have been multiple executive, congressional and judicial attempts to modify or repeal the Health Reform Laws. The Company cannot predict the success or effect any modification or repeal and any subsequent legislation would have on reimbursement levels. Furthermore, a third-party payer may not be able to pay timely, or may delay payment of, amounts owed to it due to budgetary constraints or deterioration of financial condition. Recent or future changes in prescription drug reimbursement policies and practices may materially and adversely affect its results of operations.
The amount of DIR fees charged by PBMs, as well as the timing of assessing such fees and the methodology in calculating such fees, may have a material adverse impact on the Company’s financial performance and, to the extent such fees are material, may limit its ability to provide accurate financial guidance for future periods.
Some PBMs charge certain direct and indirect remuneration, or DIR, fees, often calculated and charged several months after adjudication of a claim, which adversely impacts its profitability. DIR fees is a term used by The Centers for Medicare & Medicaid Services, or CMS, to address price concessions that ultimately may impact the prescription drug reimbursement of Medicare Part D plans, but are not captured at the point of sale. Further, the timing of assessments, changes in the manner in which DIR fees are assessed and methodology in computing DIR fees may materially impact the company’s ability to provide accurate financial guidance to investors and analysts, and may result in a future change in the estimated DIR fees it has recognized. In addition, as reimbursement pressure increases throughout the industry and as the Company’s business grows, the amount of DIR fees assessed is expected to increase, which could have an adverse impact on its revenues and results of operations.
Shifts in pharmacy mix toward lower margin drugs could negatively impact the Company’s financial condition.
A shift in the mix of pharmacy prescription volume towards lower margin drugs could negatively impact its financial condition. If its prescription volume shifts towards lower margin drugs or drugs with lower reimbursement rates and the Company is not able to generate additional prescription volume or other business that is sufficient to offset the impact of lower margin or reimbursement rates decline from current levels in future years, its financial condition could be materially and adversely affected.
Industry pricing benchmarks may change, negatively impacting the revenue the Company derives from product sales.
It is possible that the pharmaceutical industry or regulators may evaluate and/or develop an alternative pricing reference to replace average wholesale price, or AWP, which is the pricing reference used for many pharmaceutical purchase agreements, retail network contracts, specialty payer agreements and other contracts with third party payers in connection with the reimbursement of specialty drug payments. Future changes to the use of AWP or to other published pricing benchmarks used to establish pharmaceutical pricing, including changes in the basis for calculating reimbursement by federal and state health programs and/or other payers, could negatively impact its pricing arrangements. The effect of these possible changes on its business cannot be predicted at this time.
Programs funded in whole or in part by the U.S. federal government account for a significant portion of the Company’s revenues, and it expects that percentage to increase over time.
Programs funded in whole or in part by the U.S. federal government account for a significant portion of its revenues, and the Company expects that percentage to increase. As its government funded businesses grow, its exposure to changes in federal and state government policy with respect to and/or regulation of the various government funded programs in which it participates also increases.
The Company’s revenues from government funded programs are dependent on annual funding by the federal government and/or applicable state or local governments. Funding for these programs is dependent on many factors outside its control, including general economic conditions, continuing government efforts to contain health care costs and budgetary constraints at the federal or applicable state or local level and general political issues and priorities.
An extended federal government shutdown or a delay by Congress in raising the federal government’s debt ceiling also could lead to a delay, reduction, suspension or cancellation of federal government spending and a significant increase in interest rates that could, in turn, have a material adverse effect on the value of the Company’s investment portfolio, its ability to access the capital markets and its businesses, operating results, cash flows and liquidity.
The Company could be adversely affected by a decrease in the introduction of new brand name and generic prescription drugs as well as increases in the cost to procure prescription drugs.
The profitability of the Company’s pharmacy businesses depends upon the utilization of prescription drugs. Utilization trends are affected by, among other factors, the introduction of new and successful prescription drugs as well as lower-priced generic alternatives to existing brand name drugs. Inflation in the price of drugs also can adversely affect utilization, particularly given the increased prevalence of high-deductible health insurance plans and related plan design changes. New brand name drugs can result in increased drug utilization and associated sales, while the introduction of lower priced generic alternatives typically results in relatively lower sales, but relatively higher gross profit margins. Accordingly, a decrease in the number or magnitude of significant new brand name drugs or generics successfully introduced, delays in their introduction, or a decrease in the utilization of previously introduced prescription drugs, could materially and adversely affect its results of operations.
In addition, if it experiences an increase in the amounts it pays to procure pharmaceutical drugs, including generic drugs, it could have a material adverse effect on its results of operations. The Company’s gross profit margins would be adversely affected to the extent it is not able to offset such cost increases. Any failure to fully offset any such increased prices and costs or to modify its activities to mitigate the impact could have a material adverse effect on its results of operations. Additionally, any future changes in drug prices could be significantly different than its expectations.
Risks Related to the Company’s Industry
The industries in which the Company operates are highly competitive and constantly evolving. New entrants to the market, existing competitor actions or other changes in market dynamics could adversely impact it.
The market for retail medication pharmacy is highly competitive and rapidly evolving. The market is subject to changing technology trends, shifting customer needs and expectations and frequent introduction of new products. The Company expects competition to persist and intensify in the future as the market for retail pharmacy grows and new and existing competitors devote considerable resources to introducing and enhancing products and services. It faces competition from several of the world’s largest providers that provide alternatives, including Genoa, which was acquired by OptumRx, as well as major chains such as Walgreens, CVS, Walmart and Rite Aid.
The Company’s current and potential competitors may have significantly greater financial, technical, marketing and other resources than it does and may be able to devote greater resources to the development, promotion, sale and support of their products. In addition, many of its competitors have more extensive customer relationships than it does, and, therefore, its competitors may be in a stronger position to respond quickly to new technologies and may
be able to market or sell their products more effectively. Moreover, further consolidation in the retail pharmacy market could adversely affect its customer relationships and competitive position. The Company’s services may not continue to compete favorably. It may not be successful in the face of increasing competition from new products and services introduced by existing competitors or new companies entering the markets in which it operates.
The level of competition in the retail pharmacy industry is high. Changes in market dynamics or actions of competitors or manufacturers, including industry consolidation and the emergence of new competitors and strategic alliances, could materially and adversely impact the Company. Disruptive innovation, or the perception of potentially disruptive innovation, by existing or new competitors could alter the competitive landscape in the future and require it to accurately identify and assess such changes and if required make timely and effective changes to its strategies and business model to compete effectively. The Company faces intense competition including other drugstore and pharmacy chains, independent drugstores and pharmacies, mail-order pharmacies and various other retailers such as grocery stores, convenience stores, mass merchants, online and omni-channel pharmacies and retailers, warehouse clubs, dollar stores and other discount merchandisers, some of which are aggressively expanding in markets it serves. Competition may also come from other sources in the future.
The Company also could be adversely affected if it fails to identify or effectively respond to changes in market dynamics. As technology, consumer behavior, omni-channel and differential retail models, and market conditions continue to evolve in the United States, it is important that it maintains the relevance of its brand and product and service offerings to customers and patients.
Consolidation in the healthcare industry could materially adversely affect its business, financial condition and results of operations.
Many healthcare industry participants are consolidating to create integrated healthcare delivery systems with significant market power, and it expects such trend to continue. For example, in November 2018 CVS acquired Aetna and in December 2018 Cigna acquired Express Scripts. As provider networks and managed care organizations consolidate, thereby decreasing the number of market participants, competition to provide products and services like ours will become more intense, and the importance of establishing relationships with key industry participants will become greater. In addition, industry participants may try to use their increased market power to negotiate price reductions for the Company’s products and services. The Company expects that market demand, government regulation, third party reimbursement policies and societal pressures will continue to cause the healthcare industry to evolve, potentially resulting in further business consolidations and alliances among the industry participants with whom it engages. If the Company is forced to reduce prices as a result of either an imbalance of market power or decreased demand for its products, revenue would be reduced, and it could become significantly less profitable.
Each of the Company’s segments operates in a highly competitive and evolving business environment; and gross margins in the industries in which it competes may decline.
The Company operates in a highly competitive and evolving business environment. Specifically:
•As competition increases in the geographies in which it operates, including competition from new entrants, a significant increase in price compression and/or reimbursement pressures could occur, and this could require it to reevaluate its pricing structures to remain competitive.
•Its success is dependent on its ability to establish and maintain contractual relationships with network pharmacies as PBM clients evaluate adopting narrow or restricted retail pharmacy networks.
•Its competitive advantage is dependent on its ability to establish and maintain contractual relationships with PBMs and other payors on acceptable terms as the payors’ clients evaluate adopting narrow or restricted retail pharmacy networks.
In addition, competitors in each of its businesses may offer services and pricing terms that it may not be willing or able to offer. Competition also may come from new entrants and other sources in the future. Unless it can demonstrate enhanced value to its clients through innovative product and service offerings in the rapidly changing health care industry, it may be unable to remain competitive.
Disruptive innovation by existing or new competitors could alter the competitive landscape in the future and require it to accurately identify and assess such alterations and make timely and effective changes to its strategies and business model to compete effectively. Consumers also are increasingly seeking to access consumer goods and health care products and services locally and through other direct channels such as mobile devices and websites. To compete effectively in the consumer-driven marketplace, it will be required to develop or acquire new capabilities, attract new talent and develop new service and distribution relationships that respond to consumer needs and preferences.
Changes in marketplace dynamics or the actions of competitors or manufacturers, including industry consolidation, the emergence of new competitors and strategic alliances, and decisions to exclude it from new restricted retail pharmacy networks could materially and adversely affect its businesses, operating results, cash flows and/or prospects.
The Company’s results of operations are subject to the risks and uncertainties of fluctuations in pharmaceutical prices.
The Company’s revenue and gross profit are subject to fluctuation based upon the timing and extent of manufacturer price increases. If the frequency or rate of pharmaceutical price increases slows, its results of operations could be adversely affected. In addition, its profitability is impacted by the utilization of prescription drugs. If utilization declines due to inflation in the price of drugs, particularly given the increased usage of high-deductible health insurance plans, its profitability could be adversely affected. Its gross profits are also subject to price deflation. If pharmaceutical price deflation occurs, its results of operations could be adversely affected.
Furthermore, increases in the amounts the Company pays to procure pharmaceutical drugs, including generic drugs, could have material adverse effects on its results of operations. If it fails to offset such cost increases or modify its activities to reduce the impact, its results of operations could be materially adversely affected. The Company’s expectations could be materially different than, and any future change in drug prices could be significantly different from, its expectations.
Legal Risks
The Company could be subject to securities class action litigation.
In the past, securities class action litigation has often been brought against public companies in connection with business combinations and merger transactions, alleging that the directors breached their fiduciary duties in connection with such transactions. Following MYOS’s and MedAvail’s announcement of the execution of the Merger Agreement on June 30, 2020, MYOS received separate litigation demands from purported MYOS stockholders on September 16, 2020 and October 20, 2020, respectively seeking certain additional disclosures in the Form S-4 Registration Statement filed with the Securities and Exchange Commission on September 2, 2020 (collectively, the “Demands”). Thereafter, on September 23, 2020, a complaint regarding the transactions contemplated within the Merger Agreement was filed in the Supreme Court of the State of New York, County of New York, captioned Faasse v. MYOS RENS Technology Inc., et. al., Index No.: 654644/2020 (NY Supreme Ct., NY Cnty., September 23, 2020) (the “New York Complaint”). On October 12, 2020, a second complaint regarding the transactions was filed in the District Court of Nevada, Clark County Nevada, captioned Vigil v. Mannello, et. al., Case No. A-20-822848-C (the “Nevada Complaint,” and collectively with the New York Complaint and Demands, the “Litigation”).
The Demands and the Complaints that currently comprise the Litigation generally allege that the directors of MYOS breached their fiduciary duties by entering into the Merger Agreement, and MYOS and MedAvail disseminated an incomplete and misleading Form S-4 Registration Statement. The New York Complaint also alleges MedAvail aided and abetted such breach of fiduciary duties. MYOS and MedAvail believe that the claims asserted in the Litigation are without merit, and believe that the Form S-4 Registration Statement disclosed all material information concerning the Merger and no supplemental disclosure is required under applicable law. However, in order to avoid the risk of the Litigation delaying or adversely affecting the Merger and to minimize the costs, risks and uncertainties inherent in litigation, and without admitting any liability or wrongdoing, MYOS determined to voluntarily supplement the Form S-4 Registration Statement as described in the Current Report on
Form 8-K filed on November 2, 2020. The Litigation currently remains pending. MYOS and MedAvail specifically deny all allegations in the Litigation and/or that any additional disclosure was or is required.
The outcome of the Litigation is uncertain. If the Litigation remains unresolved or the Company is required to defend or settle any Litigation, this could result in significant costs to the Company, including costs associated with the indemnification of the Company’s directors and officers, other damages or settlement amounts, and other significant defense costs. Such payments could adversely affect our operations. Other plaintiffs may also file lawsuits against the Company and/or directors and officers thereof in connection with the Merger, resulting in substantial costs to the Company and requiring the Company and its directors and officers to defend against multiple lawsuits potentially filed in different jurisdictions and divert management’s attention and resources. This could adversely affect the operation of the Company’s business or otherwise adversely affect the Company’s business, financial condition, results of operations and cash flows.
We maintain liability insurance; however, if any costs or expenses associated with the Litigation or any other litigation exceed our insurance coverage, and we may be forced to bear some or all of these costs and expenses directly, which could be substantial.
The Company is exposed to risks related to litigation and other legal proceedings.
The Company operates in a highly regulated and litigious environment. It may become involved in legal proceedings, including litigation, arbitration and other claims, and investigations, inspections, audits, claims, inquiries and similar actions by pharmacy, healthcare, tax and other governmental authorities.
Legal proceedings, in general, and securities, derivative action and class action and multi-district litigation, in particular, can be expensive and disruptive. Some of these suits may purport or may be determined to be class actions and/or involve parties seeking large and/or indeterminate amounts, including punitive or exemplary damages, and may remain unresolved for several years.
Like other companies in the retail pharmacy, the Company is subject to extensive regulation by national, state and local government agencies in the United States and other countries in which it may operate. There continues to be a heightened level of review and/or audit by regulatory authorities of, and increased litigation regarding, the Company’s and the rest of the health care and related industry’s business, compliance and reporting practices. As a result, the Company regularly is the subject of government actions of the types described above. In addition, under the qui tam or “whistleblower” provisions of the federal and various state false claims acts, persons may bring lawsuits alleging that a violation of the federal anti-kickback statute or similar laws has resulted in the submission of “false” claims to federal and/or state healthcare programs, including Medicare and Medicaid. After a private party has filed a qui tam action, the government must investigate the private party's claim and determine whether to intervene in and take control over the litigation. These actions may remain under seal while the government makes this determination.
The Company cannot predict with certainty the outcomes of any legal proceedings and other contingencies, and the costs incurred in litigation can be substantial, regardless of the outcome. Substantial unanticipated verdicts, fines and rulings do sometimes occur. As a result, it could from time to time incur judgments, enter into settlements or revise its expectations regarding the outcome of certain matters, and such developments could harm its reputation and have a material adverse effect on its results of operations in the period in which the amounts are accrued and/or its cash flows in the period in which the amounts are paid. In addition, as a result of governmental investigations or proceedings, the Company may be subject to damages, civil or criminal fines or penalties, or other sanctions, including the possible suspension or loss of licensure and/or suspension or exclusion from participation in government programs. The outcome of some of these legal proceedings and other contingencies could require it to take, or refrain from taking, actions which could negatively affect its operations. Additionally, defending against these lawsuits and proceedings may involve significant expense and diversion of management’s attention and resources.
Risks Related to Government Regulation
If the Company fails to comply with applicable laws and regulations, many of which are highly complex, it could be subject to significant adverse regulatory actions or suffer brand and reputational harm.
The Company is subject to extensive regulation and oversight by state, federal and international governmental authorities. The laws and regulations governing its operations and interpretations of those laws and regulations are increasing in number and complexity, change frequently and can be inconsistent or conflict with one another. In general, these laws and regulations are designed to benefit and protect customers, members and providers rather than the Company or its investors. In addition, the governmental authorities that regulate its businesses have broad latitude to make, interpret and enforce the laws and regulations that govern it and continue to interpret and enforce those laws and regulations more strictly and more aggressively each year. It also must follow various restrictions on certain of its businesses and the payment of dividends by certain of its subsidiaries put in place by certain state regulators.
The Company is subject to:
•the clinical quality, patient safety and other risks inherent in the dispensing, packaging and distribution of drugs and other health care products and services, including claims related to purported dispensing and other operational errors, and its failure to adhere to the laws and regulations applicable to the dispensing of drugs could subject it to civil and criminal penalties; and
•federal and state anti-kickback and other laws that govern its relationship with drug manufacturers, customers and consumers.
The scope of the practices and activities that are prohibited by federal and state false claims acts is the subject of pending litigation. Claims under federal and state false claims acts can be brought by the government or by private individuals on behalf of the government through a qui tam or “whistleblower” suit. If the Company is convicted of fraud or other criminal conduct in the performance of a government program or if there is an adverse decision against it under the federal False Claims Act, it may be temporarily or permanently suspended from participating in government health care programs, including Medicare Advantage, Medicare Part D, Medicaid, dual eligible and dual eligible special needs plan programs, and it also may be required to pay significant fines and/or other monetary penalties. Whistleblower suits have resulted in significant settlements between governmental agencies and health care companies. The significant incentives and protections provided to whistleblowers under applicable law increase the risk of whistleblower suits.
If the Company fails to comply with laws and regulations that apply to government programs, it could be subject to criminal fines, civil penalties, premium refunds, prohibitions on marketing or active or passive enrollment of members, corrective actions, termination of its contracts or other sanctions which could have a material adverse effect on its ability to participate in Medicare Advantage, Medicare Part D, Medicaid, dual eligible, dual eligible special needs plan and other programs and on its operating results, cash flows and financial condition.
The Company’s businesses, profitability and growth also may be adversely affected by (i) judicial and regulatory decisions that change and/or expand the interpretations of existing statutes and regulations, impose medical or bad faith liability, or (ii) other legislation and regulations.
Pharmacies and pharmacists must obtain federal and state licenses to operate, distribute and dispense pharmaceuticals and controlled substances. If it is unable to obtain and maintain its licenses, meet certain security and operating standards or comply with acts and regulations covering among other things, the sale, distribution and dispensing of controlled substances, or if states place burdensome restrictions or limitations on non-resident pharmacies, this could limit or affect its ability to operate in some states. In addition, each state has different laws passed by state legislatures and rules approved by state pharmacy boards governing the operation, distribution and dispensing of pharmaceuticals and there is no universal federal or international regulation. This lack of uniform laws and rules makes the costs of compliance significant and makes a violation of state laws and rules by the Company more likely. Furthermore, the laws and rules relating to pharmacy technology are relatively new and evolving further adding to the cost of compliance and increasing the Company’s risk of noncompliance. Federal and
state regulatory authorities have broad enforcement powers, and are able to revoke licenses, seize or recall products and impose significant criminal, civil and administrative fines and sanctions for violations of such laws and regulations, any of which could have a material and adverse effect on our ability to do business.
Changes in healthcare regulatory environments may adversely affect the Company’s businesses.
Political, economic and regulatory influences are subjecting the healthcare industry to significant changes that could adversely affect its results of operations. In recent years, the healthcare industry has undergone significant changes in an effort to reduce costs and government spending. These changes include an increased reliance on managed care; cuts in certain Medicare and Medicaid funding in the United States and the funding of governmental payers in foreign jurisdictions; consolidation of competitors, suppliers and other market participants; and the development of large, sophisticated purchasing groups. The Company expects the healthcare industry to continue to change significantly in the future. Some of these potential changes, such as a reduction in governmental funding for certain healthcare services or adverse changes in legislation or regulations governing prescription drug pricing, healthcare services or mandated benefits, may cause customers to reduce the amount of its products and services they purchase or the price they are willing to pay for its products and services. The Company expects continued governmental and private payer pressure to reduce pharmaceutical pricing. Changes in pharmaceutical manufacturers’ pricing or distribution policies could also significantly reduce its profitability.
In the United States, electoral results and changes in political leadership have generated uncertainty with respect to, and could result in, significant changes in legislation, regulation and government policy that could significantly impact its businesses and the health care and retail industries. There have been multiple attempts to repeal, modify or otherwise invalidate all, or certain provisions of, the Affordable Care Act, or ACA, which was enacted in 2010 to provide health insurance coverage to millions of previously uninsured Americans through a combination of insurance market reforms, an expansion of Medicaid, subsidies and health insurance mandates. The ACA and related healthcare reform laws, regulations and initiatives have significantly increased regulation of managed care plans and decreased reimbursement to Medicare managed care. The Company cannot predict whether current or future efforts to modify these laws and/or adopt new healthcare legislation will be successful, nor can it predict the impact that such a development would have on its business and operating results. Future legislation or rulemaking or other regulatory actions or developments under the ACA or otherwise could adversely impact the number of Americans with health insurance and, consequently, prescription drug coverage, increase regulation of pharmacy services, result in changes to pharmacy reimbursement rates, and otherwise change the way it does business. The Company cannot predict the timing or impact of any future legislative, rulemaking or other regulatory actions, but any such actions could have a material adverse impact on its results of operations.
Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, effective April 1, 2013, which, due to subsequent legislative amendments, will stay in effect through 2030 unless additional congressional action is taken. The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, which was signed into law on March 27, 2020, and which is designed to provide financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended the 2% Medicare sequester from May 1, 2020, through December 31, 2020, and extended the end date of the sequester by one year, through 2030, in order to offset the 2020 suspension. Moreover, there has recently been heightened governmental scrutiny over the manner in which pharmaceutical manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted legislation designed, among other things, to bring more transparency to drug pricing, to reform government program reimbursement methodologies for pharmaceutical products, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures and, in some cases, mechanisms to encourage importation from other countries and bulk purchasing. Furthermore, there has been increased interest by third party payors and governmental authorities in reference to pricing systems and publication of discounts and list prices, which may adversely affect the Company’s revenue and financial condition.
Recently, in July 2020, the Trump administration announced four Executive Orders to lower drug prices, including, among others, allowing importation of certain drugs, changing how drug rebates are negotiated by middlemen, like pharmacy benefit managers, and directing such rebates to be passed to patients as point-of-sale
discounts, and requiring Medicare to pay certain Part B drugs at the lowest price available in economically comparable countries. On September 13, 2020, President Trump revoked and expanded upon the fourth Executive Order on most-favored-nation drug payment models for Medicare Part B and Part D drugs, directing the Secretary of HHS to immediately take appropriate steps to the extent consistent with law. These Executive Orders do not provide the specifics for implementation and raise significant questions as to whether their directives are consistent with existing statutory and regulatory authority. How these executive orders will be implemented and their impact on the healthcare industry, in general, and pharmacy services specifically, remain uncertain. In September 2020, the FDA also issued a final guidance on importation of certain FDA-approved human prescription drugs and a final rule that sets forth requirements for an importation program for certain prescription drugs from Canada, allowing States, Indian Tribes, and, in certain circumstances, pharmacists and wholesalers, to submit proposals for importation for the FDA for review and authorization. Depending on the details of further administrative actions, these measures as well as other proposals could have significant impacts for drug manufacturers, pharmacies, and providers, which may significantly and adversely affect the business of the Company’s customers as well as its ability to generate revenue and achieve profitability.
The Company must comply with a variety of existing and future laws and regulations that could impose substantial costs on it and may adversely affect its business.
The scope of foreign investments in U.S. businesses was recently expanded by the Foreign Investment Risk Review Modernization Act of 2018, or FIRRMA, to include certain non-passive, non-controlling investments (including certain investments in entities that hold or process personal information about U.S. nationals) and transactions structured or intended to evade or circumvent the jurisdiction of the Committee on Foreign Investment in the United States, or CFIUS, and any transaction resulting in a “change in the rights” of a foreign person in a U.S. business if that change could result in either control of the business or a covered non-controlling investment.
CFIUS could intervene in the Company’s previously completed fundraising rounds and require it to modify or amend the terms of those transactions, or terminate or unwind all or part of the transactions, if CFIUS determines that it is necessary to address U.S. national security concerns, without regard to whether the transaction was completed and operated in accordance with applicable law.
If relations between China and the U.S. deteriorate, the Company may be materially and adversely affected.
Doing business internationally creates operational and financial risks for the Company’s business. International operations entail a variety of other risks, including restrictions on foreign investors in the Company, enhanced oversight by CFIUS, and substantial restrictions on, and scrutiny of, foreign investment – especially Chinese investment. The relationship between China and the U.S. is subject to periodic tension. Relations may also be compromised if the U.S pressures the PRC government regarding its monetary, economic, or social policies. Changes in political conditions in China and changes in the state of China-U.S. relations are difficult to predict and could adversely affect the operations or financial condition of the Company. In addition, because of the Company’s proposed involvement in the Chinese market, any deterioration in political or trade relations might cause a public perception in the U.S. or elsewhere that might cause its products to become less attractive. Furthermore, CFIUS has continued to apply a more stringent review of certain foreign investment in U.S. companies, including investment by Chinese entities. The Company cannot predict what effect any changes in China-U.S. relations may have on its ability to access capital or effectively support the Company.
Risks Related to the Company’s Relationships with Manufacturers, Providers, Suppliers and Vendors
Both the Company and its vendors’ operations are subject to a variety of business continuity hazards and risks, any of which could interrupt its operations or otherwise adversely affect its performance and operating results.
The Company and its vendors are subject to business continuity hazards and other risks, including natural disasters, utility and other mechanical failures, acts of war or terrorism, disruption of communications, data security and preservation, disruption of supply or distribution, safety regulation and labor difficulties. The occurrence of any of these or other events to the Company or its vendors might disrupt or shut down its operations or otherwise adversely affect its operations. It also may be subject to certain liability claims in the event of an injury or loss of life, or damage to property, resulting from such events. Although it has developed procedures for crisis management
and disaster recovery and business continuity plans and maintain insurance policies that it believes are customary and adequate for its size and industry, its insurance policies include limits and exclusions and, as a result, its coverage may be insufficient to protect against all potential hazards and risks incident to its businesses. In addition, the Company’s crisis management and disaster recovery procedures and business continuity plans may not be effective. Should any such hazards or risks occur, or should its insurance coverage be inadequate or unavailable, its businesses, operating results, cash flows and financial condition could be adversely affected.
The Company outsources the manufacturing of its MedCenter Kiosks to a third party.
The Company relies on a single third party manufacturer to make its MedCenter Kiosks. The Company’s former manufacturer is no longer manufacturing the MedCenter Kiosks for the Company and the Company recently signed a new manufacturing and supply agreement with Kitron Technologies. There are risks associated with Kitron Technologies’s ability to qualify and ramp a new manufacturing line. As a result, additional MedCenter Kiosks may be delayed or stalled pending the qualification and ramping up of the new manufacturing line. Currently, the Company anticipates the new units manufactured by Kitron Technologies to be available in early Q2 2021.
Risks Related to the Company’s Intellectual Property
If the Company is unable to protect its intellectual property, it will suffer substantial harm.
The Company’s success depends upon the protection of its software and hardware designs and other proprietary technology. The Company relies on a combination of patent, copyright, trademark and trade secret laws, and confidentiality provisions in agreements with employees, contract manufacturers, consultants, customers and other third parties, to protect its intellectual property rights. Other parties may not comply with the terms of their agreements with us, and the Company may not be able to enforce its rights adequately against these parties. In addition, unauthorized parties may attempt to copy or otherwise obtain and use its products or technology. Monitoring unauthorized use of its products is difficult, and the Company cannot be certain that the steps the Company has taken will prevent unauthorized use of its technology. If competitors are able to use the Company’s technology, its ability to compete effectively could be harmed. For example, if a competitor were to gain use of certain of the Company’s proprietary technology, it might be able to develop and manufacture similarly designed MedCenter Kiosks at a reduced cost, which would result in a decrease in demand for the company’s products. The Company does not know whether any of its pending patent applications will result in the issuance of patents or whether the examination process will require the Company to narrow its claims, and even if patents are issued, they may be contested, circumvented or invalidated over the course of its business. Moreover, the rights granted under any issued patents may not provide the Company with proprietary protection or competitive advantages, and, as with any technology, competitors may be able to develop and obtain patents for technologies that are similar to or superior to its technologies. If that happens, the Company may need to license these technologies and the Company may not be able to obtain licenses on reasonable terms, if at all, thereby causing great harm to its business. In addition, if the Company resorts to legal proceedings to enforce its intellectual property rights, the proceedings could become burdensome and expensive, even if it were to prevail.
Claims by others that the Company infringe their intellectual property could cause the Company to suffer substantial harm.
Many companies have significant patent portfolios and these companies and other parties may claim that the Company’s products infringe their proprietary rights. The Company expects that infringement claims may increase as the number of products and competitors in its market increases and overlaps occur. In addition, to the extent that the Company gains greater visibility and market exposure as a public company, the Company faces a higher risk of being the subject of intellectual property infringement claims. Any party asserting that the Company’s products infringe their proprietary rights would force the Company to defend itself, and possibly its customers, against the alleged infringement. These claims and any resulting lawsuit, if successful, could subject the Company to significant liability for damages and invalidation of its proprietary rights. Such may also force the Company to do one or more of the following:
•stop selling, incorporating or using its products that use the challenged intellectual property;
•obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms, or at all;
•redesign those products that use any allegedly infringing technology, which may be costly and time-consuming; or
•refund deposits and other amounts received for allegedly infringing technology or products.
Any claim of infringement from a third party, even those without merit, could cause the Company to incur substantial costs defending against such claims, and could distract its management from running its business. Even if the Company prevails, the cost of such litigation could deplete its financial resources. Litigation is also time consuming and could divert management’s attention and resources away from its business. Furthermore, during the course of litigation, confidential information may be disclosed in the form of documents or testimony in connection with discovery requests, depositions or trial testimony. Disclosure of its confidential information and its involvement in intellectual property litigation could materially and adversely affect its business. Some of its competitors may be able to sustain the costs of complex intellectual property litigation more effectively than the Company can. In addition, any uncertainties resulting from the initiation and continuation of any litigation could significantly limit its ability to continue its operations.
Risks Related to Ownership of the Company’s Securities
The Company may need to raise additional financing in the future to fund its operations, which may not be available to it on favorable terms or at all.
Depending on uncertain future market risks and conditions, the Company may require substantial additional funds to continue to expand the core business, develop and commercialize its self-service pharmacy. The Company’s future capital requirements will depend upon a number of factors, including the: cost to manufacture additional MedCenter kiosks, development of pharmacy self-service capabilities, expenses related to initiating operations in a new state or region, cost to hire pharmacy and corporate support staff, expenses related to leasing additional real estate space for pharmacy operations and or corporate services, cost of information technology infrastructure needed to support growth across new geographical markets, expenses for licensing technologies and other required legal, audit or outside services. Raising additional capital may be costly or difficult to obtain and could significantly dilute stockholders’ ownership interests or inhibit the Company’s ability to achieve its business objectives. If the Company raises additional funds through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely affect the rights of its common stockholders. Further, to the extent that the Company raises additional capital through the sale of common stock or securities convertible or exchangeable into common stock, its stockholders’ ownership interest in the Company will be diluted. In addition, any debt financing may subject the Company to fixed payment obligations and covenants limiting or restricting its ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If the Company raises additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, the Company may have to relinquish certain valuable intellectual property or other rights to its products, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to it. Even if the Company were to obtain sufficient funding, there can be no assurance that it will be available on terms acceptable to the Company or its stockholders.
The market price of the Company’s Common Stock is expected to be volatile, and the market price of the common stock may drop.
The market price of the Company’s Common Stock could be subject to significant fluctuations. Market prices for securities of early-stage telehealth, pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of the Company’s Common Stock to fluctuate include:
•the ability of the Company to obtain state board of pharmacy licenses and regulatory approvals, and delays or failures to obtain and maintain such licenses approvals;
•failure of any of the Company’s products to achieve commercial success;
•the impact of the COVID-19 pandemic and any other future pandemics on the Company’s business;
•failure by the Company to maintain its existing third-party license and supply agreements;
•failure by the Company or its licensors to prosecute, maintain, or enforce its intellectual property rights;
•changes in laws or regulations applicable to the Company;
•any inability to obtain adequate supply of the Company’s products or the inability to do so at acceptable prices;
•adverse regulatory authority decisions;
•introduction of new products, services or technologies by the Company’s competitors;
•failure to meet or exceed financial and development projections the Company may provide to the public and the investment community;
•the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;
•announcements of significant acquisitions, strategic collaborations, joint ventures or capital commitments by the Company or its competitors;
•disputes or other developments relating to proprietary rights, including patents, litigation matters, and the Company’s ability to obtain patent protection for its technologies;
•additions or departures of key personnel;
•significant lawsuits, including patent or stockholder litigation;
•changes in the market valuations of similar companies;
•general market or macroeconomic conditions;
•trading volume of the Company’s common stock;
•announcements by commercial partners or competitors of new commercial products, significant contracts, commercial relationships or capital commitments;
•adverse publicity generally, including with respect to other products and potential products in such markets;
•the introduction of technological innovations that compete with potential products of the Company;
•changes in the structure of health care payment systems;
•period-to-period fluctuations in the Company’s financial results;
•investors’ reactions to the prospects of the Company’s business and prospects following the Business Combination;
•the effect of the Business Combination on the Company’s business and prospects is not consistent with the expectations of financial or industry analysts; or
•the possibility that the Company does not achieve the perceived benefits of the Business Combination as rapidly or to the extent anticipated by stockholders or financial or industry analysts.
Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of the Company’s Common Stock.
In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm the Company’s profitability and reputation.
Additionally, a decrease in the stock price of the Company may cause the Company’s Common Stock to no longer satisfy the continued listing standards of Nasdaq. If the Company is not able to maintain the requirements for listing on Nasdaq, it could be delisted, which could have a materially adverse effect on its ability to raise additional funds as well as the price and liquidity of its Common Stock.
The Company will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.
The Company will incur significant legal, accounting and other expenses that MedAvail did not incur as a private company, including costs associated with public company reporting requirements. The Company will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as applicable securities laws and rules and regulations implemented by the SEC and Nasdaq. These rules and regulations are expected to increase the Company’s legal and financial compliance costs and to make some activities more time consuming and costly. For example, the Company’s management team consists of the executive officers of MedAvail prior to the Merger, some of whom have not previously managed and operated a public company. These executive officers and other personnel will need to devote substantial time to gaining expertise regarding operations as a public company and compliance with applicable laws and regulations. These rules and regulations also may make it difficult and expensive for the Company to obtain directors’ and officers’ liability insurance. As a result, it may be more difficult for the Company to attract and retain qualified individuals to serve on the Company’s board of directors or as executive officers of the Company, which may adversely affect investor confidence in the Company and could cause the Company’s business or stock price to suffer.
The Company’s certificate of incorporation and bylaws, Delaware law and/or its agreements with certain stockholders may impede the ability of its stockholders to make changes to its board of directors or impede a takeover.
Certain provisions of the Company’s certificate of incorporation and bylaws, as well as provisions of the Delaware General Corporation Law, or the DGCL, could make it difficult for stockholders to change the composition of the board of directors or discourage, delay, or prevent a merger, consolidation, or acquisitions that stockholders may otherwise consider favorable. These provisions include the authorization of the issuance of “blank check” preferred stock that could be issued by the board of directors, limitations on the ability of stockholders to call special meetings, and advance notice requirements for nomination for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings. As a Delaware corporation, the Company is subject to the provisions of Section 203 of the DGCL, which prohibits the Company, except under specified circumstances, from engaging in any mergers, significant sales of stock or assets, or business combinations with any stockholder or group of stockholders who own 15% or more of our common stock.
While these provisions will not make the Company immune from takeovers or changes in the composition of the board of directors, and are intended to protect the Company’s stockholders from, among other things, coercive or otherwise unfair tactics, these provisions could have the effect of making it difficult for stockholders to change the composition of the board of directors or discouraging, delaying, or preventing a merger, consolidation, or acquisitions that stockholders may otherwise consider favorable.
There are a number of additional business risks that could materially and adversely affect the Company’s businesses and financial results.
Many other factors could materially and adversely affect the Company’s businesses and financial results, including:
•its ability to establish effective advertising, marketing and promotional programs;
•inflation, new or increased taxes, changes in market conditions or otherwise;
•natural disasters, civil unrest, severe weather conditions, terrorist activities, global political and economic developments, war, health epidemics or pandemics or the prospect of these events;
•liabilities or expense relating to the protection of the environment, related health and safety matters, environmental remediation or compliance with environmental laws and regulations, including those governing exposure to, and the management and disposal of, hazardous substances;
•the long-term effects of climate change on general economic conditions and the pharmacy industry in particular, along with changes in the supply, demand or available sources of energy and the regulatory and other costs associated with energy production and delivery;
•adverse publicity and potential losses, liabilities and reputational harm stemming from any public incident, whether occurring online, in social media, in our stores or other company facilities, or elsewhere, involving our company, our personnel or our brands, including any such public incident involving its customers, products, services, stores or other property, or those of any of its vendors or other parties with which the Company does business;
•negative publicity, even if unwarranted, related to safety or quality, human and workplace rights, or other issues damaging its brand image and corporate reputation, or that of any of its vendors or strategic allies; and
•technological innovation that changes delivery of healthcare resulting new modes of medication distribution.
The Company does not expect to pay any cash dividends in the foreseeable future.
The Company expects to retain its future earnings, if any, to fund the development and growth of the Company’s business. As a result, capital appreciation, if any, of the common stock of the Company is expected to be its stockholders’ sole source of gain, if any, for the foreseeable future.
An active trading market for the Company’s Common Stock may not develop and its stockholders may not be able to resell their shares of Common Stock for a profit, if at all.
Prior to the Business Combination, there had been no public market for MedAvail’s common stock. An active trading market for the Company’s shares of Common Stock may never develop or be sustained. If an active market for its common stock does not develop or is not sustained, it may be difficult for its stockholders to sell their shares at an attractive price or at all.
Future sales of shares by existing stockholders could cause the Company’s stock price to decline.
If stockholders of the Company sell, or indicate an intention to sell, substantial amounts of the Company’s common stock in the public market after legal restrictions on resale discussed in this Current Report on Form 8-K lapse, the trading price of the common stock of the Company could decline. The Company is unable to predict the effect that sales may have on the prevailing market price of the Company’s common stock.
If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about the Company, its business or its market, its stock price and trading volume could decline.
The trading market for the Company’s common stock will be influenced by the research and reports that equity research analysts publish about it and its business. Equity research analysts may elect not to provide research coverage of the Company’s common stock, and such lack of research coverage may adversely affect the market price of its common stock. In the event it does have equity research analyst coverage, the Company will not have any control over the analysts, or the content and opinions included in their reports. The price of the Company’s common stock could decline if one or more equity research analysts downgrade its stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of the Company or fails to publish reports on it regularly, demand for its common stock could decrease, which in turn could cause its stock price or trading volume to decline.
The Company has broad discretion in the use of proceeds from the Private Placement and may invest or spend the proceeds in ways with which its stockholders do not agree and in ways that may not increase the value of their investments.
The Company will have broad discretion over the use of proceeds from the sale of securities pursuant to that certain Securities Purchase Agreement dated as of October 9, 2020, by and among MedAvail and the subscribers set forth therein (the “Private Placement”). Its stockholders may not agree with the Company’s decisions, and its use of the proceeds may not yield any return on its stockholders’ investments. The Company’s failure to apply the net proceeds of the Private Placement effectively could compromise its ability to pursue its growth strategy and the Company might not be able to yield a significant return, if any, on its investment of these net proceeds. The Company’s stockholders will not have the opportunity to influence its decisions on how to use the net proceeds from the Private Placement.
If the Company fails to maintain proper and effective internal controls, its ability to produce accurate financial statements on a timely basis could be impaired.
The Company is subject to the reporting requirements of the Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act and the rules and regulations of Nasdaq and the SEC. The Sarbanes-Oxley Act requires, among other things, that the Company maintain effective disclosure controls and procedures and internal control over financial reporting. The Company must perform system and process evaluation and testing of its internal control over financial reporting to allow management to report on the effectiveness of its internal controls over financial reporting in its Annual Report on Form 10-K filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. As a private company, MedAvail has never been required to test its internal controls within a specified period or for an extended period of time. This will require that the Company incur substantial professional fees and internal costs to expand its accounting and finance functions and that it expends significant management efforts. The Company may experience difficulty in meeting these reporting requirements in a timely manner.
The Company may discover weaknesses in its system of internal financial and accounting controls and procedures that could result in a material misstatement of its financial statements. The Company’s internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
If the Company is not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if it is unable to maintain proper and effective internal controls, the Company may not be able to produce timely and accurate financial statements. If that were to happen, the market price of its common stock could decline and it could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.
If the Company fails to attract and retain management and other key personnel, it may be unable to continue to successfully develop or commercialize its products or otherwise implement its business plan.
The Company’s ability to compete in the highly competitive healthcare industry depends on its ability to attract and retain highly qualified managerial, pharmacy technology, legal, sales and marketing and other personnel. The Company will be highly dependent on its management and pharmacy personnel. The loss of the services of any of these individuals could impede, delay or prevent the successful development of the Company’s product pipeline or acquisition of new assets and could impact negatively its ability to implement successfully its business plan. If the Company loses the services of any of these individuals, it might not be able to find suitable replacements on a timely basis or at all, and its business could be harmed as a result. The Company might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among telehealth, biotechnology, pharmaceutical and other businesses competing for talent.
The Company is a “smaller reporting company” and it cannot be certain if the reduced disclosure requirements applicable to the Company will make its common stock less attractive to investors.
As a smaller reporting company, the Company may take advantage of reduced disclosure requirements, such as simplified executive compensation disclosures and reduced financial statement disclosure requirements in its SEC filings. Decreased disclosures in the Company’s SEC filings due to its status as a smaller reporting company may make it harder for investors to analyze its results of operations and financial prospects. The Company cannot predict if investors will find the Company’s common stock less attractive if it relies on these exemptions. If some investors find its common stock less attractive as a result, there may be a less active trading market for its common stock and its stock price may be more volatile. The Company may take advantage of the reporting exemptions applicable to a smaller reporting company until it is no longer a smaller reporting company, which status would end once it has a public float greater than $250 million. In that event, the Company could still be a smaller reporting company if its annual revenues were below $100 million and it has a public float of less than $700 million.
COVID-19 and Pandemic Related Risk Factors
COVID-19 has and may continue to delay the Company’s deployment of MedCenters into third-party owned Medicare-focused healthcare clinics. COVID-19 can limit the Company’s access to the clinics where the SpotRx pharmacy is deployed and significantly impair its ability to acquire new customers. In addition, COVID-19 has impacted and will continue to impact the Company’s revenue growth. The impact of COVID-19 includes, but is not limited to, the following:
•Fewer patients see their physicians and seek medical attention at clinics;
•Some clinics have been closed and staffing at other clinics has been reduced affecting their ability to service their customers;
•The Company is dependent on its supply chain for purchasing medication. If demands spikes for certain medications it can impact its ability to acquire and resell the medication to serve its customers;
•The Company is dependent on its contract manufactures who assemble its MedCenter technology. Any disruption of their supply capability due to COVID-19 would impact its ability to deploy new sites as well as sell its solution to other new clients;
•The Company outsources the majority of its hardware maintenance to third parties who repair MedCenters with technical issues as well as install new MedCenters as required. Any disruption to their ability to supply services to the Company will impact both currently operating MedCenters as well as slow down deployment of new sites; and
•The focus of the healthcare system is on treating COVID-19 and as a result resources are concentrated there as opposed to on other matter.
The existence and persistence of COVID-19 and other pandemics will negatively impact the Company’s revenue and growth and may adversely affect its results of operations in the future.
MEDAVAIL SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables present summary historical financial data for MedAvail for the years ended December 31, 2018 and December 31, 2019, and for the nine months ended September 30, 2019 and September 30, 2020, and Selected Pro Forma Balance Sheet data for MedAvail for the the nine month period ended September 30, 2020. The historical financial data is derived from the Audited Consolidated Financial Statements of MedAvail for the years ended December 31, 2019 and 2018 and the Unaudited Interim Consolidated Financial Statements for the three and nine months ended September 30, 2020 and 2019 of MedAvail. Financial statements of MedAvail are presented in “Financial Statements and Exhibits” elsewhere in this Current Report on Form 8-K. The Selected Pro Forma Balance Sheet data is derived from the unaudited pro forma condensed combined financial statements elsewhere in this Current Report on Form 8-K.
Consolidated Statements of Operations Data:
(in thousands, except for share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
|
|
|
|
(unaudited)
|
Sales
|
$
|
3,771
|
|
|
$
|
4,665
|
|
|
$
|
10,868
|
|
|
$
|
2,310
|
|
Cost of sales
|
2,823
|
|
|
2,077
|
|
|
5,459
|
|
|
1,622
|
|
Gross profit
|
948
|
|
|
2,588
|
|
|
5,409
|
|
|
688
|
|
Other operating expenses
|
15,420
|
|
|
11,983
|
|
|
12,535
|
|
|
11,278
|
|
Selling, general and administrative expenses
|
5,881
|
|
|
5,581
|
|
|
3,850
|
|
|
4,421
|
|
Merger related expenses
|
—
|
|
|
—
|
|
|
2,607
|
|
|
—
|
|
Share-based compensation
|
354
|
|
|
1,362
|
|
|
235
|
|
|
283
|
|
Goodwill write-off
|
137
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Operating loss
|
(20,844)
|
|
|
(16,338)
|
|
|
(13,818)
|
|
|
(15,294)
|
|
Interest expense - net
|
689
|
|
|
667
|
|
|
896
|
|
|
528
|
|
Loss before income taxes
|
(21,533)
|
|
|
(17,005)
|
|
|
(14,714)
|
|
|
(15,822)
|
|
Income tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss
|
$
|
(21,533)
|
|
|
$
|
(17,005)
|
|
|
$
|
(14,714)
|
|
|
$
|
(15,822)
|
|
Net loss per share - basic and diluted
|
$
|
(16.85)
|
|
|
$
|
(12.78)
|
|
|
$
|
(9.59)
|
|
|
$
|
(12.41)
|
|
Weighted average shares outstanding - basic and diluted
|
1,278,107
|
|
1,330,907
|
|
1,535,080
|
|
1,274,937
|
Selected Consolidated Balance Sheet Data:
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
$
|
6,771
|
|
|
$
|
14,088
|
|
|
$
|
10,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
11,717
|
|
|
$
|
18,003
|
|
|
$
|
12,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
27,336
|
|
|
$
|
7,675
|
|
|
$
|
7,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
$
|
27,909
|
|
|
$
|
21,164
|
|
|
$
|
19,733
|
|
Temporary equity
|
$
|
94,272
|
|
|
$
|
93,484
|
|
|
$
|
68,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
$
|
(135,944)
|
|
|
$
|
(121,230)
|
|
|
$
|
(99,697)
|
|
Total stockholders' deficit
|
$
|
(110,464)
|
|
|
$
|
(96,645)
|
|
|
$
|
(75,482)
|
|
|
|
|
|
|
|
Selected Pro Forma Balance Sheet Data
(in thousands)
|
|
|
|
|
|
|
September 30,
|
|
2020
|
|
|
Current assets
|
$
|
85,019
|
|
Total assets
|
$
|
89,965
|
|
Current liabilities
|
$
|
19,575
|
|
Total liabilities
|
$
|
20,148
|
|
Accumulated deficit
|
$
|
(153,604)
|
|
Stockholders' equity
|
$
|
69,817
|
|
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Unaudited Condensed Combined Pro Forma Balance Sheet
September 30, 2020
(US Dollars in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical MedAvail
|
|
Historical MYOS
|
|
Adjustments for Financing
|
|
Adjustments for Merger Transaction
|
|
Adjustments for Spin-off
|
|
MedAvail Pro Forma
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,090
|
|
|
$
|
791
|
|
|
$
|
88,400
|
|
A
|
$
|
(10,152)
|
|
E,F
|
$
|
(791)
|
|
G
|
$
|
80,338
|
|
Restricted cash
|
57
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
57
|
|
Accounts receivable (net of allowance for doubtful accounts)
|
659
|
|
|
60
|
|
|
—
|
|
|
—
|
|
|
(60)
|
|
G
|
659
|
|
Inventories
|
3,655
|
|
|
1,368
|
|
|
—
|
|
|
—
|
|
|
(1,368)
|
|
G
|
3,655
|
|
Prepaid expenses and other assets
|
310
|
|
|
94
|
|
|
—
|
|
|
—
|
|
|
(94)
|
|
G
|
310
|
|
Total current assets
|
6,771
|
|
|
2,313
|
|
|
88,400
|
|
|
(10,152)
|
|
|
(2,313)
|
|
|
85,019
|
|
Property, plant and equipment
|
3,663
|
|
|
78
|
|
|
—
|
|
|
—
|
|
|
(78)
|
|
G
|
3,663
|
|
Right-of-use assets
|
1,072
|
|
|
151
|
|
|
—
|
|
|
—
|
|
|
(151)
|
|
G
|
1,072
|
|
Other assets
|
208
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
208
|
|
Intangible assets
|
3
|
|
|
739
|
|
|
—
|
|
|
—
|
|
|
(739)
|
|
G
|
3
|
|
Total assets
|
$
|
11,717
|
|
|
$
|
3,281
|
|
|
$
|
88,400
|
|
|
$
|
(10,152)
|
|
|
$
|
(3,281)
|
|
G
|
$
|
89,965
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
4,839
|
|
|
$
|
131
|
|
|
$
|
—
|
|
|
$
|
(1,385)
|
|
F
|
$
|
(131)
|
|
G
|
$
|
3,454
|
|
Short-term debt
|
21,743
|
|
|
661
|
|
|
(8,376)
|
|
B
|
2,000
|
|
E
|
(661)
|
|
G
|
15,367
|
|
Contract liability
|
110
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
110
|
|
Current portion of finance and operating lease obligation
|
644
|
|
|
62
|
|
|
—
|
|
|
—
|
|
|
(62)
|
|
G
|
644
|
|
Total current liabilities
|
27,336
|
|
|
854
|
|
|
(8,376)
|
|
|
615
|
|
|
(854)
|
|
|
19,575
|
|
Long-term debt
|
—
|
|
|
310
|
|
|
—
|
|
|
—
|
|
|
(310)
|
|
G
|
—
|
|
Long-term portion of finance and operating lease obligations
|
573
|
|
|
95
|
|
|
—
|
|
|
—
|
|
|
(95)
|
|
G
|
573
|
|
Total liabilities
|
27,909
|
|
|
1,259
|
|
|
(8,376)
|
|
|
615
|
|
|
(1,259)
|
|
G
|
20,148
|
|
Series A-E Redeemable Preferred Shares ($0.001 par value, 16,638,421 shares authorized, 10,603,219 shares issued and outstanding at September 30, 2020)
|
94,272
|
|
|
—
|
|
|
—
|
|
|
(94,272)
|
|
C
|
—
|
|
|
—
|
|
Stockholders' (deficit) equity:
|
|
|
|
|
|
|
|
|
|
|
|
Common shares ($0.01 par value, 24,000,000 shares authorized, 1,219,310 shares issued and outstanding at September 30, 2020)
|
8
|
|
|
—
|
|
|
113
|
|
A,B
|
191
|
|
C,D
|
—
|
|
|
312
|
|
Common stock, $0.001 par value; 15,000,000 shares authorized; 11,846,795 shares issued and outstanding at September 30, 2020
|
—
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
(12)
|
|
G
|
—
|
|
Warrants
|
1,320
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
1,320
|
|
Additional paid-in-capital
|
31,103
|
|
|
43,787
|
|
|
96,663
|
|
A,B
|
100,974
|
|
C,D
|
(43,787)
|
|
G
|
228,740
|
|
Accumulated other comprehensive loss
|
(6,951)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,951)
|
|
Accumulated deficit
|
(135,944)
|
|
|
(41,777)
|
|
|
—
|
|
|
(17,660)
|
|
F
|
41,777
|
|
G
|
(153,604)
|
|
Total stockholders' (deficit) equity
|
(110,464)
|
|
|
2,022
|
|
|
96,776
|
|
|
83,505
|
|
|
(2,022)
|
|
G
|
69,817
|
|
Total liabilities, temporary equity and stockholders' (deficit) equity
|
$
|
11,717
|
|
|
$
|
3,281
|
|
|
$
|
88,400
|
|
|
$
|
(10,152)
|
|
|
$
|
(3,281)
|
|
G
|
$
|
89,965
|
|
Unaudited Condensed Combined Pro Forma Statement of Operations
Nine Months Ended September 30, 2020
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical MedAvail
|
|
Historical MYOS
|
|
Adjustments for Financing
|
|
Adjustments for Merger Transaction
|
|
Adjustments for Spin-off
|
|
MedAvail Pro Forma
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
MYOS sales
|
$
|
—
|
|
|
$
|
1,104
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,104)
|
|
K
|
$
|
—
|
|
Pharmacy and hardware sales
|
7,587
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,587
|
|
Service sales
|
3,281
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,281
|
|
Total sales
|
10,868
|
|
|
1,104
|
|
|
—
|
|
|
—
|
|
|
(1,104)
|
|
K
|
10,868
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
MYOS cost of sales
|
—
|
|
|
578
|
|
|
—
|
|
|
—
|
|
|
(578)
|
|
K
|
—
|
|
Pharmacy and hardware cost of sales
|
5,343
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,343
|
|
Service cost of sales
|
116
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
116
|
|
Total cost of sales
|
5,459
|
|
|
578
|
|
|
—
|
|
|
—
|
|
|
(578)
|
|
K
|
5,459
|
|
Gross profit
|
5,409
|
|
|
526
|
|
|
—
|
|
|
—
|
|
|
(526)
|
|
K
|
5,409
|
|
Other operating expenses
|
12,535
|
|
|
1,226
|
|
|
—
|
|
|
—
|
|
|
(1,226)
|
|
K
|
12,535
|
|
Selling, general and administrative expenses
|
3,850
|
|
|
1,725
|
|
|
—
|
|
|
—
|
|
|
(1,725)
|
|
K
|
3,850
|
|
Merger expenses
|
2,607
|
|
|
—
|
|
|
—
|
|
|
(2,607)
|
|
F
|
—
|
|
|
—
|
|
Share-based payments
|
235
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
235
|
|
Operating loss
|
(13,818)
|
|
|
(2,425)
|
|
|
—
|
|
|
2,607
|
|
F
|
2,425
|
|
K
|
(11,211)
|
|
Interest expense - net
|
896
|
|
|
27
|
|
|
(350)
|
|
I
|
—
|
|
|
(27)
|
|
|
546
|
|
Loss before income taxes
|
(14,714)
|
|
|
(2,452)
|
|
|
350
|
|
|
2,607
|
|
F
|
2,452
|
|
K
|
(11,757)
|
|
Income tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss
|
$
|
(14,714)
|
|
|
$
|
(2,452)
|
|
|
$
|
350
|
|
|
$
|
2,607
|
|
F
|
$
|
2,452
|
|
K
|
$
|
(11,757)
|
|
Net loss per share - basic and diluted
|
$
|
(9.59)
|
|
|
$
|
(0.22)
|
|
|
$
|
0.03
|
|
|
$
|
0.14
|
|
|
$
|
(0.22)
|
|
|
$
|
(0.37)
|
|
Weighted average shares outstanding - basic and diluted
|
1,535,080
|
|
10,996,891
|
|
11,317,534
|
|
19,144,764
|
J
|
(10,996,891)
|
K
|
31,997,378
|
Unaudited Condensed Combined Pro Forma Statement of Operations
Year Ended December 31, 2019
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical MedAvail
|
|
Historical MYOS
|
|
Pro Forma Adjustments for Pre Close Financing
|
|
Post-Merger Adjustments
|
|
Spin-off of MYOS Business
|
|
MedAvail Pro Forma
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
MYOS sales
|
$
|
—
|
|
|
$
|
1,032
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,032)
|
|
N
|
$
|
—
|
|
Pharmacy and hardware sales
|
3,385
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,385
|
|
Service sales
|
386
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
386
|
|
Total sales
|
3,771
|
|
|
1,032
|
|
|
—
|
|
|
—
|
|
|
(1,032)
|
|
N
|
3,771
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
MYOS cost of sales
|
—
|
|
|
397
|
|
|
—
|
|
|
—
|
|
|
(397)
|
|
N
|
—
|
|
Pharmacy and hardware cost of sales
|
2,674
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,674
|
|
Service cost of sales
|
149
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
149
|
|
Total cost of sales
|
2,823
|
|
|
397
|
|
|
—
|
|
|
—
|
|
|
(397)
|
|
N
|
2,823
|
|
Gross profit
|
948
|
|
|
635
|
|
|
—
|
|
|
—
|
|
|
(635)
|
|
N
|
948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
15,420
|
|
|
1,897
|
|
|
—
|
|
|
—
|
|
|
(1,897)
|
|
N
|
15,420
|
|
Selling, general and administrative expenses
|
5,881
|
|
|
2,956
|
|
|
—
|
|
|
—
|
|
|
(2,956)
|
|
N
|
5,881
|
|
Share-based compensation
|
354
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
354
|
|
Goodwill write-off
|
137
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
137
|
|
Operating loss
|
(20,844)
|
|
|
(4,218)
|
|
|
—
|
|
|
—
|
|
|
4,218
|
|
N
|
(20,844)
|
|
Interest expense - net
|
689
|
|
|
40
|
|
|
—
|
|
|
|
|
(40)
|
|
N
|
689
|
|
Loss before income taxes
|
(21,533)
|
|
|
(4,258)
|
|
|
—
|
|
|
—
|
|
|
4,258
|
|
N
|
(21,533)
|
|
Income tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss
|
$
|
(21,533)
|
|
|
$
|
(4,258)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,258
|
|
N
|
$
|
(21,533)
|
|
Net loss per share - basic and diluted
|
$
|
(16.85)
|
|
|
$
|
(0.48)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.48)
|
|
|
$
|
(0.68)
|
|
Weighted average shares outstanding - basic and diluted
|
1,278,107
|
|
8,803,581
|
|
11,317,534
|
L
|
19,144,764
|
M
|
(8,803,581)
|
N
|
31,740,405
|
NOTE 1 - DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION
Description of Transaction
On November 17, 2020, MedAvail Holdings, Inc. (f/k/a MYOS RENS Technology Inc.), a Delaware corporation (the “Company”), consummated the previously announced business combination pursuant to that certain Agreement and Plan of Merger and Reorganization, dated as of June 30, 2020 (the “Merger Agreement”), by and among the Company, MedAvail, Inc. (“MedAvail”), and Matrix Merger Sub, Inc. (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub merged with and into MedAvail, with MedAvail surviving as a wholly-owned subsidiary of the Company (the “Merger”, and together with the other transactions contemplated by the Merger Agreement, the “Business Combination”). The Business Combination was consummated on November 18, 2020 (the “Business Combination Closing Date”).
At the effective time of the Merger (the “Effective Time”): (a) each share of MedAvail’s common stock and each share of MedAvail’s preferred stock outstanding immediately prior to the Effective Time, excluding any dissenting shares, automatically converted solely into the right to receive a number of shares of MYOS common stock (“MYOS Common Stock”) calculated according to the exchange ratio described below; (b) each outstanding MedAvail stock option that had not been exercised prior to the Effective Time was assumed by MYOS; and (c) each outstanding warrant to acquire MedAvail capital stock that had not been exercised prior to the Effective Time was assumed by MYOS. Under the exchange ratio formula in the Merger Agreement, immediately after the Merger, the former MedAvail security holders owned approximately 97.2% of the aggregate number of fully-diluted shares of MYOS Common Stock outstanding following the consummation of the Merger (the “Post-Closing Shares”), and the shareholders of MYOS immediately prior to the Merger owned approximately 2.8% of the Post-Closing Shares, subject to the adjustments set forth in the Merger Agreement. The exchange ratio was fixed prior to the closing of the Merger to reflect MYOS’s and MedAvail’s respective capitalizations as of immediately prior to the Effective Time. The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.
On November 12, 2020, pursuant to that certain Securities Purchase Agreement dated as of October 9, 2020 (the “Private Placement Agreement”) by and among the purchasers set forth therein, MedAvail issued shares of MedAvail common stock (the “Private Placement Cash Shares”) for an aggregate purchase price of approximately $83.9 million (the “Private Placement”). In addition, on November 12, 2020 and in connection with the closing of the Private Placement, MedAvail issued shares of MedAvail common stock (the “Private Placement Conversion Shares” and together with the Private Placement Cash Shares, the “Private Placement Shares”) in the aggregate amount of approximately $13.1 million upon the conversion of the convertible promissory notes (the “2020 Notes”) issued pursuant to the 2020 Note and Warrant Purchase Agreement, dated as of May 26, 2020, as amended (the “2020 Note and Warrant Purchase Agreement”), by and among MedAvail and the purchasers set forth therein. On November 17, 2020, at the Effective Time, the Private Placement Shares, together with all other shares of MedAvail common stock, were converted to shares of MYOS common stock at a ratio of approximately 1 to 1.26.
On November 16, 2020, MYOS transferred and assigned substantially all of its assets and liabilities into MYOS Corp., a newly-created, wholly-owned subsidiary of MYOS (“MYOS Corp.”), pursuant to an Assignment and Assumption Agreement (the “Assignment and Assumption Agreement”) and a related Subscription and Stock Purchase Agreement (the “Subscription and Stock Purchase Agreement”). On November 17, 2020, upon the closing of the Merger, MedAvail paid MYOS Corp. $2.0 million in cash and issued a promissory note for an additional $3.0 million, payable in installments within one year of the closing of the Merger, provided, pursuant to the terms of the promissory note, that $1.0 million was paid immediately upon closing of the Merger, resulting in $3.0 million being paid to MYOS Corp. upon the closing of the Merger, and $2.0 million accrued as a short term promissory note. On November 18, 2020, the shares of MYOS Corp. were spun-out from the Company through a dividend of the stock of MYOS Corp. to the pre-Merger MYOS shareholders, resulting in MYOS Corp., as a private company, continuing the per-Merger business operations of MYOS.
The Merger is accounted for as a reverse recapitalization under U.S. GAAP because MYOS has nominal operations and assets immediately after the spin off. MedAvail was determined to be the accounting acquirer based upon the terms of the Merger and other factors including: (i) MedAvail stockholders own 97.2% of Fully Diluted
Closing Company Common Stock immediately following the Effective Time, (ii) MedAvail directors represent all of the members of the Board following the Effective Time and (iii) MedAvail’s management will hold all key positions in the management following the Effective Time. “Fully Diluted Closing Company Common Stock” as used herein means the total number of shares of Company Common Stock outstanding immediately after the Effective Time expressed on an as-converted basis assuming exercise of all options and warrants and the reverse split of MYOS stock outstanding that was outstanding immediately prior to the Merger.
NOTE 2 - BASIS OF PRESENTATION
The unaudited pro forma condensed combined financial statements were prepared in accordance with the regulations of the Securities and Exchange Commission (SEC). The unaudited pro forma condensed combined balance sheet as of September 30, 2020 is presented as if the merger had been completed on September 30, 2020. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2020 and for the year ended December 31, 2019 assumes that the merger took place as of January 1, 2019. The historical financial information for MYOS and MedAvail as presented in the unaudited pro forma condensed combined financial statements has been derived from the Audited Consolidated Financial Statements of MYOS and MedAvail for the years ended December 31, 2019 and the Unaudited Interim Consolidated Financial Statements for the nine months ended September 30, 2020 of both MYOS and MedAvail, all of which are included elsewhere in this Current Report on Form 8-K and Quarterly Report on Form 10-Q filed with the SEC on November 5, 2020.
Assumptions and estimates underlying the pro forma adjustments are described in these notes, which should be read in conjunction with the Unaudited Pro Forma Condensed Combined Financial Statements. Since the Unaudited Pro Forma Condensed Combined Financial Statements have been prepared based upon preliminary estimates, the final amounts recorded may differ materially from the information presented.
For accounting purposes, MedAvail is considered to be the acquiring company, however due to the spin off of the operations of MYOS immediately prior to the merger, MYOS has nominal net assets and operations. As such, the transaction is accounted for as a reverse recapitalization, with no resulting goodwill or or intangible assets. Any excess consideration transferred over the value of the net assets, if any, of MYOS will be reflected as an adjustment to equity. Consequently, the pro forma condensed combined financial statements of MedAvail reflect the historical operations of MedAvail, together with a deemed issuance of shares, equivalent to the shares held by the former stockholders of MYOS, the legal acquirer, and a recapitalization of the equity of MedAvail, the accounting acquirer.
The historical financial statements of MYOS and MedAvail, which are provided elsewhere in this Current Report on Form 8-K and in and Quarterly Report on Form 10-Q filed with the SEC on November 5, 2020, have been adjusted to give pro forma effect to events that are (i) directly attributable to the merger, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results.
To the extent there are significant changes to MedAvail’s business following completion of the merger, the assumptions and estimates set forth in the unaudited pro forma condensed combined financial statements could change significantly. Accordingly, the pro forma adjustments are subject to further adjustments as additional information becomes available following the completion of the merger.
NOTE 3 - PRO FORMA ADJUSTMENTS
Pro forma adjustments are necessary to reflect the consideration exchanged by both parties and to reflect the impact on the balance sheets and statements of operations of the reverse recapitalization as if the companies had been combined during the periods presented therein. Additionally, due to the spin-out of MYOS, concurrent with the merger, pro forma adjustments to eliminate the net assets and operations of MYOS are separately presented. The pro forma adjustments included in the unaudited pro forma condensed combined financial statements are as follows:
A -Reflects the Private Placement of $83.9 million of proceeds from the sale of approximately 9,789,955 shares of MedAvail common shares prior to the completion of the merger. These MedAvail common shares sold in the Private Placement converted into 12,337,338 common shares upon consummation of the reverse recapitalization. The cash adjustment also reflects an additional $4.5 million of investment in the
2020 Notes received after September 30, 2020. The additional notes will also convert into common shares as described in note C below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Pre-Conversion
|
|
Cash
|
|
Common Stock
|
|
Additional
Paid in Capital
|
Cash to be received for Private Placement shares
|
9,789,955
|
|
|
$
|
83,899,914
|
|
|
$
|
97,900
|
|
|
$
|
83,802,015
|
|
Cash received for 2020 Notes subsequent to September 30, 2020
|
525,087
|
|
|
4,500,000
|
|
|
5,251
|
|
|
4,494,749
|
|
Total adjustment A
|
10,315,042
|
|
|
$
|
88,399,914
|
|
|
$
|
103,151
|
|
|
$
|
88,296,764
|
|
B -On May 26, 2020, MedAvail completed a convertible notes and warrants offering to certain of its existing investors whereby those investors purchased notes (“2020 Notes”) and warrants on a pro rata basis with their existing investments in MedAvail's preferred stock. Cash received for the notes and warrants in the Initial Closing was $7.8 million and the adjustment reflected is for the balance of the notes as of September 30, 2020, net of deferred financing costs and including accrued interest. The notes accrue interest at a rate of 10%, payable at maturity or upon conversion with a maturity date of June 30, 2021. Additional financing under the agreement was received in July and August 2020, totaling $400 thousand and additional participation of $4.5 million was received in October 2020, see note A above.
2020 Notes with a carrying value of $8.5 million at September 30, 2020 and an estimated carrying value of $13.1 million at the date of the reverse recapitalization, including $0.4 million of accrued interest, were converted to 1,536,579 MedAvail common shares. Deferred financing costs for the 2020 Notes were written off.
C -MedAvail preferred stock outstanding immediately prior to the merger was converted to MYOS common shares at ratios per the preferred stock agreements, resulting in an adjustment of $118 thousand in Common stock and $94.2 million in Additional paid in capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Shares
|
|
Conversion Ratio
|
|
MYOS Common Shares to Issue
|
Series A preferred stock
|
1,175,544
|
|
1.0000000000
|
|
|
1,175,544
|
Series B preferred stock
|
2,222,886
|
|
1.0000000000
|
|
|
2,222,886
|
Series C preferred stock
|
1,634,249
|
|
1.5405636364
|
|
|
2,517,650
|
Series D preferred stock
|
502,630
|
|
1.6175909091
|
|
|
813,041
|
Series E preferred stock
|
5,067,910
|
|
1.0000000000
|
|
|
5,067,910
|
Total
|
10,603,219
|
|
|
|
|
11,797,031
|
|
D -Immediately following the reverse recapitalization, common shares of MedAvail, including the 9,795,792 common shares issued in the private placement, the 1,527,579 common shares issued to convert the 2020 Notes and the 1,219,310 common shares previously outstanding all converted to MYOS common stock in a 1 for 1.26 ratio, this conversion resulted in an $63 thousand reclassification between Common stock and Additional paid in capital. All previously outstanding MYOS shares were subjected to a 12 for 1 reverse split, resulting in 1,015,983 shares remaining.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Pre-Conversion
|
|
Conversion Ratio
|
|
Shares
Post Conversion
|
Shares issued in Private Placement
|
9,789,955
|
|
1.260
|
|
12,337,339
|
Shares issued to convert the 2020 Notes
|
1,527,579
|
|
1.260
|
|
1,925,061
|
MedAvail common stock outstanding
|
1,219,310
|
|
1.260
|
|
1,536,579
|
MYOS common stock outstanding
|
12,191,795
|
|
0.083
|
|
1,015,983
|
Total adjustment D
|
24,728,639
|
|
|
|
|
16,814,962
|
|
E -Prior to the consummation of the reverse recapitalization, MYOS transferred and assigned all of its assets and liabilities into MYOS Corp., a newly created, wholly-owned subsidiary of MYOS. The shares of MYOS Corp. were spun-out, concurrent with the closing of the reverse capitalization, through a dividend of the stock of MYOS Corp. to the pre-merger MYOS shareholders. MedAvail paid MYOS Corp $2.0 million
of cash and will issue a promissory note for an additional $3.0 million, payable in installments within one year of the closing of the reverse recapitalization, with the first $1.0 million being paid upon the closing of the reverse recapitalization pursuant to the terms of the promissory note as a result of both of the following events having occurred on or prior to such payment: (i) the closing of the reverse recapitalization and (ii) MYOS’s entry into a settlement and release agreement with Ren Ren, such that immediately following the closing of the reverse recapitalization, MedAvail shall pay a total of $3.0 million in cash, and have a promissory note with an outstanding balance of $2.0 million, payable to MYOS.
F -Total additional transaction costs related to the reverse recapitalization have been estimated to be $8.4 million, of which $2.6 million have been recorded as an expense in Merger expenses within the Unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2020. The portion of the costs that are expensed in the historical financial statements of MedAvail ($2.6 million) are eliminated in the pro forma statement of operations for the nine months ended September 30, 2020 as these costs relate directly to the transaction and do not have an ongoing impact. As there were no costs related to this transaction expensed within the Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2019, no pro forma adjustment to eliminate such costs is required. The remaining transaction costs of $5.8 million ($8.4 million less $2.6 million already recognized. $1.2 million was already settled resulting in $6.2 million of additional to be paid after September 30, 2020) have been accrued in the accompanying Unaudited Pro Forma Condensed Combined Balance Sheet. Accrued liabilities balance has been adjusted to show payment of the accrued expenses at June 30, 2020. This pro forma adjustment also includes the $6.9 million of common stock, at the $8.57 per common share valuation post Private Placement Closing transaction, that is held by MYOS shareholders after the reverse recapitalization. The total adjustment is for $8.4 million of additional transaction costs and $6.9 million for common stock.
G -Reflects MYOS Corp. common shares converted as part of the merger into the Post-Merger Public Company, and those shares recognized in note F above, and adjustments to reflect the spin out of the former MYOS company as a distribution of all operations, assets and liabilities.
H -Adjustment to record issuance of MedAvail common shares upon the conversion of the 2020 Notes and the issuance of shares in the Private Placement as discussed in notes A and B above.
I -Adjustment to eliminate the interest on the 2020 Notes that are settled upon closing of the transaction.
J -Conversion of MedAvail common and preferred stock into MYOS common stock immediately following the merger, as discussed in notes C and D above.
K -MYOS Corp. common shares converted as part of the reverse recapitalization and spin-out of the former MYOS company operations, assets and liabilities.
L -Represents MedAvail common shares issued for the conversion of the 2020 Notes and common shares issued in the Private Placement as discussed in notes A and B above.
M -Conversion of MedAvail common stock and preferred stock into MYOS common stock immediately following the reverse recapitalization, as discussed in note D above.
N -MYOS former common shares converted as part of the reverse recapitalization and spin-out of the former MYOS company operations, assets and liabilities.
MEDAVAIL MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with MedAvail’s consolidated financial statements and related notes included elsewhere in this Current Report on Form 8-K. This discussion and other parts of this Current Report on Form 8-K contain forward-looking statements that involve risks and uncertainties, such as its plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors Related to MedAvail” included elsewhere in this Current Report on Form 8-K.
Overview
Business Overview
MedAvail is a telehealth-enabled pharmacy-technology company that is transforming full-service pharmacy. Through its full-stack pharmacy technology platform, and personal one-on-one service, MedAvail brings pharmacy-dispensing capability to the point of care, resulting in lower costs, higher patient satisfaction, improved medication adherence and better health outcomes.
MedAvail offers a unique, pharmacy technology solution which is anchored around its core technology called the MedAvail MedCenter™ (“The MedCenter”). The MedCenter enables on-site pharmacy in medical clinics, retail store locations, employer sites with and without onsite clinics, and any other location where onsite prescription dispensing is desired. The MedCenter establishes a live audio-visual connection to a live pharmacist enabling prescription drug dispensing to occur directly to a patient while still providing real-time supervision by a pharmacist. Although its technology platform has broad application, MedAvail is currently focused on serving high-value Medicare members in the United States of America (“U.S.”). MedAvail was originally incorporated in 2012, under the name DashRx, Inc.
MedAvail currently deploys its MedCenter solution through two distinct commercialization channels. First, MedAvail owns and operates a full retail pharmacy business in the U.S., under the name SpotRx. The SpotRx™ Pharmacy business is structured as a hub-and-spoke model where a central pharmacy supports and operates various MedCenter kiosks embedded in medical clinics, usually in close proximity to the central pharmacy. Its second commercialization channel is a direct ‘sell-to’ model, whereby MedAvail sells its MedCenter Platform technology directly to large healthcare providers and retailers for use within their own pharmacy operations.
The MedCenter kiosk works in tandem with our Remote Dispensing System®, which consists of customer-facing software for remote ordering of medications for pick-up at a MedCenter or free, next day home delivery. Supporting its MedCenter kiosks and Remote Dispensing System are MedAvail’s back-end MedPlatform® Enterprise Software, which controls dispensing and MedCenter monitoring and its supporting Pharmacy Management System software, which allows connection to MedAvail’s supporting team of pharmacists and kiosk administrators.
MedCenter kiosks come in two models: the M4 MedCenter and the M5 MedCenter. The M4 MedCenter kiosk is designed to fit in waiting rooms, hallways, and lobbies. The M5 MedCenter is a larger kiosk designed as a full pharmacy replacement with the ability to serve 3-4 customers simultaneously, it can also to be configured for drive through dispensing, similar to a bank’s ATM drive through lanes.
Traditional retail pharmacies are built around a physical store front. In order to dispense medication, these stores must have a pharmacist onsite for all hours of operation. Most pharmacies have reduced hours of operation based on customer purchasing patterns in order to contain labor cost, which results in further reduced consumer access. Furthermore, retail pharmacy wait times are typically 30 to 60 minutes or more, causing substantial delays for the consumer. During the COVID-19 pandemic, most people are looking to minimize the amount of physical contact that can lead to further disease contraction, especially for those most vulnerable, such as the elderly or those with compromised immune systems. Consequently, some patients are foregoing filling their prescribed medications, leading to declining health, increased healthcare costs and increased morbidity.
On November 17, 2020, MedAvail Holdings, Inc. (f/k/a MYOS RENS Technology Inc.), a Delaware corporation (the “Company”), consummated the previously announced business combination pursuant to that certain Agreement and Plan of Merger and Reorganization, dated as of June 30, 2020 (the “Merger Agreement”), by and among the Company, MedAvail, Inc. (“MedAvail”), and Matrix Merger Sub, Inc. (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub merged with and into MedAvail, with MedAvail surviving as a wholly-owned subsidiary of the Company (the “Merger”, and together with the other transactions contemplated by the Merger Agreement, the “Business Combination”). The Business Combination was consummated on November 18, 2020 (the “Business Combination Closing Date”).
At the effective time of the Merger (the “Effective Time”): (a) each share of MedAvail’s common stock and each share of MedAvail’s preferred stock outstanding immediately prior to the Effective Time, excluding any dissenting shares, automatically converted solely into the right to receive a number of shares of MYOS common stock (“MYOS Common Stock”) calculated according to the exchange ratio described below; (b) each outstanding MedAvail stock option that had not been exercised prior to the Effective Time was assumed by MYOS; and (c) each outstanding warrant to acquire MedAvail capital stock that had not been exercised prior to the Effective Time was assumed by MYOS. Under the exchange ratio formula in the Merger Agreement, immediately after the Merger, the former MedAvail security holders owned approximately 97.2% of the aggregate number of fully-diluted shares of MYOS Common Stock outstanding following the consummation of the Merger (the “Post-Closing Shares”), and the shareholders of MYOS immediately prior to the Merger owned approximately 2.8% of the Post-Closing Shares, subject to the adjustments set forth in the Merger Agreement. The exchange ratio was fixed prior to the closing of the Merger to reflect MYOS’s and MedAvail’s respective capitalizations as of immediately prior to the Effective Time. The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.
On November 12, 2020, pursuant to that certain Securities Purchase Agreement dated as of October 9, 2020 (the “Private Placement Agreement”) by and among the purchasers set forth therein, MedAvail issued shares of MedAvail common stock (the “Private Placement Cash Shares”) for an aggregate purchase price of approximately $83.9 million (the “Private Placement”). In addition, on November 12, 2020 and in connection with the closing of the Private Placement, MedAvail issued shares of MedAvail common stock (the “Private Placement Conversion Shares” and together with the Private Placement Cash Shares, the “Private Placement Shares”) in the aggregate amount of approximately $13.1 million upon the conversion of the convertible promissory notes (the “2020 Notes”) issued pursuant to the 2020 Note and Warrant Purchase Agreement, dated as of May 26, 2020, as amended (the “2020 Note and Warrant Purchase Agreement”), by and among MedAvail and the purchasers set forth therein. On November 17, 2020, at the Effective Time, the Private Placement Shares, together with all other shares of MedAvail common stock, were converted to shares of MYOS common stock at a ratio of approximately 1 to 1.26.
On November 16, 2020, MYOS transferred and assigned substantially all of its assets and liabilities into MYOS Corp., a newly-created, wholly-owned subsidiary of MYOS (“MYOS Corp.”), pursuant to an Assignment and Assumption Agreement (the “Assignment and Assumption Agreement”) and a related Subscription and Stock Purchase Agreement (the “Subscription and Stock Purchase Agreement”). On November 17, 2020, upon the closing of the Merger, MedAvail paid MYOS Corp. $2.0 million in cash and issued a promissory note for an additional $3.0 million, payable in installments within one year of the closing of the Merger, provided, pursuant to the terms of the promissory note, that $1.0 million was paid immediately upon closing of the Merger, resulting in $3.0 million being paid to MYOS Corp. upon the closing of the Merger, and $2.0 million accrued as a short term promissory note. On November 18, 2020, the shares of MYOS Corp. were spun-out from the Company through a dividend of the stock of MYOS Corp. to the pre-Merger MYOS shareholders, resulting in MYOS Corp., as a private company, continuing the per-Merger business operations of MYOS.
The Merger is accounted for as a reverse recapitalization under U.S. GAAP because MYOS has nominal operations and assets immediately after the spin off. MedAvail was determined to be the accounting acquirer based upon the terms of the Merger and other factors including: (i) MedAvail stockholders own 97.2% of Fully Diluted Closing Company Common Stock immediately following the Effective Time, (ii) MedAvail directors represent all of the members of the Board following the Effective Time and (iii) MedAvail’s management will hold all key positions in the management following the Effective Time. “Fully Diluted Closing Company Common Stock” as used herein means the total number of shares of Company Common Stock outstanding immediately after the
Effective Time expressed on an as-converted basis assuming exercise of all options and warrants and the reverse split of MYOS stock outstanding that was outstanding immediately prior to the Merger.
Outlook
Medicare insurance plans and healthcare providers are increasingly operating under an ‘at-risk’ model, with reimbursement based on health outcomes and not based on a traditional fee-for-service model. The at-risk model is driving Medicare to focus on providing an increasing number of services to their members which can positively impact the health outcomes of these members. Such services include:
•Free rides from patient’s home to doctor visits
•Gymnasium memberships
•In-home visits
•Onsite vision and dental
•Onsite pharmacy services
It is well documented that medication adherence has a leading impact on health outcomes. As a result, our strategy is to embed a pharmacy into clinics via our MedCenter technology. An onsite presence can allow us to:
•Provide first-fill and refill dispensing onsite for patients
•Acquire new patients as customers
•Integrate ourselves into the clinic processes and become part of the onsite care team
•Offer free next day courier delivery of medication to Medicare patients
•Share real-time data with health care providers regarding patients that may be at risk of being non-adherent and therefore at-risk of lower health outcomes.
•The Medicare market in the US is very large, is growing, and has the highest value patients in the industry. MedAvail’s addressable market size for its current initial target markets – six US States (AZ, CA, FL, IL, TX, and MI) exceeds $16 billion and is forecast to continue to grow. MedAvail added Texas and Michigan to its target state markets in 2020 based on demand from Medicare providers as well as due to changing pharmacy regulations with the states.
MedAvail’s strategy for the Medicare market is as follows:
•Identify, screen and contract with the Medicare clinic chains to deploy MedCenters onsite.
•Deploy MedCenters and onsite Customer Account Managers (CAMs).
•Acquire and retain high value Medicare patients as customers.
•Deploy a high touch customer service model with patients via our onsite presence, free home delivery, refill reminders and follow up calls while achieving high patient satisfaction.
•Ramp our average clinic to a target average annual revenue run rate of approximately $1 million per clinic after 12 months of deployment. Due to the Covid pandemic, some of our clinics have experienced a reduction in face to face visits and thus extending the time to reach our targeted ramp. We expect this headwind to continue until a vaccine is introduced.
•Generate greater medication adherence metrics, which may drive higher reimbursement rates to clinics from insurers and improve health outcomes for patients.
MedAvail’s primary business model is to generate revenue on the sale of medication to high value Medicare patients. Currently, MedAvail operates in Arizona, California and is targeting to open in Michigan by 4Q 2020. As of September 30, 2020, MedAvail has 33 MedCenters deployed in Medicare-focused sites in Arizona and California and plans to deploy approximately 60-70 MedCenters by YE 2020 within Arizona, California and Michigan.
Components of Operating Results
Our fiscal year ends on December 31, and its fiscal quarters end on the last day of each third calendar month. The years ended December 31, 2019 and December 31, 2018 are referred to as 2019 and 2018 throughout the document where referencing MedAvail.
MedAvail has never been profitable and has incurred operating losses in each year since inception. MedAvail’s net losses were $17.0 million, $21.5 million and $14.7 million for the years ended December 31, 2018 and 2019 and for the nine months ended September 30, 2020, respectively. As of September 30, 2020, MedAvail had an accumulated deficit of $135.9 million. Substantially all of MedAvail’s operating losses resulted from expenses incurred in connection with its research and development programs and from general and administrative costs associated with its operations.
MedAvail expects to incur significant additional expenses and operating losses for at least the next two years as it initiates and continues the technology development, deployment of its MedCenter technology and adds personnel necessary to operate as a public company with rapidly growing retail pharmacy operations in the United States. In addition, operating as a publicly traded company would involve the hiring of additional financial and other personnel, upgrading its financial information systems and incurring costs associated with operating as a public company. MedAvail expects that its operating losses will lessen and turn positive as MedAvail executes its growth strategies within each of its operating segments. If MedAvail management determines to accelerate deployment into new states, operating losses could increase in the near-term, as the company grows and scales its operations in the new states and MedAvail would expect operating performance to turn positive once each state reaches sufficient scale in sales volume.
As of September 30, 2020, MedAvail had cash of $2.1 million. MedAvail will continue to require additional capital to continue its technology development and commercialization activities and build out of its pharmacy operations to serve its growing customer base. Accordingly, MedAvail pursued a sale of additional equity through the Private Placement funding, where MedAvail raised $83.9 million. This Private Placement funding closed on November 12, 2020. Although MedAvail believes the proceeds from the Private Placement represents sufficient funding to execute its current growth plan, due to market risks (as outlined in the “Risk Factors” section of this Current Report on Form 8-K), MedAvail may need to raise additional capital to continue to fund its operations. The amount and timing of its future funding requirements will depend on many factors, including the pace and results of its growth strategy. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on its financial condition and its ability to develop its product candidates.
MedAvail has two reportable segments: Pharmacy Technology and Retail Pharmacy Services. These reportable segments are generally defined by how MedAvail executes its go-to-market strategy to sell products and services.
Overview of Pharmacy Technology Segment
MedAvail Technologies develops and commercializes the MedCenter for direct sale or lease to third-party customers, including some of the world’s largest healthcare providers and systems, as well as large retail chains that provide full retail-pharmacy services based on its technology.
Overview of Retail Pharmacy Services Segment
The second operating segment operates as SpotRx (the “Pharmacy”), a full-service retail pharmacy utilizing MedAvail’s automated pharmacy technology, primarily servicing Medicare patients in the United States.
Revenue – Pharmacy Technology and Retail Pharmacy Services
Pharmacy Technology Revenue
Pharmacy technology revenue refers to revenue derived from either the sales of MedPlatform Systems to customers that intend to operate the MedCenter as a part of their retail offering or where the MedCenter is leased as part of a service offering where MedAvail retains ownership of the hardware. In both instances, MedAvail provides operating software for the MedCenter, ongoing maintenance, and in some cases, supplies such as packaging materials.
MedPlatform sales agreements generally contain an agreement to provide a MedCenter prescription dispensing kiosk, along with agreements to provide software, hardware and maintenance services which are necessary for the operation of the MedCenter, and can only be provided by MedAvail. Management has determined that contracts to provide MedPlatform Systems consist of one performance obligation, as all of these products and services are required in order to obtain a functioning MedCenter. ASC 606 allows a single performance obligation to be recognized over time if the customer simultaneously receives and consumes the provided benefits. As such, revenue is initially recognized when the MedCenter is installed and operational at the customer's location, revenue recognition begins. Revenue continues to be recognized going forward in the periods in which the hardware, software and maintenance services are provided to the customer
Retail Pharmacy Services Revenue
Retail pharmacy services revenue is revenue derived from sales of prescription medications and over-the-counter products to consumers. Medications are sold and delivered by various methods including dispensing product directly from the MedCenter, customer pick up at MedAvail’s SpotRx pharmacy locations or home delivery of medications to consumer residences. Retail pharmacy services revenue is recognized at the time that the product has been provided to the customer, no other significant obligations of MedAvail exist, and collectability is reasonably assured. Revenue is reduced by fees paid or expected to be paid to pharmacy benefits managers or other third parties. Such fees include Direct and Indirect Remuneration and services fees.
Cost of Sales – Pharmacy Technology and Retail Pharmacy Services
Pharmacy Technology Cost of Sales
Cost of sales for the Pharmacy Technology segment consists primarily of costs incurred to manufacture, ship and install MedCenters at third-party customer locations that use our MedCenters to enable their pharmacy operations and services. These costs include cost of inventory for sales-type contracts, and depreciation for lease-type contracts. Cost of sales are accrued and then recognized, in accordance with US GAAP, when contractual terms are met, and delivery and payment are complete.
Retail Pharmacy Services Cost of Sales
Cost of sales for MedAvail’s Retail Pharmacy Services segment consists primarily of costs to procure and deliver prescription medications and other over-the-counter health products to customers via dispensing through SpotRx MedCenters, pickup at one of its pharmacy locations or courier-delivery directly to the consumer’s home. Cost of Sales for Pharmacy Services are recognized at the point of sale, when price is fixed, and product is dispensed.
Other Operating Expenses
Other operating expenses are primarily derived from personnel and operating costs related to technology development, sales and marketing, and general and administrative activities, described as follows:
Wages and salaries consist of compensation costs incurred for all employees and contractors including bonuses, health plans, severance, and contractor costs.
Pharmacy operations costs consist of costs incurred to operate retail pharmacies including pharmacy labor costs, rent and utilities, and pharmacy license fees.
Depreciation of property, plant and equipment includes depreciation on MedCenters, IT equipment, leasehold improvements, general plant and equipment, office furniture and equipment and vehicles.
Research and development expenses represent costs incurred to develop and innovate on MedAvail’s MedCenter platform technology, including development work on hardware, software and supporting information technology infrastructure.
MedAvail recognizes hardware development costs as they are incurred. When hardware is constructed for use by customers, in-production costs are capitalized after technological feasibility is achieved and expensed before technological feasibility is achieved. Costs of hardware completed but not yet placed in service are capitalized as equipment (a long-lived asset) on the balance sheet. Costs of hardware completed and placed in service with customers are capitalized as equipment and depreciated (expensed) over the estimated useful life of the equipment.
When hardware is constructed for sale to customers, in-production costs are capitalized as raw materials, work in process, or finished goods inventory on the balance sheet. Costs of hardware completed and available for sale are capitalized as finished goods inventory on the balance sheet. Costs of hardware sold to customers are expensed as costs of goods sold.
Software development costs are accrued and expensed based on ASC 985, which is designed for software costs that MedAvail intends to sell or lease (in conjunction with related hardware). Any software development costs that are incurred prior to the point where the project has demonstrated technological feasibility are expensed as they are incurred. Once technological feasibility has been established, most development costs are capitalized. Once development is complete and the software is made available for release to customers, capitalization no longer is appropriate because any remaining costs are considered ongoing maintenance and support. These are expensed as they are incurred. The definition of “technological feasibility”, per ASC 985, is “the technological feasibility of a computer software product is established when the entity has completed all planning, designing, coding, and testing activities that are necessary to establish that the product can be produced to meet its design specifications including functions, features, and technical performance requirements.” Software development costs are subject to these rules regardless of whether the costs were generated internally (employee time) or externally (vendor fees).
Amortization of intangible assets consists of amortization of intellectual property, website and mobile applications and software.
Selling, general and administrative expenses
Selling, general and administrative expenses consist of marketing and advertising costs, personnel costs, facility expenses and expenses for outside professional services, including legal, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation. Facility expenses consist of rent and other related costs. General and administrative costs also include depreciation expense and other supplies. MedAvail expects to incur additional expenses as a result of becoming a public company following completion of the Merger, including expenses related to compliance with the rules and regulations of the SEC and Nasdaq, additional insurance, investor relations and other administrative expenses and professional services.
Merger expenses
Merger expenses primarily consist of professional service fees associated with the preparation for the Merger transaction, including legal, audit and other compliance related services.
Share-based compensation
MedAvail has a stock option plan whereby awards are granted to certain employees of MedAvail. The fair value of the stock options granted by MedAvail to employees of MedAvail is recognized as compensation expense on a straight-line basis over the applicable stock option vesting period. MedAvail measures the fair value of the options using the Black-Scholes option pricing model as of the grant date/measurement date. Shares issued upon the
exercise of options are new shares. MedAvail estimates forfeitures based on historical experience and expense related to awards is adjusted over the term of the awards to reflect their probability of vesting. All fully vested awards are fully expensed.
Interest Expense
Interest expense consists of accrued interest on outstanding debt and is payable upon the maturity date. For more detail on outstanding debt and associated maturities, see Note 13 to the MedAvail Annual Financial Statements presented elsewhere in this Current Report on Form 8-K.
Results of Operations
The following table summarizes our statement of operations data for the three months ended September 30, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2020 vs. 2019
|
|
2020
|
|
2019
|
|
Amount Change
|
|
% Change
|
Sales:
|
(in thousands)
|
Pharmacy technology
|
$
|
4,959
|
|
$
|
69
|
|
$
|
4,890
|
|
|
7,087
|
%
|
% of total sales
|
69
|
%
|
|
7
|
%
|
|
|
|
|
Retail pharmacy services
|
2,186
|
|
857
|
|
1,329
|
|
|
155
|
%
|
% of total sales
|
31%
|
|
93%
|
|
|
|
|
Total sales
|
7,145
|
|
926
|
|
6,219
|
|
|
672
|
%
|
Cost of sales:
|
|
|
|
|
|
|
|
Pharmacy technology
|
120
|
|
22
|
|
98
|
|
445
|
%
|
% of total sales
|
2
|
%
|
|
2
|
%
|
|
|
|
|
Retail pharmacy services
|
2,042
|
|
701
|
|
1,341
|
|
|
191
|
%
|
% of total sales
|
29
|
%
|
|
76
|
%
|
|
|
|
|
Total cost of sales
|
2,162
|
|
723
|
|
1,439
|
|
|
199
|
%
|
Gross profit
|
4,983
|
|
203
|
|
4,780
|
|
|
2,355
|
%
|
% of total sales
|
70
|
%
|
|
22
|
%
|
|
|
|
|
Other operating expenses
|
4,376
|
|
4,314
|
|
62
|
|
1
|
%
|
% of total sales
|
61
|
%
|
|
466
|
%
|
|
|
|
|
Selling, general and administrative expenses
|
1,251
|
|
1,509
|
|
(258)
|
|
(17)
|
%
|
% of total sales
|
18
|
%
|
|
163
|
%
|
|
|
|
|
Merger expenses
|
1,324
|
|
—
|
|
1,324
|
|
—
|
%
|
% of total sales
|
19
|
%
|
|
—
|
%
|
|
|
|
|
Share-based compensation
|
65
|
|
90
|
|
(25)
|
|
(28)
|
%
|
% of total sales
|
1
|
%
|
|
10
|
%
|
|
|
|
|
Operating loss
|
(2,033)
|
|
(5,710)
|
|
3,677
|
|
(64)
|
%
|
% of total sales
|
(28)
|
%
|
|
(617)
|
%
|
|
|
|
|
Interest expense - net
|
455
|
|
169
|
|
286
|
|
169
|
%
|
% of total sales
|
6
|
%
|
|
18
|
%
|
|
|
|
|
Net loss
|
$
|
(2,488)
|
|
$
|
(5,879)
|
|
$
|
3,391
|
|
(58)
|
%
|
% of total sales
|
(35)
|
%
|
|
(635)
|
%
|
|
|
|
|
Revenue
During the three months ended September 30, 2020, pharmacy technology sales increased $4.9 million to $5.0 million, or 7,087%, when compared to the same period in 2019. The increase was due to revenue recognized when MedAvail and its significant customer agreed that MedAvail had no further obligation to the customer and therefore would have no additional deliverables related to the $4.7 million of contract liability balance. MedAvail recognized $4.7 million of contract revenue related to this agreement. This revenue is non-recurring. The remaining increase was due to an additional MedCenter sale to large healthcare system customer and rental revenue associated with growth in the number of companies evaluating our MedCenter technology through pilot deployments.
During the three months ended September 30, 2020, retail pharmacy services sales increased $1.3 million to $2.2 million, or 155%, when compared to the same period in 2019. The increase was due to volume growth in prescription sales at existing sites launched in 2019 and the new sales volume from the additional 29 new site launched since the third quarter of 2019, net of adjustments related to Direct and Indirect Remuneration and services fees.
Costs of Sales
During the three months ended September 30, 2020, pharmacy technology cost of sales increased $98 thousand to $120 thousand compared to the same period in 2019. The increase was due primarily to an increase in depreciation associated with growth in the number of pilot deployments with companies evaluating our MedCenter technology.
During the three months ended September 30, 2020, retail pharmacy services cost of sales increased $1.3 million to $2.0 million compared to the same period in 2019. The increase was due primarily to costs associated with volume growth in prescription sales. Additionally, in response to the spread of COVID-19, the mix of medications that were delivered via courier to patient’s homes increased, resulting in higher delivery costs when compared the second quarter of 2019.
Other expenses
During the three months ended September 30, 2020, other operating expenses increased $62 thousand to $4.4 million compared to the same period in 2019. The increase was primarily due to increased contractor and wages and benefits costs for growth and development partially offset by decreased intangible asset amortization due to completion of amortization of assets during 2019.
During the three months ended September 30, 2020, selling, general and administrative expenses decreased $258 thousand to $1.3 million compared to the same period in 2019. This was primarily due to a decrease in marketing expenses in 2020, as MedAvail completed various marketing program tests in 2019 and closed down pharmacy operations in Canada.
During the three months ended September 30, 2020, merger expenses increased $1.3 million to $1.3 million compared to the same period in 2019. The increase was primarily due to professional services expenses incurred in 2020 related to the Merger transaction and anticipated listing on the Nasdaq Capital Market exchange.
During the three months ended September 30, 2020, share-based compensation decreased $25 thousand to $65 thousand compared to the same period in 2019. This was due to fewer options granted to employees remaining to vest.
During the three months ended September 30, 2020, interest expense increased $286 thousand to $455 thousand compared to the same period in 2019. The increase was due to additional short-term debt being issued in the quarter. On May 26, 2020, MedAvail completed a convertible notes and warrants offering to certain of its existing investors whereby those investors purchased notes and warrants on a pro rata basis with their existing investments in MedAvail's preferred stock. Cash received for the notes and warrants in the initial closing was $7.8 million. An additional $0.6 million was subsequently issued. The note accrues interest at a rate of 10%, payable at maturity or
upon conversion with a maturity date of June 30, 2021. Upon closure of the merger on November 17, 2020, these notes were converted into common shares based on their balance, including accrued interest, at that date.
Other operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
2020 vs. 2019
|
|
2020
|
|
2019
|
|
Amount Change
|
|
% Change
|
Other operating expenses:
|
(in thousands)
|
Wages and salaries
|
$
|
4,063
|
|
|
$
|
3,781
|
|
|
$
|
282
|
|
|
7
|
%
|
Pharmacy operations
|
78
|
|
|
96
|
|
|
(18)
|
|
|
(19)
|
%
|
Depreciation of property, plant and equipment
|
212
|
|
|
181
|
|
|
31
|
|
|
17
|
%
|
Research and development
|
18
|
|
|
44
|
|
|
(26)
|
|
|
—
|
%
|
Amortization of intangible assets
|
12
|
|
|
221
|
|
|
(209)
|
|
|
(95)
|
%
|
Foreign exchange loss
|
(7)
|
|
|
(9)
|
|
|
2
|
|
|
(22)
|
%
|
Total other operating expenses
|
$
|
4,376
|
|
|
$
|
4,314
|
|
|
$
|
62
|
|
|
1
|
%
|
During the three months ended September 30, 2020, wages and salaries expenses increased $282 thousand to $4.1 million compared to the same period in 2019. The increase was primarily a result of hiring additional employees and contractors in the last quarter of 2019 and the first three quarters of 2020, necessary to support company development and growth in Arizona and the continued build out of operations in California.
During the three months ended September 30, 2020, pharmacy operations expenses decreased $18 thousand to $78 thousand compared to the same period in 2019. The decrease was primarily due to the closure of MedAvail’s pharmacy operations (dba On-the-Spot pharmacy) in the broader Toronto Canada area.
During the three months ended September 30, 2020, depreciation of property, plant, and equipment increased $31 thousand to $212 thousand compared to the same period in 2019. The increase was a result of capitalizing additional property, plant and equipment related to the build out of our SpotRx pharmacy footprint in California.
During the three months ended September 30, 2020, research and development expenses decreased $26 thousand to $18 thousand compared to the same period in 2019. The decrease was due to decreased activity related to MedCenter and software development.
During the three months ended September 30, 2020, amortization of intangible assets decreased $209 thousand to $12 thousand compared to the same period in 2019. This was due to intangible assets being fully amortized during 2019.
During the three months ended September 30, 2020, foreign exchange loss decreased $2 thousand to $(7) thousand compared to the same period in 2019. This was due to a more favorable CAD to USD exchange rate in 2020.
The following table summarizes our statement of operations data for the nine months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2020 vs. 2019
|
|
2020
|
|
2019
|
|
Amount Change
|
|
% Change
|
Sales:
|
(in thousands)
|
Pharmacy technology
|
$
|
5,672
|
|
$
|
400
|
|
$
|
5,272
|
|
|
1,318
|
%
|
% of total sales
|
52
|
%
|
|
17
|
%
|
|
|
|
|
Retail pharmacy services
|
5,196
|
|
1,910
|
|
3,286
|
|
|
172
|
%
|
% of total sales
|
48
|
%
|
|
83
|
%
|
|
|
|
|
Total sales
|
10,868
|
|
2,310
|
|
8,558
|
|
|
370
|
%
|
Cost of sales:
|
|
|
|
|
|
|
|
Pharmacy technology
|
400
|
|
61
|
|
339
|
|
|
556
|
%
|
% of total sales
|
4
|
%
|
|
3
|
%
|
|
|
|
|
Retail pharmacy services
|
5,059
|
|
1,561
|
|
3,498
|
|
|
224
|
%
|
% of total sales
|
47
|
%
|
|
68
|
%
|
|
|
|
|
Total cost of sales
|
5,459
|
|
1,622
|
|
3,837
|
|
|
237
|
%
|
Gross profit
|
5,409
|
|
688
|
|
4,721
|
|
|
686
|
%
|
% of total sales
|
50
|
%
|
|
30
|
%
|
|
|
|
|
Other operating expenses
|
12,535
|
|
11,278
|
|
1,257
|
|
11
|
%
|
% of total sales
|
115
|
%
|
|
488
|
%
|
|
|
|
|
Selling, general and administrative expenses
|
3,850
|
|
4,421
|
|
(571)
|
|
(13)
|
%
|
% of total sales
|
35
|
%
|
|
191
|
%
|
|
|
|
|
Merger expenses
|
2,607
|
|
—
|
|
2,607
|
|
—
|
%
|
% of total sales
|
24
|
%
|
|
—
|
%
|
|
|
|
|
Share-based compensation
|
235
|
|
283
|
|
(48)
|
|
(17)
|
%
|
% of total sales
|
2
|
%
|
|
12
|
%
|
|
|
|
|
Operating loss
|
(13,818)
|
|
(15,294)
|
|
1,476
|
|
(10)
|
%
|
% of total sales
|
(127)
|
%
|
|
(662)
|
%
|
|
|
|
|
Interest expense - net
|
896
|
|
528
|
|
368
|
|
70
|
%
|
% of total sales
|
8
|
%
|
|
23
|
%
|
|
|
|
|
Net loss
|
$
|
(14,714)
|
|
$
|
(15,822)
|
|
$
|
1,108
|
|
(7)
|
%
|
% of total sales
|
(135)
|
%
|
|
(685)
|
%
|
|
|
|
|
Revenue
During the nine months ended September 30, 2020, pharmacy technology sales increased $5.3 million to $5.7 million, or 1,318%, when compared to the same period in 2019. The increase was primarily due to revenue recognized when MedAvail and its significant customer agreed that MedAvail had no further obligation to the customer and therefore would have no additional deliverables related to the $4.7 million of contract liability balance. MedAvail recognized $4.7 million of contract revenue related to this agreement. This revenue is non-recurring. The remaining increase was due to seven MedCenters sold to a third-party customer in the second quarter of 2020 and an increase in rental revenue associated with growth in the number of companies evaluating our MedCenter technology through pilot deployments. This increase was partially offset by a reduction in revenue recognized for software integration services completed in 2019, of approximately $198 thousand.
During the nine months ended September 30, 2020, retail pharmacy services sales increased $3.3 million to $5.2 million, or 172%, when compared to the same period in 2019. The increase was due to volume growth in prescription sales at existing sites and 29 new site launches since the third quarter of 2019.
Cost of Sales
During the nine months ended September 30, 2020, pharmacy technology cost of sales increased $339 thousand to $400 thousand compared to the same period in 2019. The increase was due primarily to costs from seven MedCenters sold in the second quarter of 2020 and an increase in depreciation associated with growth in the number of pilot deployments with companies evaluating our MedCenter technology. The average unit cost of the seven MedCenters sold was significantly lower than the cost of a newly manufactured MedCenter, as these units were buy-back units from a prior customer.
During the nine months ended September 30, 2020, retail pharmacy services cost of sales increased $3.5 million to $5.1 million compared to the same period in 2019. The increase was due to costs associated with volume growth in prescription sales at existing sites and 29 new site launches since the third quarter of 2019. Additionally, in response to the spread of COVID-19, most of the clinic locations MedAvail operates in were temporarily closed to prevent the transmission of COVID-19. Consequently, the mix of medications that were delivered via courier to patents’ homes increased significantly, resulting in higher delivery costs when compared the first nine months of 2019. Lastly, cost of pharmacy sales in the first nine months of 2020 increased due to higher inventory write downs associated with obsolescence.
Other expenses
During the nine months ended September 30, 2020, other operating expenses increased $1.3 million to $12.5 million compared to the same period in 2019. The increase was primarily due to an increase in wages and salaries as MedAvail hired additional personnel and contractors, necessary to support company development, growth in Arizona and the launch of operations in California.
During the nine months ended September 30, 2020, selling, general and administrative expenses decreased $571 thousand to $3.9 million compared to the same period in 2019. This was primarily due to a decrease in marketing costs in 2020, as MedAvail completed various marketing program tests in 2019 and closed pharmacy operations in Canada, resulting in lower spend in 2020.
During the nine months ended September 30, 2020, merger expenses were $2.6 million, primarily due to professional services expenses incurred in relation to the merger transaction and anticipated listing on the Nasdaq Capital Market exchange.
During the nine months ended September 30, 2020, share-based compensation decreased $48 thousand to $235 thousand compared to the same period in 2019. This was due to fewer options granted to employees remaining to vest.
During the nine months ended September 30, 2020, interest expense increased $368 thousand to $896 thousand compared to the same period in 2019. The increase was due to additional short-term debt being incurred in 2020. On May 26, 2020, MedAvail completed a convertible notes and warrants offering to certain of its existing investors whereby those investors purchased notes and warrants on a pro rata basis with their existing investments in MedAvail's preferred stock. Cash received for the notes and warrants in the initial closing was $7.8 million. An additional $0.6 million was subsequently issued. The note accrues interest at a rate of 10%, payable at maturity or upon conversion with a maturity date of June 30, 2021
Other operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2020 vs. 2019
|
|
2020
|
|
2019
|
|
Amount Change
|
|
% Change
|
Other operating expenses:
|
(in thousands)
|
Wages and salaries
|
$
|
11,531
|
|
|
$
|
9,664
|
|
|
$
|
1,867
|
|
|
19
|
%
|
Pharmacy operations
|
187
|
|
|
279
|
|
|
(92)
|
|
|
(33)
|
%
|
Depreciation of property, plant and equipment
|
575
|
|
|
468
|
|
|
107
|
|
|
23
|
%
|
Research and development
|
139
|
|
|
172
|
|
|
(33)
|
|
|
—
|
%
|
Amortization of intangible assets
|
69
|
|
|
733
|
|
|
(664)
|
|
|
(91)
|
%
|
Foreign exchange loss (gain)
|
34
|
|
|
(38)
|
|
|
72
|
|
|
(189)
|
%
|
Total other operating expenses
|
$
|
12,535
|
|
|
$
|
11,278
|
|
|
$
|
1,257
|
|
|
11
|
%
|
During the nine months ended September 30, 2020, wages and salaries expenses increased $1.9 million to $11.5 million compared to the same period in 2019. The increase was primarily a result of hiring additional employees and contractors in 2020 and the fourth quarter of 2019.
During the nine months ended September 30, 2020, pharmacy operations expenses decreased $92 thousand to $187 thousand compared to the same period in 2019. The decrease was primarily due to the closure of MedAvail’s pharmacy operations (dba On-the-Spot pharmacy) in the broader Toronto Canada area.
During the nine months ended September 30, 2020, depreciation of property, plant, and equipment increased $107 thousand to $575 thousand compared to the same period in 2019. The increase was a result of capitalizing additional property plant and equipment related to the build out of our SpotRx pharmacy footprint in California in the last quarter of 2019 and the first nine months of 2020.
During the nine months ended September 30, 2020, research and development expenses decreased $33 thousand to $139 thousand compared to the same period in 2019. The decrease was due to decreased activity related to MedCenter hardware technology and software development.
During the nine months ended September 30, 2020, amortization of intangible assets decreased $664 thousand to $69 thousand compared to the same period in 2019. This was due to intangible assets being fully amortized during 2019
During the nine months ended September 30, 2020, foreign exchange loss decreased $72 thousand to $34 thousand compared to the same period in 2019. This was due to a more favorable Canadian Dollar, or CAD, to US Dollar, or USD exchange rate in 2020.
Liquidity and Capital Resources
Sources of Liquidity
Since inception through September 30, 2020, MedAvail’s operations have been financed primarily by net cash proceeds of $94.3 million from the sale of its redeemable preferred stock and debt in the amount of $21.7 million. As of September 30, 2020, MedAvail had $2.1 million in cash and an accumulated deficit of $135.9 million.
The Company has received $83.9 million cash (before expenses related to the offering and merger) from private placement financing related to the reverse merger discussed in Note 3 to the Consolidated Financial Statements, and which funding will convert into common equity immediately subsequent to the merger. The net cash from the offering and merger will provide liquidity for the Company to support operations and growth for longer than the next 12 months.
Cash Flows
The following table summarizes MedAvail’s cash flows for the nine months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2020 vs. 2019
|
|
2020
|
|
2019
|
|
Amount Change
|
|
% Change
|
|
(in thousands)
|
Cash used in operating activities
|
$
|
(15,664)
|
|
|
$
|
(14,779)
|
|
|
$
|
(885)
|
|
|
6
|
%
|
Cash used in investing activities
|
(431)
|
|
|
(416)
|
|
|
(15)
|
|
|
4
|
%
|
Cash provided by financing activities
|
9,393
|
|
|
17,234
|
|
|
(7,841)
|
|
|
(45)
|
%
|
Net (decrease) increase in cash
|
$
|
(6,702)
|
|
|
$
|
2,039
|
|
|
$
|
(8,741)
|
|
|
(429)
|
%
|
Operating Activities
During the nine months ended September 30, 2020, cash used in operating activities increased $885 thousand to $15.7 million compared to the same period in 2019. The increase was primarily due to an increase in operating expenses from wages and salaries and costs attributable to the launch and growth of our retail pharmacy operations in Arizona and California.
Investing Activities
During the nine months ended September 30, 2020, cash used in investing activities increased $15 thousand to $431 thousand compared to the same period in 2019. The increase was primarily due to an increase in investment in property, plant and equipment associated with investments in pharmacy operations in Arizona and additional MedCenters in service for rental contracts.
Financing Activities
During the nine months ended September 30, 2020, cash provided by financing activities decreased $7.8 million to $9.4 million compared to the same period in 2019. The decrease was primarily due to an increase in issuances of debt and related warrants, offset by a decrease in issuances of preferred stock.
Long-Term Debt
On March 23, 2016, MedAvail and a significant customer and investor entered into a subordinated secured convertible promissory five-year note agreement for $10.0 million. This note is convertible into common shares at the option holder’s request. Interest of 6% is accumulated and repayable on the maturity date at MedAvail’s option. Unpaid interest is added to the outstanding principal. MedAvail expects to repay the note including accrued interest in cash prior to or upon its maturity in March 2021.
Short-Term Debt
On May 26, 2020, the Company completed a convertible notes and warrants offering to certain of its existing investors whereby those investors purchased notes and warrants on a pro rata basis with their existing investments in the Company’s preferred stock. Cash received for the notes and warrants issued through September 30, 2020, was $8.2 million. The note accrues interest at a rate of 10%, payable at maturity or upon conversion with a maturity date of December 31, 2020. After September 30, 2020, the maturity date of the note was extended to June 30, 2021. Financing under this agreement for the three months ending September 30, 2020 totaled $407 thousand.
PPP Loan
On May 14, 2020, MedAvail entered into a Promissory Note with HSBC Bank, which provides for a loan in the amount of $341 thousand (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The Promissory Note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses, including certain payroll costs, group health care benefits and other permitted expenses as described in the CARES Act. MedAvail intends to use the entire PPP Loan amount for qualifying expenses and to apply for forgiveness of the loan in accordance with the terms of the CARES Act. Management has determined that it is likely that MedAvail will meet the qualifications necessary for forgiveness.
Impact of Inflation
Inflation has not had a negative impact on MedAvail’s business since inception. Management believes that any increases in costs of products sold would coincide with an increase in the sales prices of those products, which would offset the higher costs.
Contractual Obligations and Other Commitments
The following table summarizes our significant contractual obligations and commercial commitments as of September 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
Total
|
|
< 1year
|
|
1-3 years
|
|
3-5 years
|
|
5+ years
|
Contractual obligations:
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
21,743
|
|
|
21,743
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Operating lease obligations
|
1,212
|
|
|
192
|
|
|
823
|
|
|
191
|
|
|
6
|
|
Finance lease obligations
|
156
|
|
|
15
|
|
|
118
|
|
|
23
|
|
|
—
|
|
Total contractual obligations
|
$
|
23,111
|
|
|
$
|
21,950
|
|
|
$
|
941
|
|
|
$
|
214
|
|
|
$
|
6
|
|
Off-Balance Sheet Arrangements
MedAvail has not entered into any off-balance sheet arrangements and does not have any holdings in variable interest entities.
Recent Accounting Pronouncements
See discussion of recently issued accounting pronouncements and the potential effect of that new guidance on MedAvail in Note 3 in the quarterly financial statements included in this filing.
Critical Accounting Policies
See Note 3 Basis of Presentation in the MedAvail Quarterly Financial Statements included in this Current Report of Form 8-K, and critical accounting policies in Note 4 to the MedAvail Annual Financial Statements presented in Exhibit 99.1 in this Current Report on Form 8-K.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MEDAVAIL MARKET RISK
As of September 30, 2020, MedAvail had cash of $2.1 million, which consisted of bank deposits. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations of interest income have not been significant. MedAvail has not been exposed nor does it anticipate being exposed to material risks due to changes in interest rates. A hypothetical 1% change in interest rates during any of the periods presented would not have had a material impact on MedAvail’s consolidated financial statements as its debt was fixed rate.
MedAvail has ongoing operations in Canada and pays those vendors in local currency (Canadian Dollar). MedAvail does not participate in any foreign currency hedging activities and it does not have any other derivative financial instruments. MedAvail did not recognize any significant exchange rate losses during the nine-month period ended September 30, 2020. A 10% change in the US Dollar to Canadian Dollar exchange rate on September 30, 2020 would not have had a material effect on MedAvail’s results of operations or financial condition.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and the related notes present information on the beneficial ownership of shares of the Company’s Common Stock as of November 18, 2020, after giving effect to the Reverse Stock Split and the Business Combination, by:
1.each of the Company’s director as of the Business Combination Closing;
2.each of the Company’s executive officers as of the Business Combination Closing;
3.all of the Company’s current directors and executive officers as a group; and
4.each stockholder known by the Company to beneficially own more than five percent of the Company’s Common Stock.
The information below is based on 31,668,945 shares of Common Stock outstanding as of November 18, 2020. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Shares of Common Stock that may be acquired by an individual or group within 60 days of November 18, 2020, pursuant to the exercise of options or warrants, are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table.
Except as indicated in footnotes to this table, the Company believes that the stockholders named in this table have sole voting and investment power with respect to all shares of Common Stock shown to be beneficially owned by them, based on information provided to the Company by such stockholders. Unless otherwise indicated, the address for each stockholder listed is: c/o MedAvail Holdings, Inc., 6665 Millcreek Drive, Suite 1, Mississauga, Ontario, Canada L5N 5M4.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Address of Beneficial Owner
|
|
Shares
Beneficially
Owned
|
|
Percent of
Outstanding
|
Principal Stockholders:
|
|
|
|
|
Entities affiliated with Redmile Group, LLC(1)
|
|
11,993,607
|
|
|
37.5
|
%
|
Investment funds associated with Ally Bridge Group(2)
|
|
6,617,170
|
|
|
20.9
|
%
|
Entities affiliated with Pura Vida Investments, LLC(3)
|
|
2,609,497
|
|
|
8.2
|
%
|
Entities affiliated with Lewis & Clark Venture Capital, LLC(4)
|
|
2,349,602
|
|
|
7.3
|
%
|
Adage Capital Partners, L.P.(5)
|
|
2,251,980
|
|
|
7.1
|
%
|
Directors and Named Executive Officers:
|
|
|
|
|
Ed Kilroy(6)
|
|
821,198
|
|
|
2.5
|
%
|
Ryan Ferguson(7)
|
|
62,329
|
|
|
0.2
|
%
|
Fraser Mackay(8)
|
|
79,066
|
|
|
0.3
|
%
|
Will Misloski(9)
|
|
117,892
|
|
|
0.4
|
%
|
David Rawlins(10)
|
|
95,038
|
|
|
0.3
|
%
|
Neil Prezioso(11)
|
|
52,413
|
|
|
0.2
|
%
|
Helen Ciesielski
|
|
—
|
|
|
*
|
Rob Faulkner
|
|
—
|
|
|
*
|
Gerald Gradwell (12)
|
|
201,650
|
|
|
0.6
|
%
|
Gerard van Hamel Platerink
|
|
—
|
|
|
*
|
Michael Kramer
|
|
—
|
|
|
*
|
Glen Stettin
|
|
—
|
|
|
*
|
All current executive officers and directors as a group (12 persons)(13)
|
|
1,429,586
|
|
|
4.3
|
%
|
__________________
*Represents beneficial ownership of less than 1% of the shares of MedAvail Common Stock.
(1)Consists of (i) 270,384 shares of common stock and 27,037 common stock purchase warrants held of record by RAF, L.P., (ii) 1,595,777 shares of common stock and 82,789 common stock purchase warrants held of record by Redmile Private Investments I, L.P., (iii) 463,838 shares of common stock and 11,301 common stock purchase warrants held of record by Redmile Capital Offshore Master Fund, Ltd., (iv) 1,803,559 shares of common stock held of record by Redmile Capital Offshore II Master Fund, Ltd., (v) 1,612,875 shares of common stock and 69,090 common stock purchase warrants held of record by Redmile Capital Fund, L.P., (vi) 1,187,939 shares of common stock and 61,628 common stock purchase warrants held of record by Redmile Private Investments I Affiliates, L.P., (vii) 1,898,965 shares of common stock and 53,081 common stock purchase warrants held of record by Redmile Strategic Master Fund, LP, (viii) 649,621 shares of common stock held of record by P Redmile Ltd, and (ix) 2,205,723 shares of common stock held of record by RedCo I, L.P. Redmile Group, LLC is the investment manager/adviser to each of the private investment vehicles listed in items (i) through (ix) (collectively, the “Redmile Funds”) and, in such capacity, exercises sole voting and investment power over all of the shares held by the Redmile Funds and may be deemed to be the beneficial owner of these shares. Jeremy C. Green serves as the managing member of Redmile Group, LLC and also may be deemed to be the beneficial owner of these shares. Redmile Group, LLC and Mr. Green each disclaim beneficial ownership of these shares. Gerard van Hamel Platerink and Rob Faulkner are Managing Directors of Redmile Group, LLC, and each serves as a director of MedAvail and will serve as a director of the issuer following the closing of the Merger. The address for the Redmile Funds is c/o Redmile Group, LLC, One Letterman Drive, Bldg D, Ste D3-300, San Francisco, CA 94129.
(2)Consists of (i) 3,782,080 shares of common stock held of record by ABG WTT-MedAvail Limited (“ABG WTT”) and (ii) 2,835,090 shares of common stock held of record by Ally Bridge MedAlpha Master Fund L.P. (“MedAlpha”). ABG WTT is wholly owned by Ally Bridge Group-WTT Global Life Science Capital Partners, L.P. Voting and investment decisions with respect to any securities owned by ABG WTT are made by the investment committee of ABG-WTT Global Life Science Capital Partners GP Limited, the general partner of ABG-WTT Global Life Science Capital Partners GP, L.P., which is the general partner of Ally Bridge Group-WTT Global Life Science Capital Partners, L.P. As such, each of the foregoing entities may be deemed to share beneficial ownership of the shares held by ABG-WTT. Each of them disclaims any such beneficial ownership. Mr. Yu Fan indirectly controls each of Ally Bridge MedAlpha Management GP, LLC and Ally Bridge Group (NY) LLC. Ally Bridge (NY) LLC and Ally Bridge MedAlpha Management L.P., acting through its general partner Ally Bridge MedAlpha Management GP, LLC manage MedAlpha’s investments. As such, each of the foregoing entities and Mr. Yu Fan may be deemed to share beneficial ownership of the shares held by MedAlpha. Each of them disclaims any such beneficial ownership. The principal business address for all entities and individuals affiliated with Ally Bridge Group is Unit 3002-3004, 30/F., Gloucester Tower, The Landmark, 15 Queen’s Road Central, Hong Kong.
(3)Consists of (i) 997,726 shares of common stock and 3,184 common stock purchase warrants held of record by Pura Vida SPV I, LLC, (ii) 1,133,219 shares of common stock and 52,165 common stock purchase warrants held of record by Pura Vida Master Fund Ltd., (iii) 279,097 shares of common stock held of record by Segregated Account Highmark Long/Short Equity 20, (iv) 72,053 shares of common stock held of record by Walleye Opportunities Master Fund, Ltd., and (v) 72,053 shares of common stock held of record by Walleye Manager Opportunities, LLC (collectively, with the entities listed in items (i) through (iv), the “Pura Vida Funds”). Pura Vida Investments, LLC (“PVI”) serves as the investment manager to each of the entities listed in items (i) through (iii) and as the investment sub-advisor to each of the entities listed in items (iv) and (v). Efrem Kamen serves as the managing member of PVI. By virtue of these relationships, PVI and/or Mr. Kamen may be deemed to have shared voting and dispositive power with respect to the common stock owned directly by the Pura Vida Funds, which shall not be deemed an admission that PVI and/or Mr. Kamen are beneficial owners of the common stock and common stock purchase warrants for purposes of Section 13 of the Securities Exchange Act of 1934, as amended, or for any other purpose. Each PVI and Mr. Kamen disclaims beneficial ownership of the common stock and common stock purchase warrants reported herein except to the extent of PVI’s and/or Mr. Kamen’s pecuniary interest therein. The address for the entities affiliated with PVI is c/o Pura Vida Investments, LLC, 150 East 52nd Street, Suite 32001, New York, NY 10022.
(4)Consists of (i) 1,496,765 shares of common stock and 494,818 common stock purchase warrants held of record by Lewis & Clark Ventures I Parallel Fund, LP, (ii) 287,341 shares of common stock and 70,678 common stock purchase warrants held of record by Lewis & Clark Ventures I, LP. Lewis & Clark Venture Capital, LLC is the general partner of each of the entities listed in items (i) and (ii) (collectively, the “Lewis & Clark Affiliates”) and, in such capacity, exercises sole voting and investment power over all of the shares held by the Lewis & Clark Affiliates and may be deemed to be the beneficial owner of these shares. Thomas J. Hillman serves as the manager of Lewis & Clark Venture Capital, LLC and Mr. Hillman disclaims beneficial ownership of these shares, except to the extent of its or his pecuniary interest in such shares, if any. The address for the Lewis & Clark Affiliates is c/o Lewis & Clark Venture Capital, LLC, 120 S. Central Avenue, Suite 1000, St. Louis, MO 63105.
(5)Consists of 2,195,702 shares of common stock and 56,278 common stock purchase warrants held of record by Adage Capital Partners, L.P. (the “Fund”). Adage Capital Partners, GP, LLC (“ACPGP”) serves as the general partner of the Fund and as such has discretion over the portfolio of securities beneficially owned by the Fund. Adage Capital Advisors, LLC (“ACA”) is managing member of ACPGP and directs ACPGP’s operations. Robert Atchinson and Phillip Gross are the managing members of ACPGP and ACA and general partners of the Fund. Robert Atchinson and Phillip Gross disclaim beneficial ownership of the reported securities except to the extent of their pecuniary interest therein. The address of Adage Capital Partners, L.P. is 200 Clarendon Street, 52nd Floor, Boston, MA 02116.
(6)Consists of 821,198 shares of common stock subject to options exercisable within 60 days of November 18, 2020, all of which are vested as of such date.
(7)Consists of 62,329 shares of common stock subject to options exercisable within 60 days of November 18, 2020, all of which are vested as of such date.
(8)Consists of 79,066 shares of common stock subject to options exercisable within 60 days of November 18, 2020, all of which are vested as of such date.
(9)Consists of 117,892 shares of common stock subject to options exercisable within 60 days of November 18, 2020, all of which are vested as of such date.
(10)Consists of 95,038 shares of common stock subject to options exercisable within 60 days of November 18, 2020, all of which are vested as of such date.
(11)Consists of 52,413 shares of common stock subject to options exercisable within 60 days of November 18, 2020, all of which are vested as of such date.
(12)Consists of 201,650 common stock purchase warrants held of record by Dowth International Limited (“Dowth”). Gerald Gradwell is the chairman and the majority shareholder of Dowth. Mr. Gradwell may be deemed to have shared voting and dispositive power with respect to the shares held by Dowth. Mr. Gradwell disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest in such shares, if any.
(13)Consists of 1,227,936 shares of common stock subject to options exercisable within 60 days of November 18, 2020, all of which are vested as of such date and 201,650 common stock purchase warrants.
MANAGEMENT
Executive Officers and Directors
At the Effective Time, each of Ed Kilroy, Gerard van Hamel Platerink, Gerald Gradwell, Helen Ciesielski, Glen Stettin, Rob Faulkner and Michael Kramer was appointed to our board of directors and such individuals constitute our board of directors as of the date of this report. Additionally, pursuant to the Merger Agreement, our executive management team changed at the Effective Time by the resignation of the then-serving executive officers and the appointment of Ed Kilroy as the Company’s President and Chief Executive Officer, Ryan Ferguson as the Company’s Chief Financial Officer , Treasurer and Secretary, Dave Rawlins as the Company’s Chief Commercial
Officer, Neil Prezioso as the Company’s Chief Pharmacy Officer, Will Misloski as the Company’s Chief Marketing Officer and Fraser Mackay as the Company’s Chief Information Officer.
The following table sets forth the names, ages and positions of each of our directors and executive officers as of the date of this report:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s)
|
Executive Officers
|
|
|
|
|
Ed Kilroy
|
|
61
|
|
Chief Executive Officer, President and Director
|
Ryan Ferguson
|
|
45
|
|
Chief Financial Officer, Treasurer, and Secretary
|
Dave Rawlins
|
|
40
|
|
Chief Commercial Officer
|
Neil Prezioso
|
|
61
|
|
Chief Pharmacy Officer
|
Will Misloski
|
|
50
|
|
Chief Marketing Officer
|
Fraser Mackay
|
|
50
|
|
Chief Information Officer
|
Non-Employee Directors
|
|
|
|
|
Gerard van Hamel Platerink
|
|
51
|
|
Director
|
Gerald Gradwell
|
|
53
|
|
Director
|
Helen Ciesielski
|
|
35
|
|
Director
|
Glen Stettin
|
|
56
|
|
Director
|
Rob Faulkner
|
|
57
|
|
Director
|
Michael Kramer
|
|
44
|
|
Director
|
Executive Officers
Ed Kilroy. Mr. Kilroy has served as MedAvail’s President and Chief Executive Officer and a member of the MedAvail board since November 2012. Mr. Kilroy previously served as Chief Executive Officer of Symcor, one of Canada's largest providers of business and payments processing services from January 2005 to November 2010. Prior to that, Mr. Kilroy served as President of IBM Canada Ltd. from April 2000 to January 2005. Mr. Kilroy received a B.A. in Administrative Sciences from Yale University.
Ryan Ferguson. Mr. Ferguson has served as MedAvail’s Chief Financial Officer since January 2020. From July 2018 to August 2019, Mr. Ferguson served as Chief Financial Officer of Pediatric Dental Brands, a dental service organization providing pediatric dental and orthodontic services throughout the southwestern United States. From February 2015 to July 2018, Mr. Ferguson held various leadership positions at Keap (formerly Infusionsoft), a software company providing customer relationship management solutions, where he most recently served as Vice President of Finance & Analytics. From February 2008 to January 2014, Mr. Ferguson served as Director of Investor Relations at First Solar, a manufacturer of solar panels. Mr. Ferguson received a B.S. in Information Systems from Brigham Young University, an M.B.A., with specialization in Finance, and a Master of Healthcare Management from Arizona State University.
Dave Rawlins. Mr. Rawlins has served as MedAvail’s Chief Commercial Officer since March 2020 and from May 2019 to March 2020, served as MedAvail’s Chief Strategy Officer and interim Chief Financial Officer. Mr. Rawlins comes with an extensive background in strategic and financial analysis, and previously served as Managing Director of Redmile Group, LLC, a health care-focused investment firm based in San Francisco and New York from 2010 to April 2019. Prior to Redmile, Mr. Rawlins was an Executive Director at Morgan Stanley, working in the firm’s institutional equities division from 2002 to 2010. Mr. Rawlins received a B.A. in experimental psychology and an MSc. in experimental psychology from Oxford University. Mr. Rawlins brings an extensive knowledge and understanding of the complexities, regulations and incentives of the US healthcare system.
Neil Prezioso. Mr. Prezioso has served as MedAvail’s Chief Pharmacy Officer since August 2019. Mr. Prezioso comes with an extensive background in pharmacy operations and pharmacy benefit management. Prior to MedAvail,
from June 2018 to July 2019, Mr. Prezioso served as the Operations Leader for CVS Health, responsible for the leading the integration and build out of operations for IngenioRx. Prior to CVS, from December 2012 to May 2018, Mr. Prezioso served as the Chief Operating Officer for DaVitaRx, a company specialized in renal care pharmacy to serve patients with kidney disease. Prior to DaVitaRx, from 1989 to 2012, Mr. Prezioso served as Senior Vice President of Healthcare Operations at Medco Health Solutions, a pharmacy benefits management company. Mr. Prezioso received a B.S. in Pharmacy from The Ohio State University.
Will Misloski. Mr. Misloski has served as MedAvail’s Chief Marketing Officer since June 2018. Mr. Misloski previously served as Senior Vice President of Customer Marketing at GoDaddy Inc., an internet domain registrar and web hosting company, from December 2016 to June 2018. Prior to GoDaddy, from December 2014 to December 2016, Mr. Misloski served as Senior Vice President of Marketing at Raise.com, an online marketplace for gift cards. Mr. Misloski received a B.S. in Finance from the University of Illinois at Urbana-Champaign and a Master of Science in Integrated Marketing Communications at Northwestern University.
Fraser Mackay. Mr. Mackay has served as MedAvail’s Chief Information Officer since June 2020, and from October 2017 to June 2020 served as MedAvail’s Chief Operating Officer. From December 2016 to October 2017, Mr. Mackay served as Chief Digital Officer at RSA Insurance Group plc, a multinational insurance company, where he led digital transformation for the organization. Prior to RSA, Mr. Mackay held various executive leadership positions at Canadian Imperial Bank of Commerce from 2002 to November 2016, where he most recently served as Vice President Digital. Mr. Mackay received a BSc. in Mathematics and Computing from Bolton University.
Non-Employee Directors
Gerard van Hamel Platerink. Mr. van Hamel Platerink has served on MedAvail’s board of directors since June 2012 and has served as Chairman of MedAvail’s board of directors since August 2020. Mr. van Hamel Platerink has been a Managing Director at Redmile Group, LLC, a health care-focused investment firm based in San Francisco and New York since May 2012. Prior to Redmile, Mr. van Hamel Platerink worked as a healthcare investor at Accuitive Medical Ventures from January 2003 to May 2012, and prior to that as an analyst at Citigroup Salomon Smith Barney and Kleinwort Benson. Mr. van Hamel Platerink holds a B.S. in Physics from St. Andrews University and an MBA from Cambridge University. MedAvail believes that Mr. van Hamel Platerink’s extensive business and leadership experience in the healthcare industry qualify him to serve on the Company’s board of directors.
Gerald Gradwell. Mr. Gradwell has served on MedAvail’s board of directors from March 2013 to December 2017 and since May 2018. Mr. Gradwell has served as Senior Vice President of Special Projects & Investor Relations at Walgreens Boots Alliance, Inc. since January 2015. From 2000 to 2015, Mr. Gradwell served in various leadership roles at Alliance Boots GmbH, where he most recently served as Group Director of Special Projects and Investor Relations. Prior to joining Alliance Boots GMBH, Mr. Gradwell spent 15 years as a stockbroker, banker and international capital markets advisor. MedAvail believes that Mr. Gradwell’s current and prior experience advising publicly traded companies and his extensive experience as an executive in the healthcare and pharmaceutical industries qualify him to serve on the Company’s board of directors.
Helen Ciesielski. Ms. Ciesielski has served on MedAvail’s board of directors since May 2018. Since February 2017 Ms. Ciesielski has been a Principal at Lewis & Clark Ventures, where she focuses on healthcare investments. From November 2011 to January 2017, Ms. Ciesielski served in various roles at Ascension Ventures, a healthcare-focused venture fund, where she most recently served as Principal. Ms. Ciesielski previously worked in investment banking at The Fortune Group. Ms. Ciesielski received a B.A. in Politics & Government and Business from the University of Puget Sound, and an M.B.A from University of Portland. MedAvail believes that Ms. Ciesielski’s broad experience as an investor in healthcare companies qualifies her to serve on the Company’s board of directors.
Glen Stettin, M.D. Dr. Stettin has served on MedAvail’s board of directors since May 2018. Dr. Stettin currently serves as Senior VP and Chief Innovation Officer at Express Scripts Holding Co., a subsidiary of Cigna, where he has held various leadership positions since 2012. Prior to Express Scripts, Dr. Stettin served in leadership roles in several functional areas, including product, technology, clinical and operations at Medco Health Solutions, Inc. from 1995 to 2012. Dr. Stettin completed his residency in internal medicine at the University of California, San Francisco, where he also served as medical chief resident and assistant chief of the medical service, Moffitt Hospital,
and was a fellow in cardiology and Robert Wood Johnson Clinical Scholar at UCSF/Stanford. He received a B.A. in Premedical Sciences from Lehigh University and an M.D. from the Medical College of Pennsylvania. MedAvail believes that Dr. Stettin’s extensive experience as an executive in healthcare companies qualifies him to serve on the Company’s board of directors.
Rob Faulkner. Mr. Faulkner has served on MedAvail’s board of directors since February 2020. Mr. Faulkner has been a Managing Director at Redmile Group, LLC, a health care-focused investment firm based in San Francisco and New York since February 2008. Prior to Redmile, Mr. Faulkner was a sell-side equity analyst for 16 years, from 1992 to 2008, including at Hambrecht & Quist (now JPMorgan), Thomas Weisel Partners (now Stifel Financial Corp.) and SG Warburg & Co. (now UBS). Mr. Faulkner holds an A.B. from Harvard College and an MBA from the Tuck School of Business at Dartmouth College. MedAvail believes that Mr. Faulkner’s extensive business and leadership experience in the healthcare industry, qualifies him to serve on the Company’s board of directors.
Michael Kramer. Mr. Kramer has served on MedAvail’s board of directors since August 2020. Since September 2017, Mr. Kramer has been an Operating Partner at CRG LP, a healthcare-focused investment firm, where he focuses on medical device investments. Since September 2017, Mr. Kramer has also served as Chief Financial Officer for Eximis Surgical, Inc., a medical device company developing technology for performing minimally invasive specimen removal in laparoscopic surgery. From to February 2016 to February 2017, Mr. Kramer served as Chief Operating Officer of the TriVascular operations of Endologix, Inc., a medical device company focused on developing minimally invasive technologies for aortic disorders. Prior to TriVascular, Inc.’s acquisition by Endologix, from 2010 to 2016, Mr. Kramer served as TriVascular’s Chief Financial Officer. From 2006 to 2010 Mr. Kramer held various leadership positions at ATS Medical, Inc., a developer and manufacturer of products and services focused on cardiac surgery, including serving as ATS’s Chief Financial Officer from 2007 to 2010. Mr. Kramer also previously served as a manager in the assurance and advisory services practice at Ernst & Young LLP. From August 2018 to August 2020, Mr. Kramer served as Executive Chairman of Benvenue Medical, Inc., a private medical device company. Mr. Kramer received his Bachelor of Accountancy from the University of North Dakota. Mr. Kramer is a certified public accountant (inactive). MedAvail believes that Mr. Kramer’s extensive experience as an executive in publicly traded healthcare companies, his broad experience as an investor in medical device companies, as well as his finance experience qualify him to serve on the Company’s board of directors.
Executive Officers
Each of our executive officers serves at the discretion of our board of directors and holds office until his successor is duly elected and qualified or until his earlier resignation or removal.
Board of Directors
In accordance with the Amended and Restated Certificate of Incorporation of the Company, the Board is divided into three classes, each comprising as nearly as possible one-third of the directors and serving three-year terms with only one class of directors being elected in each year. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election or until their earlier death, resignation or removal. Our directors are divided among the three classes as follows:
•Class I directors are Messrs. Kilroy and van Hamel Platerink, and their terms will expire at the Company’s annual meeting of stockholders to be held in 2021;
•Class II directors are Ms. Ciesielski and Mr. Gradwell, and their terms will expire at the Company’s annual meeting of stockholders to be held in 2022; and
•Class III directors are Messrs. Faulkner, Stettin and Kramer, and their terms will expire at the Company’s annual meeting of stockholders to be held in 2023.
There are no family relationships among any of our directors or executive officers.
Director Independence
The Board has determined that each of its directors other than Ed Kilroy, Gerard van Hamel Platerink and Rob Faulkner is independent as defined under Nasdaq listing standards. The Board has also determined that each current member of the Nominating and Governance Committee is independent as defined under the Nasdaq listing standards, and that each current member of the Audit Committee and Compensation Committee is independent as defined under the Nasdaq listing standards and applicable SEC rules. In making this determination, the Company’s Board found that none of these directors had a material or other disqualifying relationship with the Company.
Committees of the Board of Directors
Effective upon the Business Combination Closing, the standing committees of the Board consist of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee.
Audit Committee
The Audit Committee of the Board was established by the Company’s board of directors in accordance with Section 3(a)(58)(A) of the Exchange Act to oversee the Company’s corporate accounting and financial reporting processes and audits of its financial statements. For this purpose, the Audit Committee performs several functions, including, among other things:
•appointing and providing for the compensation of the independent registered public accounting firm to be engaged to prepare and issue an audit report and perform other audit, review or attest services;
•approving any other permissible non-audit services to be provided by the independent auditor;
•overseeing the work and evaluating the performance of the independent auditor, and, if so determined by the audit committee, terminating and replacing the independent auditor;
•reviewing and discussing, including with management and the independent auditor, the annual and quarterly financial statements;
•reviewing any proposed significant changes to accounting principles and practices;
•reviewing any material changes to the system of internal control over financial reporting;
•reviewing management’s report on effectiveness of internal control over financial reporting and, if applicable, the independent auditor’s audit of the effectiveness of Mast’s internal control over financial reporting;
•establishing a procedure for receipt, retention and treatment of any complaints or concerns received by the Company about accounting, internal accounting controls or auditing matters;
•reviewing, approving and overseeing any related party transaction that would require disclosure pursuant to Item 404 of Regulation S-K;
•overseeing the implementation and enforcement of the Company’s insider trading policy; and
•reviewing and evaluating any significant financial risk exposures facing the Company and the steps the Company’s management has taken to control and monitor such exposures.
The Company’s management has the primary responsibility for its consolidated financial statements and the reporting process including its system of internal accounting and financial controls.
The Audit Committee consists of Mr. Kramer, who serves as its chairperson, and Mr. Gradwell and Ms. Ciesielski. The Board reviews the Nasdaq listing standards definition of independence for Audit Committee members on an annual basis and has determined that all current members of the Audit Committee are independent (as independence is currently defined by listing standards and Rule 10A-3 of the Exchange Act.
The Board has also determined that Mr. Kramer qualifies as an “audit committee financial expert,” as defined in applicable SEC rules. The Board made a qualitative assessment of Mr. Kramer’s level of knowledge and experience based on a number of factors, including his formal education and experience in financial roles.
Compensation Committee
The Compensation Committee of the Board acts on behalf of the Board to review, adopt or recommend for adoption, and oversee Company’s compensation strategy, policies, plans and programs. For this purpose, the Compensation Committee performs several functions, including, among other things:
•reviewing and recommending to the Board for its determination and approval the amount, form and terms of compensation of the Company’s Chief Executive Officer and other “officers” (as such term is defined under the Nasdaq listing standards);
•reviewing and making recommendations to the Board regarding the Company’s overall compensation strategy and policies;
•reviewing and making recommendations regarding the Company’s equity and/or cash incentive plans and other benefit plans and, to the extent as may be permitted or required under such plans, the committee has the power and authority to administer the plans, establishes guidelines, interpret plan documents, select participants, and approve grants and awards thereunder;
•granting equity awards to non-officer employees and consultants in accordance with the terms of the Company’s equity incentive plan and to establish compensation policies and practices applicable to non-officer employees;
•evaluating the relationship between executive officer compensation policies and practices and corporate risk management to confirm those policies and practices do not incentivize excessive risk-taking;
•evaluating and making recommendations to the Board regarding the compensation of non-employee directors;
•retaining, obtaining the advice of, engaging, compensating and terminating compensation consultants, legal counsel and such other advisors as it deems necessary and advisable to assist it in carrying out its responsibilities and functions; and
•appointing, compensating and overseeing the work of any of its compensation consultants, legal counsel and other advisors.
The Compensation Committee consists of Mr. Stettin who serves as its chairperson, and Mr. Kramer. All members of the Compensation Committee are independent as independence is currently defined under the Nasdaq listing standards and Rule 10C-1 of the Exchange Act.
Compensation Committee Interlocks and Insider
Each member of the Compensation Committee is an “outside” director as that term is defined in Section 162(m) of the Internal Revenue Code, a “non-employee” director within the meaning of Rule 16b-3 of the rules promulgated under the Exchange Act and independent within the meaning of the independent director guidelines of Nasdaq. None of the Company’s executive officers serve as a member of the board of directors or compensation committee of any entity that has one or more executive officers who serves on the Company’s board of directors or Compensation Committee.
Nominating and Corporate Governance Committee
The Nominating and Governance Committee of the Board is responsible for identifying, reviewing and evaluating candidates to serve as directors of the Company (consistent with criteria approved by the Board), reviewing and evaluating incumbent directors, selecting or recommending to the Board for selection candidates for
election to the Board, making recommendations to the Board regarding the membership of the committees of the Board, assessing the performance of the Board, and developing a set of corporate governance principles for the Company. The responsibilities of the Nominating and Governance Committee relating to the nomination of directors include, among other things, the following:
•identifying and recommending to the Board nominees for possible election to the Company’s board of directors;
•evaluating and making recommendations to the Board regarding its size, composition and leadership structure;
•reviewing and assessing the Company’s corporate governance guidelines and recommending any proposed changes thereto to the Board;
•reviewing and making recommendations to the Board regarding issues of executive officer succession planning and providing oversight with respect to corporate governance matters.
Our board of directors has delegated to the corporate governance and nominating committee the responsibility of identifying individuals qualified to become board members and recommending to the board of directors nominees to fill vacancies and newly created directorships and the nominees to stand for election as directors. If the corporate governance and nominating committee determines that an additional or replacement director is required, it may take such measures that it considers appropriate in connection with its evaluation of a director candidate, including candidate interviews, inquiry of the person or persons making the recommendation or nomination, engagement of an outside search firm to gather additional information, or reliance on the knowledge of the members of the committee, the board of directors or management.
In its evaluation of director candidates, including the members of the board of directors eligible for reelection, the corporate governance and nominating committee will consider the current size and composition of the board of directors and the needs of the board of directors and its committees. Some of the factors that our corporate governance and nominating committee considers include, without limitation, character, integrity, judgment, diversity, including diversity in terms of gender, race, ethnicity and experience, independence, area of expertise, corporate experience, length of service, potential conflicts of interest, other commitments and similar factors.
Nominees must also have the highest personal and professional ethics and integrity, proven achievement and competence in the nominee’s field and the ability to exercise sound business judgment, skills that are complementary to those of the existing board of directors, the ability to assist and support management and make significant contributions to the Company’s success, and an understanding of the fiduciary responsibilities that are required of a member of the board of directors and the commitment of time and energy necessary to diligently carry out those responsibilities.
A stockholder that wants to recommend a candidate for election to the Board should direct the recommendation in writing by letter to the Company, attention of the Corporate Secretary, at 6665 Millcreek Dr. Unit 1, Mississauga ON Canada, L5N 5M4. The recommendation must include the candidate’s name, home and business contact information, detailed biographical data, relevant qualifications, a signed letter from the candidate confirming willingness to serve, information regarding any relationships between the candidate and the Company and evidence of the recommending stockholder’s ownership of Company stock. Such recommendations must also include a statement from the recommending stockholder in support of the candidate, particularly within the context of the criteria for board membership. In addition, a stockholder must meet the deadlines and other requirements set forth in the Company’s bylaws. The corporate governance and nominating committee will consider candidates recommended by stockholders in the same manner as candidates recommended to the committee from other sources.
Director Compensation
The Board has not approved a director compensation program to date. Following the consummation of the Business Combination, the compensation committee of the Board will determine the annual compensation of outside directors. The Company anticipates that its director compensation program following the Business Combination will
include both equity and cash components, be competitive with relevant comparison companies and support best practices in director compensation design.
Executive Compensation
The compensation of the Company’s named executive officers is set forth on page 232 in the section titled “Management Following the Merger - Executive Compensation” in the Proxy Statement/Prospectus and is incorporated herein by reference.
Employment and Severance Agreements
The information set forth on page 233 in the section titled “Management Following the Merger - Employment and Severance Agreements” in the Proxy Statement/Prospectus and is incorporated herein by reference.
Potential Payments Upon Termination of Employment or Change in Control
The information set forth on page 234 in the section titled “Management Following the Merger - Potential Payments Upon Termination of Employment or Change in Control” in the Proxy Statement/Prospectus and is incorporated herein by reference.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF THE COMPANY
The information set forth on page 235 in the section titled “Certain Relationships and Related Party Transactions of MedAvail” in the Proxy Statement/Prospectus and is incorporated herein by reference.
Indemnification Agreements
The information set forth under Item 1.01 of this Current Report on Form 8-K concerning indemnification agreements between the Company and each of its directors and officers is incorporated herein by reference.
Related Party Transactions Policy
Our audit committee maintains the primary responsibility for reviewing and approving or disapproving “related person transactions,” which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. The charter of our audit committee provides that our audit committee shall review and approve in advance any related person transaction.
Our related person transaction policy provides that we are not permitted to enter into any transaction that exceeds $120,000 and in which any related person has a direct or indirect material interest without the consent of our audit committee. In approving or rejecting any such transaction, our audit committee is to consider the relevant facts and circumstances available and deemed relevant to our audit committee, including whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The information set forth under Item 1.01 of this Current Report on Form 8-K concerning indemnification agreements between the Company and each of its directors and officers is incorporated herein by reference.
We have entered into separate indemnification agreements with each of our directors and executive officers, in addition to the indemnification provided for in our amended and restated certificate of incorporation and amended and restated bylaws. The indemnification agreements and our amended restated certificate of incorporation and amended and restated bylaws require us to indemnify our directors, executive officers and certain controlling persons to the fullest extent permitted by Delaware law.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth in the section titled “Market Price and Dividend Information” on page 39 of the Proxy Statement/Prospectus i incorporated herein by reference.
Dividends of the Company
The Company has not paid any cash dividends on shares of its Common Stock to date. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of the Business Combination. The payment of any cash dividends subsequent to the Business Combination will be within the discretion of the Board. The Company does not anticipate paying any dividends on its Common Stock for the foreseeable future.
DESCRIPTION OF REGISTRANT’S SECURITIES
The information set forth in the section titled “Description of MYOS Capital Stock” beginning on page 247 of the Proxy Statement/Prospectus is incorporated herein by reference.
r
FINANCIAL STATEMENTS AND EXHIBITS
The information set forth under Item 9.01 of this Current Report on Form 8-K is incorporated herein by reference.
Consolidated Financial Statements (Unaudited)
MEDAVAIL, INC.
Consolidated Balance Sheets
(US Dollars in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2020
|
|
2019
|
|
(unaudited)
|
|
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents (note 5)
|
$
|
2,090
|
|
|
$
|
8,791
|
|
Restricted cash (note 5)
|
57
|
|
|
58
|
|
Accounts receivable
|
659
|
|
|
416
|
|
Inventories (net of allowance for obsolete inventory) (note 6)
|
3,655
|
|
|
4,594
|
|
Prepaid expenses and other current assets
|
310
|
|
|
229
|
|
Total current assets
|
6,771
|
|
|
14,088
|
|
Property, plant and equipment (note 6)
|
3,663
|
|
|
2,703
|
|
Right-of-use assets (note 7)
|
1,072
|
|
|
1,050
|
|
Other assets
|
208
|
|
|
92
|
|
Intangible assets (note 6)
|
3
|
|
|
70
|
|
Total assets
|
$
|
11,717
|
|
|
$
|
18,003
|
|
Liabilities and Shareholders’ Deficit
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable and accrued liabilities (note 6)
|
$
|
4,839
|
|
|
$
|
2,345
|
|
Short-term debt (note 8)
|
21,743
|
|
|
—
|
|
Contract liability (note 9)
|
110
|
|
|
4,804
|
|
Current portion of finance and operating lease obligation (note 7)
|
644
|
|
|
526
|
|
Total current liabilities
|
27,336
|
|
|
7,675
|
|
Long-term debt (note 8)
|
—
|
|
|
12,476
|
|
Long-term portion of finance and operating lease obligations (note 7)
|
573
|
|
|
565
|
|
Other liabilities
|
—
|
|
|
448
|
|
Total liabilities
|
27,909
|
|
|
21,164
|
|
Commitments and contingencies (note 12)
|
|
|
|
Redeemable preferred shares ($0.001 par value, 16,638,421 shares authorized, 10,603,219 and 10,500,440 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively) (note 13)
|
94,272
|
|
|
93,484
|
|
Shareholders’ deficit: (note 13)
|
|
|
|
Common shares ($0.001 par value, 24,000,000 shares authorized, 1,219,310 and 1,193,698 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively)
|
8
|
|
|
8
|
|
Warrants
|
1,320
|
|
|
698
|
|
Additional paid-in-capital
|
31,103
|
|
|
30,829
|
|
Accumulated other comprehensive loss
|
(6,951)
|
|
|
(6,950)
|
|
Accumulated deficit
|
(135,944)
|
|
|
(121,230)
|
|
Total shareholders’ deficit
|
(110,464)
|
|
|
(96,645)
|
|
Total liabilities, redeemable preferred shares and shareholders’ deficit
|
$
|
11,717
|
|
|
$
|
18,003
|
|
The accompanying notes are an integral part of these financial statements.
MEDAVAIL, INC.
Consolidated Statements of Operations
(US Dollars in thousands, except share and per-share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Revenues:
|
|
|
|
|
|
|
|
Pharmacy and hardware revenues (note 9)
|
$
|
3,926
|
|
|
$
|
896
|
|
|
$
|
7,587
|
|
|
$
|
2,009
|
|
Service revenues (note 9)
|
3,219
|
|
|
30
|
|
|
3,281
|
|
|
301
|
|
Total revenues
|
7,145
|
|
|
926
|
|
|
10,868
|
|
|
2,310
|
|
Cost of sales:
|
|
|
|
|
|
|
|
Pharmacy and hardware cost of sales
|
2,132
|
|
|
701
|
|
|
5,343
|
|
|
1,561
|
|
Service cost of sales
|
30
|
|
|
22
|
|
|
116
|
|
|
61
|
|
Total cost of sales
|
2,162
|
|
|
723
|
|
|
5,459
|
|
|
1,622
|
|
Gross profit
|
4,983
|
|
|
203
|
|
|
5,409
|
|
|
688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses (note 10)
|
4,376
|
|
|
4,314
|
|
|
12,535
|
|
|
11,278
|
|
Selling, general and administrative expenses
|
1,251
|
|
|
1,509
|
|
|
3,850
|
|
|
4,421
|
|
Merger expenses (note 14)
|
1,324
|
|
|
—
|
|
|
2,607
|
|
|
—
|
|
Share-based payments
|
65
|
|
|
90
|
|
|
235
|
|
|
283
|
|
Operating loss
|
(2,033)
|
|
|
(5,710)
|
|
|
(13,818)
|
|
|
(15,294)
|
|
Interest expense - net
|
455
|
|
|
169
|
|
|
896
|
|
|
528
|
|
Loss before income taxes
|
(2,488)
|
|
|
(5,879)
|
|
|
(14,714)
|
|
|
(15,822)
|
|
Income tax (note 11)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net loss
|
$
|
(2,488)
|
|
|
$
|
(5,879)
|
|
|
$
|
(14,714)
|
|
|
$
|
(15,822)
|
|
Net loss per share - basic and diluted (note 4)
|
$
|
(1.53)
|
|
|
$
|
(4.58)
|
|
|
$
|
(9.59)
|
|
|
$
|
(12.41)
|
|
Weighted average shares outstanding - basic and diluted
|
1,623,235
|
|
1,285,027
|
|
1,535,080
|
|
1,274,937
|
The accompanying notes are an integral part of these financial statements.
MEDAVAIL, INC.
Consolidated Statements of Comprehensive Loss
(US Dollars in thousands, except per-share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net loss
|
$
|
(2,488)
|
|
|
$
|
(5,879)
|
|
|
$
|
(14,714)
|
|
|
$
|
(15,822)
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
(2)
|
|
|
(1)
|
|
|
(17)
|
|
Total comprehensive loss
|
$
|
(2,488)
|
|
|
$
|
(5,877)
|
|
|
$
|
(14,713)
|
|
|
$
|
(15,805)
|
|
The accompanying notes are an integral part of these financial statements.
MEDAVAIL, INC.
Consolidated Statements of Shareholders' Deficit and Redeemable Preferred Shares
(US Dollars in thousands, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three and Nine Months Ended September 30, 2020
|
|
Common Shares
|
|
Preferred Shares
|
Warrants
|
|
Additional Paid-in-Capital
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive Loss
|
|
Total Equity and Temporary Equity
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance at December 31, 2019
|
1,193,698
|
|
|
$
|
8
|
|
|
10,500,440
|
|
|
$
|
93,484
|
|
|
$
|
698
|
|
|
$
|
30,829
|
|
|
$
|
(121,230)
|
|
|
$
|
(6,950)
|
|
|
$
|
(3,161)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,226)
|
|
|
—
|
|
|
(12,226)
|
|
Common shares issued (note 13)
|
15,668
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
—
|
|
|
31
|
|
Preferred shares issued (note 13)
|
—
|
|
|
—
|
|
|
102,777
|
|
|
788
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
788
|
|
Share-based payments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
170
|
|
|
—
|
|
|
—
|
|
|
170
|
|
Warrants issued (note 13)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
617
|
|
|
(11)
|
|
|
—
|
|
|
—
|
|
|
606
|
|
Cumulative translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
(1)
|
|
Balance at June 30, 2020
|
1,209,366
|
|
|
$
|
8
|
|
|
10,603,217
|
|
|
$
|
94,272
|
|
|
$
|
1,315
|
|
|
$
|
31,019
|
|
|
$
|
(133,456)
|
|
|
$
|
(6,951)
|
|
|
$
|
(13,793)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,488)
|
|
|
—
|
|
|
(2,488)
|
|
Common shares issued (note 13)
|
9,944
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
19
|
|
Preferred shares issued (note 13)
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Share-based payments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
65
|
|
|
—
|
|
|
—
|
|
|
65
|
|
Warrants issued (note 13)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2020
|
1,219,310
|
|
|
$
|
8
|
|
|
10,603,219
|
|
|
$
|
94,272
|
|
|
$
|
1,320
|
|
|
$
|
31,103
|
|
|
$
|
(135,944)
|
|
|
$
|
(6,951)
|
|
|
$
|
(16,192)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three and Nine Months Ended September 30, 2019
|
|
Common Shares
|
|
Preferred Shares
|
Warrants
|
|
Additional Paid-in-Capital
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive Loss
|
|
Total Equity and Temporary Equity
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance at December 31, 2018
|
1,175,982
|
|
|
$
|
8
|
|
|
7,479,862
|
|
|
$
|
68,533
|
|
|
$
|
191
|
|
|
$
|
30,947
|
|
|
$
|
(99,697)
|
|
|
$
|
(6,931)
|
|
|
$
|
(6,949)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,943)
|
|
|
—
|
|
|
(9,943)
|
|
Common shares issued (note 13)
|
380
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Preferred shares issued (note 13)
|
—
|
|
|
—
|
|
|
957,813
|
|
|
7,924
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,924
|
|
Share-based payments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
197
|
|
|
—
|
|
|
—
|
|
|
197
|
|
Warrants issued (note 13)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
89
|
|
|
(89)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cumulative translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15)
|
|
|
(15)
|
|
Balance at June 30, 2019
|
1,176,362
|
|
|
$
|
8
|
|
|
8,437,675
|
|
|
$
|
76,457
|
|
|
$
|
280
|
|
|
$
|
31,056
|
|
|
$
|
(109,640)
|
|
|
$
|
(6,946)
|
|
|
$
|
(8,785)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,879)
|
|
|
—
|
|
|
(5,879)
|
|
Common shares issued (note 13)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
35
|
|
Preferred shares issued (note 13)
|
—
|
|
|
—
|
|
|
1,124,813
|
|
|
9,275
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,275
|
|
Share-based payments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
86
|
|
|
—
|
|
|
—
|
|
|
86
|
|
Cumulative translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
(2)
|
|
Balance at September 30, 2019
|
1,176,362
|
|
|
$
|
8
|
|
|
9,562,488
|
|
|
$
|
85,732
|
|
|
$
|
280
|
|
|
$
|
31,177
|
|
|
$
|
(115,519)
|
|
|
$
|
(6,948)
|
|
|
$
|
(5,270)
|
|
The accompanying notes are an integral part of these financial statements.
MEDAVAIL, INC.
Consolidated Statement of Cash Flows
(US Dollars in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
Cash flows from operating activities:
|
|
Net loss
|
$
|
(14,714)
|
|
|
$
|
(15,822)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
Depreciation of property, plant, and equipment
|
722
|
|
|
500
|
|
Amortization of intangible assets
|
69
|
|
|
732
|
|
Loss on disposal of asset
|
90
|
|
|
—
|
|
Right-of-use asset impairment
|
—
|
|
|
37
|
|
Interest accretion on debt and finance leases
|
808
|
|
|
556
|
|
Non-cash lease expense
|
(15)
|
|
|
—
|
|
Amortization of deferred financing costs
|
34
|
|
|
—
|
|
Unrealized foreign currency (loss)
|
(1)
|
|
|
(17)
|
|
Share-based compensation expense
|
235
|
|
|
283
|
|
Changes in operating assets and liabilities:
|
|
|
|
(Increase) in accounts receivable
|
(243)
|
|
|
(269)
|
|
(Increase) in inventory
|
(224)
|
|
|
(337)
|
|
(Increase) in prepaid expenses and other current assets
|
(173)
|
|
|
(54)
|
|
Increase (decrease) in accounts payable
|
2,442
|
|
|
(165)
|
|
Increase in accrued expenses and other liabilities
|
—
|
|
|
28
|
|
(Decrease) in contract liability
|
(4,694)
|
|
|
(251)
|
|
Net cash used in operating activities
|
(15,664)
|
|
|
(14,779)
|
|
Cash flows from investing activities:
|
|
|
|
Purchase of property, plant and equipment
|
(431)
|
|
|
(416)
|
|
|
|
|
|
Net cash used in investing activities
|
(431)
|
|
|
(416)
|
|
Net cash flows from financing activities:
|
|
|
|
Issuance of debt
|
8,118
|
|
|
—
|
|
Issuance of preferred shares
|
788
|
|
|
17,199
|
|
Issuance of common shares
|
50
|
|
|
35
|
|
Proceeds from PPP loan
|
341
|
|
|
—
|
|
Deferred financing costs
|
(58)
|
|
|
—
|
|
|
|
|
|
Warrant issued
|
162
|
|
|
—
|
|
Payments on financing lease obligations
|
(8)
|
|
|
—
|
|
Net cash provided by financing activities
|
9,393
|
|
|
17,234
|
|
Net (decrease) increase in cash, cash equivalents, and restricted cash
|
(6,702)
|
|
|
2,039
|
|
Cash, cash equivalents, and restricted cash at beginning of period
|
8,849
|
|
|
3,811
|
|
Cash, cash equivalents, and restricted cash at end of period
|
$
|
2,147
|
|
|
$
|
5,850
|
|
Supplemental cash flow disclosures:
|
|
|
|
Cash paid for operating lease payments
|
$
|
531
|
|
|
$
|
351
|
|
Supplemental noncash investing and financing activities:
|
|
|
|
Operating lease assets obtained in exchange for operating lease liabilities
|
$
|
470
|
|
|
$
|
302
|
|
Property acquired through finance lease obligations
|
$
|
154
|
|
|
$
|
—
|
|
Purchases of property, plant and equipment in accounts payable
|
$
|
105
|
|
|
$
|
8
|
|
The accompanying notes are an integral part of these financial statements.
NOTE 1 - NATURE OF OPERATIONS
MedAvail, Inc. ("MedAvail" or “the Company”) is a telehealth-enabled pharmacy technology company that has developed and commercialized an innovative self-service pharmacy, mobile application, kiosk and drive-thru solution. MedAvail's principal technology and product is the MedCenter, a pharmacist controlled, customer-interactive, prescription dispensing system akin to a “pharmacy in a box” or prescription-dispensing ATM. The MedCenter facilitates live pharmacist counselling via two-way audio-video communication with the ability to dispense prescription medicines under pharmacist control. MedAvail also operates SpotRx (the “Pharmacy”), a full-service retail pharmacy utilizing the Company’s automated pharmacy technology.
NOTE 2 - GOING CONCERN
The consolidated financial statements for the three and nine months ended September 30, 2020 and 2019 were prepared on the basis of a going concern which contemplates that the Company will be able to realize assets and discharge liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should the Company be required to liquidate its assets. The ability of the Company to meet its total liabilities of $27.9 million at September 30, 2020, including $13.0 million of convertible debt due in 2021 and $8.4 million of convertible debt due in 2020, and to continue as a going concern is dependent upon the availability of future funding, continued growth in orders, and the Company’s ability to profitably meet its after-sale service commitments with its existing customers. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Relevant accounting standards require that management make a determination as to whether or not substantial doubt exists as to our ability to continue as a going concern. If substantial doubt does exist management should determine if there are plans in place which alleviate that doubt. Management has determined that there is not substantial doubt as to the Company’s ability to continue as a going concern. The Company has received $83.9 million cash (before expenses related to the offering and merger) from private placement financing related to the reverse merger discussed in Note 3, and which funding will convert into common equity immediately subsequent to the merger. The net cash from the offering and merger will provide liquidity for the Company to support operations and growth for longer than the next 12 months.
NOTE 3 - BASIS OF PRESENTATION
Basis of Presentation
The accompanying unaudited consolidated financial statements of MedAvail, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Such financial statements consequently do not include all of the disclosures normally required by U.S. GAAP for annual financial statements or those normally made in MedAvail’s annual financial statements, including the condensed consolidated balance sheet as of December 31, 2019 which was derived from the audited consolidated financial statements at that date. Accordingly, readers of these quarterly financial statements should refer to the Company’s annual financial statements for the fiscal year ended December 31, 2019 for additional information. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company's financial position, results of operations and cash flows for the periods indicated.
The preparation of the consolidated financial statements and related disclosures require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Estimates are used in accounting for, among other things, revenue recognition, contract loss accruals, excess, slow-moving and obsolete inventories, product warranty accruals, loss accruals on service agreements, share-based compensation expense, allowance for doubtful accounts, depreciation and amortization and in-process research and development intangible assets, impairment of long-lived assets and contingencies. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed to be necessary.
Amounts presented in these consolidated financial statements are in United States dollars unless otherwise indicated.
Correction of an Error
During the three months ended September 30, 2020, management determined that there was an error in the first and second quarter of 2020. Specifically, Direct and Indirect Remuneration (DIR) fees associated with medications dispensed in the first and second quarters of 2020 were not appropriately estimated and expensed. For the six months ended June 30, 2020, those DIR fees totaled $182 thousand, with $80 thousand for the three months ended March 31, 2020 and $102 thousand for the three months ended June 30, 2020. The interim consolidated financial statements for the first and second quarter of 2020 will be revised to correct this error when these periods are presented as comparatives to the first and second quarter of 2021.
Corrections made to the six months ended June 30, 2020 (in thousands, except per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Previously Reported
|
|
Revision
|
|
After Revision
|
Total sales
|
$
|
3,905
|
|
|
$
|
(182)
|
|
|
$
|
3,723
|
|
Gross margin
|
$
|
608
|
|
|
$
|
(182)
|
|
|
$
|
426
|
|
Income tax
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net loss
|
$
|
(12,044)
|
|
|
$
|
(182)
|
|
|
$
|
(12,226)
|
|
Loss per share
|
$
|
(8.03)
|
|
|
$
|
(0.12)
|
|
|
$
|
(8.15)
|
|
Merger Agreement and Private Placement Financing
On June 30, 2020, MYOS RENS Technology Inc., a Nevada corporation (“MYOS”), and MedAvail, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), by and among MYOS, MedAvail, and Matrix Merger Sub, Inc., a newly-created wholly-owned subsidiary of MYOS (“Merger Sub”), pursuant to which, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into MedAvail, with MedAvail being the surviving corporation and a wholly-owned subsidiary of MYOS (the “Merger”). The Boards of Directors of MYOS and MedAvail have both approved the Merger and have recommended approval of the Merger by their respective shareholders.
Immediately prior to the merger, Private Placement Shares were sold to certain subscribers in a total of $83.9 million. These shares will convert to common shares of the Post-Merger Public Company shares immediately following the merger.
At the effective time of the Merger (the “Effective Time”): (a) each share of MedAvail’s common stock and each share of MedAvail’s preferred stock outstanding immediately prior to the Effective Time, excluding any dissenting shares, will be automatically converted solely into the right to receive a number of shares of MYOS common stock (“MYOS Common Stock”) calculated according to the exchange ratio described below; (b) each outstanding MedAvail stock option that has not been exercised prior to the Effective Time will be assumed by MYOS; and (c) each outstanding warrant to acquire MedAvail capital stock that has not been exercised prior to the Effective Time will be assumed by MYOS. Under the exchange ratio formula in the Merger Agreement, as of immediately after the Merger, the former MedAvail security holders are expected to own approximately 97.2% of the aggregate number of fully-diluted shares of MYOS Common Stock outstanding following the consummation of the Merger (the “Post-Closing Shares”), and the shareholders of MYOS immediately prior to the Merger are expected to own approximately 2.8% of the Post-Closing Shares, subject to the adjustments set forth in the Merger Agreement. The exchange ratio will be fixed prior to the closing of the Merger to reflect MYOS’s and MedAvail’s respective capitalizations as of immediately prior to the Effective Time. The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.
Immediately following the Merger, the name of the post-merger combined company (the “Post-Merger Combined Company”) is expected to be changed from “MYOS RENS Technology Inc.” to “MedAvail Holdings, Inc.” The Merger Agreement provides that the Board of Directors of the Post-Merger Combined Company will consist of members who are currently directors of MedAvail. The executive officers of the Post-Merger Combined Company will be designated by MedAvail, and are expected to be MedAvail’s current executive officers.
Principles of consolidation
The consolidated financial statements include the accounts of all entities controlled by the Company, which are referred to as subsidiaries. MedAvail Technologies Inc., MedAvail Technologies (US) Inc., MedAvail Pharmacy Inc. and On the Spot Rx. Inc. are all subsidiaries of MedAvail. MedAvail has no interests in variable interest entities of which MedAvail is the primary beneficiary. All intercompany balances and transactions have been eliminated.
Government Grants
The Company accounts for government grants and loans as debt until it is reasonably assured that all or a portion of the loan will be forgiven, often indicated by a notice received from the government agency in question that the amount has been forgiven. At that time, the amount that is forgiven is converted from debt and recognized as grant income. The Company does not impute interest on that loan, if the rate is determined to be a below-market rate due to the scope exemption for government-mandated interest rates.
Lease Revenue
MedAvail provides its MedCenter units to customers on a contract that includes use of the MedCenter, along with a software license and maintenance agreement. Agreements for such leases to date have been determined to be operating leases and have been recorded following lessor guidance for operating leases. The portion of the consideration in the contract related to the MedCenter is considered lease revenue and the MedCenters leased to customers are carried on the Company’s balance sheets as fixed assets and depreciated. For the three and nine months ending September 30, 2020, lease revenue was $115 thousand and $343 thousand, respectively, within the Pharmacy and hardware revenues financial statement line on the Statement of Operations.
Pharmacy Revenue
The Company recognizes revenue, net of taxes and expected returns, at the time it sells merchandise or dispenses prescription drugs to the customer. The Company estimates revenue based on expected reimbursements from third-party payers (e.g., pharmacy benefit managers, insurance companies and governmental agencies), net of any fees from such payers, for dispensing prescription drugs. The estimates are based on all available information including historical experience and are updated to actual reimbursement amounts.
Recently Adopted Accounting Standards
Disclosure Requirements for Certain Employer-Sponsored Benefit Plans
In August 2018, the FASB issued ASU 2018-14 related to the disclosure requirements for employers that sponsor defined benefit pension and other postretirement benefit plans. The guidance requires sponsors of these plans to provide additional disclosures, including weighted-average interest rates used in the Company’s cash balance plans and a narrative description of reasons for any significant gains or losses impacting the benefit obligation for the period. Additionally, this guidance eliminates certain previous disclosure requirements. This ASU will be effective beginning in the first quarter of our fiscal year 2020. This guidance must be applied on a retrospective basis to all periods presented. The Company sponsors a 401K retirement plans for its employees with no company match, but does not currently offer defined benefit pension or other postretirement plans, therefore the guidance did not have an effect on the Company’s disclosures.
Fair Value Measurement Disclosures
In August 2018, the FASB issued ASU 2018-13 related to fair value measurement disclosures. This ASU removes the requirement to disclose the amount of and reasons for transfers between Levels 1 and 2 of the fair value
hierarchy, the policy for determining that a transfer has occurred, and valuation processes for Level 3 fair value measurements. Additionally, this ASU modifies the disclosures related to the measurement uncertainty for recurring Level 3 fair value measurements (by removing the requirement to disclose sensitivity to future changes) and the timing of liquidation of investee assets (by removing the timing requirement in certain instances). The guidance also requires new disclosures for Level 3 financial assets and liabilities, including the amount and location of unrealized gains and losses recognized in other comprehensive income/(loss) and additional information related to significant unobservable inputs used in determining Level 3 fair value measurements. This ASU is effective beginning in the first quarter of our fiscal year 2020. There was no material impact to our financial statement disclosures as a result of adopting the provisions related to removing disclosures.
Implementation Costs Incurred in Hosted Cloud Computing Service Arrangements
In August 2018, the FASB issued ASU 2018-15 related to accounting for implementation costs incurred in hosted cloud computing service arrangements. Under the new guidance, implementation costs incurred in a hosting arrangement that is a service contract should be expensed or capitalized based on the nature of the costs and the project stage during which such costs are incurred. If the implementation costs qualify for capitalization, they must be amortized over the term of the hosting arrangement and assessed for impairment. Companies must disclose the nature of any hosted cloud computing service arrangements. This ASU also provides guidance for balance sheet and income statement presentation of capitalized implementation costs and statement of cash flows presentation for the related payments. This ASU was effective beginning in the first quarter of the Company’s fiscal year 2020. This guidance may be adopted either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company prospectively adopted this guidance and it did not have a significant impact on our financial statements and related disclosures.
Distinguishing Liabilities from Equity
In July 2017, the FASB issued ASU No. 2017-11 – “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815) Part I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.” Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down round features. Part II simply replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. This ASU is effective for public companies for the annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, with early adoption permitted. The Company adopted this guidance on January 1, 2019. The adoption of this guidance did not have a significant impact on our financial statements and related disclosures.
Recently Issued Accounting Standards Not Yet Adopted
Measurement of Credit Losses on Financial Statements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326)”-Measurement of Credit Losses on Financial Instruments”, (“ASU 2016-13”), supplemented by ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses”, (“ASU 2018-19”). The new standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 became effective for Public Business Entities who are SEC filers for fiscal years beginning after December 15, 2019, other than smaller reporting companies, all other public business entities and private companies, with early adoption permitted. For those entities excluded, ASU 2016-13 will become effective for fiscal years beginning after December 15, 2023. MedAvail is currently evaluating the impact ASU 2016-13 and ASU 2018-19 will have on its consolidated financial statements, specifically regarding trade receivables.
Debt with Conversion and Other Options
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40)-Accounting For Convertible Instruments and Contracts in an Entity's Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for annual and interim periods beginning after December 15, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements and related disclosures
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12 to simplify the accounting in ASC 740, Income Taxes. This guidance removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. This ASU will be effective beginning in the first quarter of our fiscal year 2021. Early adoption is permitted. Certain amendments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. The Company is currently evaluating the impact this ASU will have on its financial statements and related disclosures as well as the timing of adoption.
NOTE 4 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares plus the effect of dilutive potential common shares outstanding during the period. A total of 93,818 warrants were included in the weighted average shares outstanding as of their issuance date of May 9, 2018 due to their exercise price. Additionally, 245,755 and 67,379 warrants issued on February 11, 2020 and June 29, 2020, respectively, were included in weighted average shares outstanding due to their exercise price. During the three and nine months ended September 30, 2020 and 2019, there was no potential dilution from stock options or other warrants due to the Company’s net loss position. The following table sets forth the computation of basic and diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net loss - basic and diluted
|
$
|
(2,488)
|
|
|
$
|
(5,879)
|
|
|
$
|
(14,714)
|
|
|
$
|
(15,822)
|
|
Weighted average shares - basic and diluted
|
1,623,235
|
|
1,285,027
|
|
1,535,080
|
|
1,274,937
|
Net loss per share - basic and diluted
|
$
|
(1.53)
|
|
|
$
|
(4.58)
|
|
|
$
|
(9.59)
|
|
|
$
|
(12.41)
|
|
For the three and nine months ended September 30, 2020 there were a weighted average of 2.2 million option awards outstanding that were not included in the diluted shares calculation. For the three and nine months ended September 30, 2019 there were a weighted average of 1.6 million option awards outstanding that were not included in the diluted shares calculation. This is due to the fact that their inclusion would have been antidilutive and/or because there was a net loss for the period.
NOTE 5 - FAIR VALUE MEASUREMENTS
As of September 30, 2020 and December 31, 2019, our assets and liabilities that were accounted for at fair value were cash and cash equivalents and restricted cash. As of December 31, 2019, liabilities to issue warrants in exchange for a service provided was also accounted for at fair value.
Fair value measurements are categorized in one of the following three levels based on the lowest level input that is significant to the fair value measurement in its entirety:
Level 1- Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2- Observable inputs other than quoted prices in active markets for identical assets or liabilities include:
•quoted prices for similar assets or liabilities in active markets;
•quoted prices for identical or similar assets or liabilities in inactive markets;
•inputs other than quoted prices that are observable for the asset or liability;
•inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3- Inputs to the valuation methodology are unobservable (i.e., supported by little or no market activity) and significant to the fair value measure. The liability to issue warrants as of December 31, 2019 was valued using the Black Scholes model using the same inputs used to value other stock related issues. The liability was presented as Other Liabilities as of December 31, 2019. The liability was settled during the second quarter of 2020. See Note 13 for more details.
Assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy
|
|
September 30, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
2,090
|
|
|
$
|
2,090
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
57
|
|
|
57
|
|
|
—
|
|
|
—
|
|
Total assets
|
$
|
2,147
|
|
|
$
|
2,147
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy
|
|
December 31, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
8,791
|
|
|
$
|
8,791
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
58
|
|
|
58
|
|
|
—
|
|
|
—
|
|
Total assets
|
8,849
|
|
|
8,849
|
|
|
—
|
|
|
—
|
|
Liabilities to issue warrants
|
$
|
448
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
448
|
|
NOTE 6 - BALANCE SHEET INFORMATION
Accounts Payable and Accrued Liabilities
The following table presents details of accounts payable and accrued liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2020
|
|
2019
|
Accounts payable and accrued liabilities:
|
|
|
|
Payroll
|
$
|
1,780
|
|
|
$
|
1,432
|
|
Legal expense accruals
|
1,879
|
|
|
119
|
|
Trade accounts payable
|
631
|
|
|
409
|
|
Other accrued liabilities
|
549
|
|
|
385
|
|
Total accounts payable and accrued liabilities
|
$
|
4,839
|
|
|
$
|
2,345
|
|
Inventory
The following table presents detail of inventory balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2020
|
|
2019
|
Inventory:
|
|
|
|
Raw materials
|
$
|
337
|
|
|
$
|
344
|
|
Finished goods
|
2,540
|
|
|
3,739
|
|
Pharmacy
|
778
|
|
|
511
|
|
Total inventory
|
$
|
3,655
|
|
|
$
|
4,594
|
|
At September 30, 2020, the Company had a balance of approximately $17 thousand in reserve for obsolescence of inventory.
During the three and nine months ended September 30, 2020, $1.9 million and $4.9 million, respectively, of inventory was recognized as pharmacy and hardware cost of sales on the consolidated statement of operations.
Property, Plant and Equipment
The Company’s principal technology product offering is the MedCenter, an interactive prescription dispensing kiosk unit that, when used in combination with the Company’s proprietary software, connects customers live with a pharmacist. MedCenter equipment includes all of the necessary hardware and components that are required to be installed at the kiosk site in order to provide a functional MedCenter kiosk.
The following tables present property, plant and equipment balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
Cost
|
|
Accumulated Depreciation
|
|
Net
|
Property, plant and equipment:
|
|
|
|
|
|
MedCenter equipment
|
$
|
4,359
|
|
|
$
|
1,541
|
|
|
$
|
2,818
|
|
Leasehold improvements
|
762
|
|
|
556
|
|
|
206
|
|
IT equipment
|
2,127
|
|
|
1,745
|
|
|
382
|
|
Software
|
1,701
|
|
|
1,585
|
|
|
116
|
|
Office furniture and equipment
|
317
|
|
|
224
|
|
|
93
|
|
Vehicles
|
54
|
|
|
24
|
|
|
30
|
|
General plant and equipment
|
310
|
|
|
292
|
|
|
18
|
|
Total property, plant and equipment
|
$
|
9,630
|
|
|
$
|
5,967
|
|
|
$
|
3,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Cost
|
|
Accumulated Depreciation
|
|
Net
|
Property, plant and equipment:
|
|
|
|
|
|
MedCenter equipment
|
$
|
3,303
|
|
|
$
|
1,139
|
|
|
$
|
2,164
|
|
Leasehold improvements
|
666
|
|
|
444
|
|
|
222
|
|
IT equipment
|
2,151
|
|
|
1,975
|
|
|
176
|
|
Office furniture and equipment
|
282
|
|
|
203
|
|
|
79
|
|
Vehicles
|
54
|
|
|
18
|
|
|
36
|
|
General plant and equipment
|
310
|
|
|
284
|
|
|
26
|
|
Total property, plant and equipment
|
$
|
6,766
|
|
|
$
|
4,063
|
|
|
$
|
2,703
|
|
The Company recognized $722 thousand of depreciation for the nine months ended September 30, 2020, $147 thousand of which was depreciation in cost of sales.
Intangible Assets
The following table presents intangible asset balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2020
|
|
2019
|
Gross intangible assets:
|
|
|
|
Intellectual property
|
$
|
3,857
|
|
|
$
|
3,857
|
|
Website and mobile application
|
583
|
|
|
583
|
|
Software1
|
—
|
|
|
1,582
|
|
Total intangible assets
|
4,440
|
|
|
6,022
|
|
Accumulated Amortization:
|
|
|
|
Intellectual property
|
(3,857)
|
|
|
(3,857)
|
|
Website and mobile application
|
(580)
|
|
|
(513)
|
|
Software1
|
—
|
|
|
(1,582)
|
|
Total intangible assets
|
(4,437)
|
|
|
(5,952)
|
|
Total net book value
|
$
|
3
|
|
|
$
|
70
|
|
1. The Company determined that certain Software assets were improperly classified as intangible assets at December 31, 2019, and subsequently reclassified these assets as Property, Plant and Equipment assets at September 30, 2020.
The following table presents amortization of intangible assets for the next five years:
|
|
|
|
|
|
|
September 30, 2020
|
2020 (remainder of year)
|
$
|
3
|
|
2021
|
—
|
|
2022
|
—
|
|
2023
|
—
|
|
2024
|
—
|
|
2025
|
—
|
|
Thereafter
|
—
|
|
Total amortization
|
3
|
|
NOTE 7 - LEASES
As discussed in Note 3, the Company adopted new guidance (ASU 2016-02, and subsequent accounting standards updates) for the accounting and reporting of leases, on January 1, 2019. Pursuant to the transition guidance in ASC 842, the Company elected a package of practical expedients which allowed us to not reassess whether our current contracts contain leases, and to retain historical lease classifications for our current leases.
Under ASC 842 transition guidance, the Company elected the hindsight practical expedient to determine the lease term for existing leases, which allowed us to consider available information prior to the effective date of the new guidance as to the actual or likely exercise of options to extend or terminate the lease.
Our accounting policy deems leases with an initial term of 12 months or less short-term leases and such leases are not recorded on our balance sheet. We recognize lease expense for short-term lease payments on a straight-line basis over the term of the lease.
Operating lease right-of-use (“ROU”) assets and lease liabilities are recognized based on the present value of lease payments over the lease term. Because most of our leases do not include an implicit discount rate, we use our incremental borrowing rate to calculate the present value of lease payments. As a practical expedient, the Company made an accounting policy election not to separate lease components (e.g. payments for rent, real estate taxes and insurance costs) from non-lease components (e.g. common-area maintenance costs). As a result, the Company includes both lease and non-lease components to calculate the right-of-use asset and related lease liability (if the non-lease components are fixed).
Certain of the Company’s lease agreements contain variable lease payments that are adjusted periodically for inflation or to adjust estimated amounts for actual operating expenses; these variable amounts are not material. Sublease income is being generated for certain properties and we record our liability separately from those expected inflows. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
We maintain operating leases primarily for manufacturing facilities, research and development facilities, and corporate offices, and finance leases for certain computer equipment. Lease terms include options to extend or terminate leases when it is reasonably certain that the Company will exercise those options. Real estate leases for facilities have an average remaining lease term of 2 – 3 years, which include options to extend the leases for up to two years where applicable.
When no interest rate is stated in a lease, we determine the rate implicit in a lease by using recent borrowing rates, or other methods we think most closely represents our incremental borrowing rate.
We analyze new contracts to determine whether they include leased assets; such leases are referred to as embedded leases. When evaluating contracts for embedded leases, the Company exercises judgment to determine if there is an explicitly or implicitly identified asset in the contract and if MedAvail controls the use of that asset.
Our embedded leases, which are primarily associated with contract manufacturing organizations, are not material.
The Company earns income from the sublease of certain properties. Sublease income for the three and nine months ended September 30, 2020 was $24 thousand and $56 thousand, respectively.
Operating lease expense was $552 thousand and $521 thousand for the nine months ended September 30, 2020 and 2019, respectively, and $196 thousand and $188 thousand for the three months ended September 30, 2020 and 2019, respectively. Supplemental balance sheet information related to operating leases is as follows:
Balance sheet amounts and maturities of operating and finance lease liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2020
|
|
2019
|
Assets
|
$
|
1,072
|
|
|
$
|
1,050
|
|
Liabilities:
|
|
|
|
Operating:
|
|
|
|
Current
|
597
|
|
|
526
|
|
Long-term
|
491
|
|
|
565
|
|
Finance:
|
|
|
|
Current
|
47
|
|
|
—
|
|
Long-term
|
82
|
|
|
—
|
|
Total liabilities
|
$
|
1,217
|
|
|
$
|
1,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2020
|
|
2019
|
Finance leases:
|
|
|
|
Weighted-average remaining lease term (years)
|
2.7
|
|
—
|
|
Weighted-average discount rate
|
9.8
|
%
|
|
—
|
|
Operating leases:
|
|
|
|
Weighted-average remaining lease term (years)
|
2.3
|
|
2
|
%
|
Weighted-average discount rate
|
6.0
|
%
|
|
6.0
|
%
|
Maturities of operating leases liabilities are as follows:
|
|
|
|
|
|
|
September 30, 2020
|
2020 (remainder of year)
|
$
|
192
|
|
2021
|
577
|
|
2022
|
246
|
|
2023
|
118
|
|
2024
|
73
|
|
2025
|
6
|
|
Thereafter
|
—
|
|
Total lease payments
|
1,212
|
|
Less: imputed interest
|
124
|
|
Total leases
|
$
|
1,088
|
|
Maturities of finance lease liabilities are as follows:
|
|
|
|
|
|
|
September 30, 2020
|
2020 (remainder of year)
|
$
|
15
|
|
2021
|
59
|
|
2022
|
59
|
|
2023
|
23
|
|
2024
|
—
|
|
2025
|
—
|
|
Thereafter
|
—
|
|
Total finance lease payments
|
156
|
|
Less: imputed interest
|
20
|
|
Total leases
|
$
|
136
|
|
NOTE 8 - DEBT
The following table presents debt balances at September 30, 2020 and December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2020
|
|
2019
|
Convertible promissory note due March 2021
|
$
|
13,035
|
|
|
$
|
12,476
|
|
Convertible promissory note due December 2020
|
8,366
|
|
|
—
|
|
PPP loan
|
342
|
|
|
—
|
|
Total debt
|
21,743
|
|
|
12,476
|
|
Less Short-term debt
|
21,743
|
|
|
—
|
|
Long-term debt
|
$
|
—
|
|
|
$
|
12,476
|
|
|
|
|
|
|
|
|
|
Interest expense incurred for the three and nine months ended September 30, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Short-term - including accretion
|
$
|
457
|
|
|
$
|
179
|
|
|
$
|
913
|
|
|
$
|
556
|
|
Other interest (income)
|
(2)
|
|
|
(10)
|
|
|
(17)
|
|
|
(28)
|
|
Total interest expense
|
$
|
455
|
|
|
$
|
169
|
|
|
$
|
896
|
|
|
$
|
528
|
|
On March 23, 2016, the Company and a significant customer and investor entered into a subordinated secured convertible promissory five-year note agreement for $10.0 million. This note is convertible into common shares at the holder’s option. Interest of 6% is accumulated and payable on the maturity date at the Company’s option. Unpaid interest is added to the outstanding principal.
Note Offering
On May 26, 2020, the Company completed a convertible notes and warrants offering to certain of its existing investors whereby those investors purchased notes and warrants on a pro rata basis with their existing investments in the Company’s preferred stock. Cash received for the notes and warrants issued through September 30, 2020, was $8.2 million. The note accrues interest at a rate of 10%, payable at maturity or upon conversion with a maturity date of December 31, 2020. After September 30, 2020, the maturity date of the note was extended to June 30, 2021. Financing under this agreement for the three months ending September 30, 2020 totaled $407 thousand.
PPP Loan
On May 14, 2020, the Company entered into a Promissory Note with HSBC Bank, which provides for a loan in the amount of $341 thousand (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The Promissory Note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses, including certain payroll costs, group health care benefits and other permitted expenses as described in the CARES Act. MedAvail intends to use the entire PPP Loan amount for qualifying expenses and to apply for forgiveness of the loan in accordance with the terms of the CARES Act. Management has determined that it is likely that the Company will meet the qualifications necessary for forgiveness and has submitted the required paperwork to apply for forgiveness.
NOTE 9 - REVENUE AND SEGMENT INFORMATION
Disaggregated revenue for the three and nine months ended September 30, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Service Revenues:
|
|
|
|
|
|
|
|
Other revenue
|
$
|
3,185
|
|
|
$
|
—
|
|
|
$
|
3,184
|
|
|
$
|
—
|
|
Software
|
15
|
|
|
—
|
|
|
25
|
|
|
208
|
|
Maintenance and support
|
17
|
|
|
20
|
|
|
40
|
|
|
83
|
|
Professional services
|
2
|
|
|
—
|
|
|
4
|
|
|
—
|
|
Installation
|
—
|
|
|
10
|
|
|
28
|
|
|
10
|
|
Total service revenues
|
3,219
|
|
|
30
|
|
|
3,281
|
|
|
301
|
|
Pharmacy and hardware revenues:
|
|
|
|
|
|
|
|
Retail pharmacy revenue
|
2,185
|
|
|
857
|
|
|
5,196
|
|
|
1,910
|
|
Lease revenue
|
115
|
|
|
39
|
|
|
343
|
|
|
99
|
|
Hardware sales
|
1,626
|
|
|
—
|
|
|
2,048
|
|
|
—
|
|
Total pharmacy and hardware revenues
|
3,926
|
|
|
896
|
|
|
7,587
|
|
|
2,009
|
|
Total revenue
|
$
|
7,145
|
|
|
$
|
926
|
|
|
$
|
10,868
|
|
|
$
|
2,310
|
|
The Company has the following two reportable segments:
Pharmacy Technology Segment
The pharmacy technology segment consists of sales of MedPlatform Systems to customers. These agreements include providing the MedCenter prescription dispensing kiosk, software, and maintenance services. Agreements can be for a predetermined period of time, or indefinite. This generally includes either an initial lump sum payment upon installation of the MedCenter with monthly payments for software and services following, or monthly payments for the MedCenter along with monthly payments for software and maintenance services.
During September 2020, the Company and its significant customer agreed that MedAvail had no further obligation to the customer and therefore would have no additional deliverables related to the $4.7 million of contract liability balance maintained as of June 30, 2020. The Company recognized $4.7 million of contract revenue during the three months ended September 30, 2020. The $4.7 million of contract revenue was recorded as $1.5 million of hardware sales revenue and $3.2 million of other revenue for contract obligations for software programming and hardware development that were in progress but not completed.
Retail Pharmacy Services Segment
Retail pharmacy services segment revenue consists of products sold directly to consumers at the point of sale. MedAvail recognizes retail pharmacy sales revenue, net of taxes and expected returns, at the time it sells merchandise or dispenses prescription drugs to the customer. The Company estimates revenue based on expected reimbursements from third-party payers (e.g., pharmacy benefit managers, insurance companies and governmental agencies) for dispensing prescription drugs. The estimates are based on all available information including historical experience and are updated to actual reimbursement amounts.
The following table presents revenue and costs of sales by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmacy Technology
|
|
Retail Pharmacy Services
|
|
Total
|
Three Months Ended September 30, 2020
|
|
|
|
|
|
Revenues
|
$
|
4,959
|
|
|
$
|
2,186
|
|
|
$
|
7,145
|
|
Cost of sales
|
120
|
|
|
2,042
|
|
|
2,162
|
|
Gross profit
|
$
|
4,839
|
|
|
$
|
144
|
|
|
$
|
4,983
|
|
Nine Months Ended September 30, 2020
|
|
|
|
|
|
Revenues
|
$
|
5,672
|
|
|
$
|
5,196
|
|
|
$
|
10,868
|
|
Cost of sales
|
400
|
|
|
5,059
|
|
|
5,459
|
|
Gross profit
|
$
|
5,272
|
|
|
$
|
137
|
|
|
$
|
5,409
|
|
Three Months Ended September 30, 2019
|
|
|
|
|
|
Revenues
|
$
|
69
|
|
|
$
|
857
|
|
|
$
|
926
|
|
Cost of sales
|
22
|
|
|
701
|
|
|
723
|
|
Gross profit
|
$
|
47
|
|
|
$
|
156
|
|
|
$
|
203
|
|
Nine Months Ended September 30, 2019
|
|
|
|
|
|
Revenues
|
$
|
400
|
|
|
$
|
1,910
|
|
|
$
|
2,310
|
|
Cost of sales
|
61
|
|
|
1,561
|
|
|
1,622
|
|
Gross profit
|
$
|
339
|
|
|
$
|
349
|
|
|
$
|
688
|
|
For the nine months ended September 30, 2020 and 2019, the Company had one customer that accounted for 10% or more of segment revenues.
The following table presents assets and liabilities by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmacy Technology
|
|
Retail Pharmacy Services
|
|
Corporate
|
|
Total
|
September 30, 2020
|
|
|
|
|
|
|
|
Assets
|
$
|
5,557
|
|
|
$
|
5,167
|
|
|
$
|
993
|
|
|
$
|
11,717
|
|
Liabilities
|
$
|
2,688
|
|
|
$
|
1,883
|
|
|
$
|
23,338
|
|
|
$
|
27,909
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Assets
|
$
|
9,104
|
|
|
$
|
3,702
|
|
|
$
|
5,197
|
|
|
$
|
18,003
|
|
Liabilities
|
$
|
7,174
|
|
|
$
|
994
|
|
|
$
|
12,996
|
|
|
$
|
21,164
|
|
NOTE 10 - OTHER OPERATING EXPENSES
Other operating expenses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Other operating expenses:
|
|
|
|
|
|
|
|
Wages and salaries
|
$
|
4,063
|
|
|
$
|
3,781
|
|
|
$
|
11,531
|
|
|
$
|
9,664
|
|
Pharmacy operations
|
78
|
|
|
96
|
|
|
187
|
|
|
279
|
|
Depreciation of property, plant and equipment
|
212
|
|
|
181
|
|
|
575
|
|
|
468
|
|
Research and development
|
18
|
|
|
44
|
|
|
139
|
|
|
172
|
|
Amortization of intangible assets
|
12
|
|
|
221
|
|
|
69
|
|
|
733
|
|
Foreign exchange loss
|
(7)
|
|
|
(9)
|
|
|
34
|
|
|
(38)
|
|
Total other operating expenses
|
$
|
4,376
|
|
|
$
|
4,314
|
|
|
$
|
12,535
|
|
|
$
|
11,278
|
|
NOTE 11 - INCOME TAXES
The provision for income taxes in the consolidated statement of loss and comprehensive loss represents an effective rate different from the US statutory tax rate for the following reasons:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Loss before income taxes
|
$
|
(2,488)
|
|
|
$
|
(5,879)
|
|
|
$
|
(14,714)
|
|
|
$
|
(15,822)
|
|
Income tax recovery at statutory rate (21%)
|
(522)
|
|
|
(1,235)
|
|
|
(3,090)
|
|
|
(3,323)
|
|
Increase resulting from:
|
|
|
|
|
|
|
|
Effect of foreign tax rate
|
121
|
|
|
(193)
|
|
|
(117)
|
|
|
(502)
|
|
Unrecognized deferred tax asset
|
450
|
|
|
1,098
|
|
|
3,109
|
|
|
3,253
|
|
Permanent and other differences
|
(49)
|
|
|
330
|
|
|
98
|
|
|
572
|
|
Provision for income taxes
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company has approximately $2.2 million of non-capital losses in Canada that can be used to reduce taxable income in future years. These losses will begin to expire in the year 2032. In the United States, MedAvail has approximately $32.9 million of net operating losses that can also be used to reduce taxable income in future years. These losses will begin to expire in the year 2032.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Legal
There are no known legal claims pending as at the date of the consolidated financial statements.
Purchase Commitments
As of September 30, 2020, MedAvail did not have any minimum purchase commitments that were material to its consolidated financial statements.
Vendor Concentration Risk
One of the Company’s suppliers accounted for 29% of its purchases during the nine months ended September 30, 2020. A disruption of the relationship could have a significant impact on the Company.
NOTE 13 - REDEEMABLE PREFERRED STOCK, DEFICIT AND SHARE-BASED COMPENSATION EXPENSE
Temporary Equity
All preferred stock is redeemable at the option of the holder, but not mandatorily redeemable, therefore it is classified as mezzanine equity and recognized at the fair value as of the date of issuance (the proceeds on the date of issuance).
The Company has 16,638,421 authorized preferred shares, with a normal or par value of $0.001 per share. Pursuant to the terms of the Series E financing agreement, if a shareholder elected to participate in the financing, they were granted a number of conversion shares that were exchanged into the number of shares of such series of preferred stock equal to the number of shares held by such shareholder immediately prior to the common share conversion. Additionally, Series C, Series D and Series E preferred shares are subject to a full-ratchet anti-dilution adjustment until the earlier of the three-year anniversary of the initial Series E issuance date or the first equity financing at a price greater than the Series E original purchase price, with aggregate gross proceeds of greater than $10 million. The final closing of the first tranche of the Series E financing round occurred in June 2018, with additional tranches occurring in March, July and December 2019.
The following table presents changes in preferred shares outstanding for the nine months ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares
|
|
Shares
|
|
Amount
|
Balance at December 31, 2019
|
10,500,440
|
|
|
$
|
93,484
|
|
Issued
|
102,777
|
|
|
788
|
|
Balance at June 30, 2020
|
10,603,217
|
|
|
94,272
|
|
Issued
|
2
|
|
|
—
|
|
Balance at September 30, 2020
|
10,603,219
|
|
|
$
|
94,272
|
|
|
|
|
|
|
Preferred Shares
|
|
Shares
|
|
Amount
|
Balance at December 31, 2018
|
7,479,862
|
|
|
$
|
68,533
|
|
Issued
|
957,813
|
|
|
7,924
|
|
Balance at June 30, 2019
|
8,437,675
|
|
|
76,457
|
|
Issued
|
1,124,813
|
|
|
9,275
|
|
Balance at September 30, 2019
|
9,562,488
|
|
|
$
|
85,732
|
|
Series E Stock issue
During February 2020, the Company issued 102,777 Series E Preferred Shares to certain existing investors who purchased these shares. Additionally, these parties received a total of 10,278 warrants to purchase common shares.
The following table presents the amount of preferred shares outstanding by series:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2020
|
|
2019
|
Preferred shares outstanding:
|
|
|
|
Series A
|
1,175,544
|
|
|
1,175,544
|
|
Series B
|
2,222,886
|
|
|
2,222,886
|
|
Series C
|
1,634,249
|
|
|
1,634,249
|
|
Series D
|
502,630
|
|
|
502,630
|
|
Series E
|
5,067,910
|
|
|
4,965,131
|
|
Total preferred shares outstanding
|
10,603,219
|
|
|
10,500,440
|
|
Common shares
The Company has 24,000,000 authorized common shares, with a nominal or par value of $0.001 per share. In connection with the initial closing of the Series E preferred share financing that occurred on December 20, 2017, each series of outstanding preferred shares was converted into common shares. The Company then effected a 7 to 1 reverse stock split on the common shares.
Additionally, if a shareholder held common shares immediately prior to the conversion, then, for each share of Series E Preferred Stock purchased in the financing, the shareholder could exchange one share of common for two shares of common (i.e., a net gain of one additional common share). All references in the consolidated financial statements to the number of shares outstanding and stock option data of common stock have been restated to reflect the effect of the reverse stock split for all periods presented.
Liquidation Rights
In the event of any liquidation or dissolution of the Company, the holders of common stock are entitled to the remaining assets of the Company legally available for distribution after the payment of the full liquidation preference for all series of outstanding redeemable convertible preferred stock.
Dividend and Voting Rights
The holders of common stock are entitled to receive dividends if and when declared by the Company, but not until all dividends on redeemable convertible preferred stock have been either (i) paid or (ii) declared and the Company has set aside funds to pay those dividends declared. Holders of common stock have the right to one vote per share.
Share-based compensation
2018 Plan
In September 2018, the Company adopted the 2018 MedAvail Equity Incentive Plan (the “2018 Plan”), which provides for the granting of stock options to service providers of the Company. As part of the adoption of the 2018 Plan, the Company provided the option for all eligible service providers to exchange their options held under the 2012 MedAvail Stock Option Plan (the “2012 Plan”), as of the exchange date for new options under the 2018 Plan, at an exchange ratio of 1:5. All vesting schedules were maintained on exchange.
A total of 53 eligible service providers participated in the exchange, which resulted in the exchange of 239,181 options under the 2012 Plan for 1,269,180 options under the 2018 Plan. The exchange resulted in $0.7 million of one-time incremental compensation cost for 2018.
2012 Plan
The 2012 MedAvail Stock Option Plan was modified on the date the 2018 Plan was adopted to no longer permit granting of options under the plan. As of December 31, 2019, there are 19,800 options that remained outstanding under this plan. Options granted under the 2012 Plan that were not exchanged to options under the 2018 Plan will remain subject to the terms of the 2012 Plan.
The maximum number of shares to be granted under the 2018 plan is 1,972,530. In accordance with the plan, the exercise price of each option is based on the fair value of common shares on the date of the grant. An option’s term is determined at the discretion of the Board of Directors, not to exceed ten years. Unless otherwise stated, the consolidated financial statements reflect 1/48 of the option vesting each month over a four-year vesting period.
During 2019, the Company granted 376,500 new options to service providers at an exercise price of $2.15 CAD. The exercise price of these options was established as the fair value of the common shares pursuant to a S.409A valuation performed by Timan, LLC at the request of the Board of Directors. The estimated fair value of the options was determined by the Black-Scholes valuation model.
On April 24, 2020, the Company granted 351,402 options to employees. The options had an exercise price of $2.15 CAD, a term of 10 years and an average fair value per option of $4.32. The exercise price of these options was established as the fair value of the common shares pursuant to a S.409A valuation performed by Timan, LLC at the request of the Board of Directors. The estimated fair value of the options was determined by the Black-Scholes valuation model.
Warrants
On March 4, 2019, the Company issued a warrant to purchase up to 228,816 common shares. The per share exercise price was set at $11.00 CAD. The warrant expires at the earlier of (i) June 1, 2025, (ii) acquisition, or (iii) initial public offering.
On March 4, 2019, the Company issued warrants to purchase up to 206,518 common shares in conjunction with the sale of Series E preferred shares. The per share exercise price was set at $2.63 CAD. The issuance occurred over several dates covering multiple tranches.
On March 4, 2019, the Company issued warrants to purchase up to 95,524 common shares in conjunction with the sale of Series E preferred shares. The per share exercise price was set at $1.98 USD.
On February 11, 2020, the Company issued warrants to purchase up to 13,054 common shares in conjunction with the sale of Series E preferred shares. The per share exercise price was set at $1.98 USD.
On February 11, 2020, the Company issued warrants to purchase up to 245,755 common shares to a service provider as payment for services, settling an accrued liability. The per share exercise price was set at $0.01 USD.
On May 25, 2020, the Company issued warrants to purchase 91,551 common shares in conjunction with the issuance of a promissory note in the amount of $7.6 million. The per share exercise price was set at $1.98 USD.
On June 4, 2020, the Company issued warrants to purchase 12,791 common shares to a service provider as payment for services. The per share exercise price was set at $1.98 USD.
On June 9, June 10, and June 17, 2020, the Company issued a total of 2,187 warrants to purchase 2,187 common shares in conjunction with additional promissory notes totaling $181 thousand. The per share exercise price was set at $1.98 USD.
On June 29, 2020, the Company issued warrants to purchase up to 67,379 common shares to a service provider as payment for services, settling an accrued liability. The per share exercise price was set at $0.01 USD.
During the three months ended September 30, 2020, the Company issued warrants to purchase up to 4,835 common shares in conjunction with additional promissory notes totaling $400 thousand.
Warrants issued were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
Issue Date
|
|
Amount
|
|
Term (years)
|
|
Strike Price
|
2/11/2020
|
|
13,054
|
|
|
10
|
|
$
|
1.98
|
|
2/11/2020
|
|
245,755
|
|
|
10
|
|
$
|
0.01
|
|
2/19/2020
|
|
5,440
|
|
|
10
|
|
$
|
1.98
|
|
5/26/2020
|
|
91,551
|
|
|
10
|
|
$
|
1.98
|
|
6/4/2020
|
|
12,791
|
|
|
10
|
|
$
|
1.98
|
|
6/9/2020
|
|
1,330
|
|
|
10
|
|
$
|
1.98
|
|
6/10/2020
|
|
604
|
|
|
10
|
|
$
|
1.98
|
|
6/17/2020
|
|
253
|
|
|
10
|
|
$
|
1.98
|
|
6/29/2020
|
|
67,379
|
|
|
10
|
|
$
|
0.01
|
|
7/2/2020
|
|
1,813
|
|
|
10
|
|
$
|
1.98
|
|
8/14/2020
|
|
1,209
|
|
|
10
|
|
$
|
1.98
|
|
8/21/2020
|
|
1,813
|
|
|
10
|
|
$
|
1.98
|
|
NOTE 14 - SUBSEQUENT EVENTS
Management has evaluated events and circumstances subsequent to the balance sheet date through November 18, 2020 to determine if any of those events or circumstances would warrant changes to the financial statements or require additional disclosure.
During October 2020, the Company received an additional amount under the convertible notes and warrants offering originally closed on May 26, 2020 as discussed in Note 8. Additional financing received under the agreement totaled $4.5 million, and the maturity date of the notes was extended to June 30, 2021.
On November 18, 2020, in connection with MYOS’s engagement of H.C. Wainwright & Co., LLC (“HCW”) as a financial advisor with respect to the Merger, the Company issued a Warrant (the “Warrant”) to HCW to purchase up to an aggregate of 58,518 shares (the “Warrant Shares”) of Common Stock. The right to purchase Warrant Shares expires on November 18, 2025.
The Company has incurred expenses related to the reverse merger transaction discussed in Note 3. Through September 30, 2020, $2.6 million of expenses were incurred related to the transaction, and an additional $5.8 million has been incurred through November 18, 2020.
As previously disclosed, in connection with the Business Combination, MedAvail entered into a securities purchase agreement, dated October 9, 2020, with accredited investors, including certain healthcare focused retail and institutional investors, as well as certain existing investors in MedAvail, pursuant to which the investors agreed to purchase, and MedAvail agreed to sell to the investors, an aggregate of 11,317,611 shares of MedAvail common stock (the “Private Placement Shares”), including 9,789,955 shares of MedAvail common stock to cash purchasers for an aggregate purchase price of $83.9 million, and 1,527,656 shares of Medavail common stock to certain holders of MedAvail convertible promissory notes (the “Private Placement”). The Private Placement was consummated on November 12, 2020. Net proceeds received by the Company were approximately $60.9M.
Item 3.02 Unregistered Sales of Equity Securities
HCW Warrant
On November 18, 2020, in connection with MYOS’s engagement of H.C. Wainwright & Co., LLC (“HCW”) as a financial advisor with respect to the Merger, the Company issued a Warrant (the “Warrant”) to HCW to purchase up to an aggregate of 58,518 shares (the “Warrant Shares”) of Common Stock. The right to purchase Warrant Shares expires on November 18, 2025.
The issuance of the Warrant and the Warrant Shares has not been registered under the Securities Act of 1933, as amended (the “Securities Act”) or under any state securities law. The Company believes that the transaction is exempt from registration pursuant to Section 4(a)(2) of the Securities Act. HCW acknowledged its intention to acquire the Warrant and Warrant Shares for investment only and not with a view toward their distribution, and appropriate legends will be affixed to the Warrant and the Warrant Shares.
The foregoing description of the Warrant does not purport to be complete and is qualified in its entirety by reference to the full text of the Warrant, a copy of which is attached as Exhibit 4.3 to this Current Report on Form 8-K and is incorporated herein by reference.
MedAvail Private Placement
As previously disclosed, in connection with the Business Combination, MedAvail entered into a securities purchase agreement, dated October 9, 2020, with accredited investors, including certain healthcare focused retail and institutional investors, as well as certain existing investors in MedAvail, pursuant to which the investors agreed to purchase, and MedAvail agreed to sell to the investors, an aggregate of 11,317,611 shares of MedAvail common stock (the “Private Placement Shares”), including 9,789,955 shares of MedAvail common stock to cash purchasers for an aggregate purchase price of $83.9 million, and 1,527,656 shares of MedAvail common stock to certain holders of MedAvail convertible promissory notes (the “Private Placement”). The Private Placement was consummated on November 12, 2020. The issuances of the shares of MedAvail common stock in the Private Placement were not registered under the Securities Act in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering without any form of general solicitation or general advertising. Upon the Business Combination Closing, the Private Placement Shares were exchanged for shares of the Company’s Common Stock as described in Item 2.01 above.
Item 3.03. Material Modification to Rights of Security Holders.
At the Special Meeting held on November 16, 2020, the MYOS shareholders approved the Reverse Stock Split, including the amendment of the Nevada articles of incorporation to effect the Reverse Stock Split, and the Reincorporation of MYOS from Nevada to Delaware.
On November 16, 2020 and following the Special Meeting, the MYOS Board of Directors (the “MYOS Board”) approved the Reverse Stock Split ratio of one new share for every 12 shares of Common Stock outstanding.
On November 17, 2020, prior to the closing of the Merger, MYOS amended its Nevada articles of incorporation to effect the Reverse Stock Split.
On November 18, 2020, in connection with the Reincorporation and pursuant to the Plan of Conversion, MYOS filed an articles of conversion with the Nevada Secretary of State and filed a certificate of conversion with the Delaware Secretary of State, together with a Delaware certificate of incorporation. The Reincorporation, the Amended and Restated Certificate of Incorporation, the Amended and Restated Bylaws and the change of the name of the Company from “MYOS RENS Technology Inc.” to “MedAvail Holdings, Inc.” became effective on November 18, 2020.
The information set forth in the sections entitled “Reincorporation” and “MYOS Proposal No.4: Approval of Reincorporation to Delaware” beginning on pages 120 and 133 of the Definitive Proxy Statement/Prospectus/Information Statement (“Proxy Statement/Prospectus/Information Statement”) filed with the SEC on October 15, 2020, regarding the rights of the securityholders of the Company is incorporated by reference to this Item 3.03. The foregoing description of the Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws of the Company does not purport to be complete and is qualified in its entirety by the terms of the Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, which are attached hereto as Exhibits 3.1 and 3.2, respectively, and are incorporated herein by reference.
Item 5.01. Changes in Control of Registrant.
The information set forth under “Introductory Note” and Item 2.01 of this Current Report on Form 8-K is incorporated herein by reference.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Director and Officer Resignations
Pursuant to the Merger Agreement, on November 17, 2020, Joseph Mannello, Robert J. Hariri, Louis Aronne, Christopher Pechock, Victor Mandel, Andrew Ponte, Eric Zaltas and Christopher Dewey resigned from the MYOS Board and any respective committees of the MYOS Board to which they served, which resignations were not the result of any disagreements with MYOS relating to MYOS’s operations, policies or practices. Mr. Pechock resigned from his positions on the audit committee and compensation committee, Mr. Zaltas resigned from his position on the audit committee, Mr. Mandel resigned from his position on the audit committee and Mr. Aronne resigned from his position on the compensation committee.
Also, pursuant to the Merger Agreement, on November 17, 2020, MYOS terminated the employment of Mr. Mannello, MYOS’s Chief Executive Officer and Chief Financial Officer.
Director Appointments
On November 17, 2020, the MYOS Board appointed Ed Kilroy, Gerard van Hamel Platerink, Gerald Gradwell, Helen Ciesielski, Glen Stettin, Rob Faulkner and Michael Kramer as members of the Company’s board of directors (the “Company Board”), effective as of the Effective Time. Gerard van Hamel Platerink serves as the chairperson of the Company Board. The Company Board was divided into three staggered classes of directors and each director was assigned to one of the three classes, effective as of the Business Combination Closing Date. At each annual meeting of the stockholders, a class of directors will be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. The terms of the directors will expire upon the election and qualification of successor directors at the annual meeting of stockholders to be held during the year 2021 for Class I directors, 2022 for Class II directors and 2023 for Class III directors. Ed Kilroy and Gerard van Hamel Platerink were appointed as Class I directors, Helen Ciesielski and Gerald Gradwell were appointed as Class II directors and Robert Faulkner, Michael Kramer and Glen Stettin were appointed as Class III directors.
Additionally, on November 18, 2020, the Company Board established three standing committees: an audit committee, a compensation committee and a nominating and corporate governance committee. Messrs. Kramer and Gradwell and Ms. Ciesielski were appointed as members of the audit committee, and Mr. Kramer serves as the chairperson of the audit committee. Messrs. Stettin and Kramer were appointed as members of the compensation committee, and Mr. Stettin serves as the chairperson of the compensation committee. Mr. Gradwell and Ms. Ciesielski were appointed as members of the nominating and corporate governance committee, and Mr. Gradwell serves as the chairperson of the nominating and corporate governance committee.
Officer Appointments
On November 17, 2020, effective as of the Effective Time, the MYOS Board appointed Ed Kilroy as the Company’s President and Chief Executive Officer, Ryan Ferguson as the Company’s Chief Financial Officer , Treasurer and Secretary, Dave Rawlins as the Company’s Chief Commercial Officer, Neil Prezioso as the Company’s Chief Pharmacy Officer, Will Misloski as the Company’s Chief Marketing Officer and Fraser Mackay as the Company’s Chief Information Officer.
Adoption of Equity Plans and Assumption of Stock Options and Warrants
Pursuant to the Merger Agreement, effective as of the Effective Time of the Merger, the Company assumed the 2018 MedAvail Equity Incentive Plan (the “2018 Plan”) and the 2012 MedAvail Stock Option Plan (the “2012 Plan”) assuming all of MedAvail’s rights and obligations with respect to the options issued thereunder. Immediately thereafter, the Company terminated the 2018 Plan. The 2012 Plan was previously modified on the date the 2018
Plan was adopted to no longer permit granting of options under the 2012 Plan. Pursuant to the Merger Agreement, at the Effective Time of the Merger, the Company adopted the 2020 Equity Incentive Plan (the “2020 Plan”) and the 2020 Employee Stock Purchase Plan (the “2020 ESPP”).
The 2020 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, (the “Code”), to the Company’s employees and any parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to employees, directors and consultants of the Company and the company group. At the effective time of the Merger, the number of shares of Company Common Stock that are reserved for issuance pursuant to awards under the 2020 Plan is 5,000,000 shares (post-Reverse Stock Split). The 2020 Plan also includes an evergreen provision that provides for an automatic annual increase to the number of shares of common stock available for issuance under the 2020 Plan on the first day of each fiscal year, equal to the least of: (i) 5,000,000 shares; (ii) 5% of the total number of shares of all classes of common stock of the Company as of the last day of our immediately preceding fiscal year; or (iii) such lesser amount determined by the administrator. The 2020 Plan will terminate on the tenth anniversary of its effective date. No award may be made under the 2020 Plan after its expiration date. The foregoing description of the 2020 Plan does not purport to be complete and is qualified entirely by reference to the full text of the 2020 Plan, which is attached hereto as Exhibit 10.11 and is incorporated by reference herein.
The 2020 ESPP provides eligible employees with an opportunity to purchase shares of the Company’s Common Stock through accumulated contributions, which generally will be made through payroll deductions. The 2020 ESPP permits the administrator of the 2020 ESPP to grant purchase rights that qualify for preferential tax treatment under Section 423 of the Code. At the effective time of the Merger, the maximum number of shares of our common stock that will be available for issuance under the 2020 ESPP will be 700,000 shares (post-Reverse Stock Split). The number of shares of common stock available for issuance under the 2020 ESPP Plan will be increased on the first day of each fiscal year beginning with the 2021 fiscal year equal to the least of (i) 1,000,000 shares of common stock; (ii) one percent 1% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year; or (iii) an amount determined by the administrator. The shares may be authorized, but unissued, or reacquired common stock. The 2020 ESPP will terminate in 2040, unless terminated sooner. The foregoing description of the 2020 ESPP does not purport to be complete and is qualified entirely by reference to the full text of the 2020 ESPP, which is attached hereto as Exhibit 10.12 and is incorporated by reference herein.
In addition, under the terms of the Merger Agreement, the Company assumed all of MedAvail’s rights and obligations under MedAvail’s stock options and warrants that were outstanding immediately prior to the effective time of the Merger, and each such stock option or warrant, to the extent unexercised, was converted into a stock option or warrant representing the right to purchase shares of Company Common Stock on terms substantially the same as those in effect immediately prior to the effective time, except that the number of shares of Company Common Stock issuable and the exercise price per share of such stock options or warrants were adjusted by the Exchange Ratio. Additionally, the number of shares and exercise price per share of Company Common Stock issuable under the assumed MedAvail stock options and warrants were further adjusted by the Reverse Stock Split.
The information set forth in the section entitled “Management Following the Merger” beginning on page 226 of the Definitive Proxy Statement/Prospectus/Information Statement filed with the SEC on October 15, 2020 and in Item 2.01 of this Current Report on Form 8-K regarding the biographical information, compensation arrangements and related party transaction information for the newly appointed executive officers and directors of the Company is incorporated by reference to this Item 5.02. Each of the newly appointed directors and executive officers entered into the Company’s standard form of indemnification agreement with the Company on November 18, 2020, the form of which is attached hereto as Exhibit 10.15 and is incorporated herein by reference.
Item 5.03 Amendments to Articles of Incorporation or Bylaws.
The disclosure set forth in Item 3.03 of this Current Report on Form 8-K is incorporated by reference in this item 5.03 by reference.
Item 5.07 Submission of Matters to a Vote of Security Holders.
On November 16, 2020, MYOS held the Special Meeting to consider six proposals related to the Business Combination. Each of the MYOS proposals was approved by the requisite vote of the MYOS shareholders as described below.
At the close of business on October 2, 2020, the record date for the Special Meeting, MYOS had 12,191,795 shares of common stock issued and outstanding. The holders of a total of 10,242,000 shares of MYOS common stock were represented at the Special Meeting by proxy, representing approximately 84% of the MYOS’s issued and outstanding common stock as of the record date, which total constituted a quorum for the Special Meeting in accordance with the MYOS’s bylaws.
The approval of the Merger and the issuance of Common Stock pursuant to the Merger Agreement (Proposal No. 1), the approval of the Reverse Stock Split (Proposal No. 2), the approval of the Spin Out Transaction (Proposal No. 3), the approval of the Reincorporation (Proposal No. 4), the approval of the MedAvail Holdings, Inc. 2020 Equity Incentive Plan (Proposal No. 5), and the approval of the MedAvail Holdings, Inc. 2020 Employee Stock Purchase Plan (Proposal No. 6), each required the affirmative vote of the holders of a majority of the shares of MYOS common stock having voting power outstanding on the record date for the Special Meeting. The approval of the adjournment of the Special Meeting, if necessary, to solicit additional proxies (Proposal No. 7), required the affirmative vote of the holders of a majority of the shares of MYOS common stock having voting power present in person or represented by proxy at the Special Meeting.
The final voting results for each of these proposals is set forth below. Brokers did not have discretionary authority to vote for Proposal Nos. 2 and 7 for the shares of the MYOS common stock held in street name, and as a result, no broker non-votes were received for any of these proposals. For more information on these proposals, please refer to the Proxy Statement/Prospectus/Information Statement.
Proposal 1. To approve the Merger and the issuance of Common Stock pursuant to the Merger Agreement:
|
|
|
|
|
|
|
|
|
|
|
|
7,373,296 For
|
49,732 Against
|
2,566 Abstain
|
2,824,881 Broker Non-Votes
|
Proposal 2. To approve the Reverse Stock Split:
|
|
|
|
|
|
|
|
|
|
|
|
9,699,779 For
|
539,957 Against
|
10,739 Abstain
|
0 Broker Non-Votes
|
Proposal 3. To approve the Spin Out Transaction:
|
|
|
|
|
|
|
|
|
|
|
|
7,355,297 For
|
64,492 Against
|
5,805 Abstain
|
2,824,881 Broker Non-Votes
|
Proposal 4. To approve the Reincorporation and to approve changing the name of the Company from “MYOS RENS Technology Inc.” to “MedAvail Holdings, Inc.”:
|
|
|
|
|
|
|
|
|
|
|
|
7,271,210 For
|
28,490 Against
|
125,894 Abstain
|
2,824,881 Broker Non-Votes
|
Proposal 5. To approve the MedAvail Holdings, Inc. 2020 Equity Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
7,160,532 For
|
127,962 Against
|
137,100 Abstain
|
2,824,881 Broker Non-Votes
|
Proposal 6. MedAvail Holdings, Inc. 2020 Employee Stock Purchase Plan:
|
|
|
|
|
|
|
|
|
|
|
|
7,208,966 For
|
81,737 Against
|
134,891 Abstain
|
2,824,881 Broker Non-Votes
|
Proposal 7. To adjourn the Special Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposals Nos. 1, 2, 3, 4, 5 and 6 (although Proposal No. 7 was approved, adjournment of the
Special Meeting was not necessary or appropriate because there were sufficient votes at the time of the Special Meeting to approve the other proposals):
|
|
|
|
|
|
|
|
|
|
|
|
9,773,057 For
|
450,684 Against
|
26,734 Abstain
|
0 Broker Non-Votes
|
Item 9.01 Financial Statement and Exhibits
(a) Financial statements of business acquired
The information set forth in Exhibit 99.1 to this Current Report on Form 8-K, the audited consolidated financial statements of MedAvail, Inc. for the years ended December 31, 2019 and 2018, is incorporated herein by reference.
The information set forth in Item 2.01 of this Current Report on Form 8-K, which includes the unaudited consolidated financial statements of MedAvail, Inc. for the nine months ended September 30, 2020 and September 30, 2019, is incorporated herein by reference.
(b) Pro forma financial information
The information set forth in Item 2.01 of this Current Report on Form 8-K, which includes the unaudited pro forma condensed combined financial information of the Company for the year ended December 31, 2019 and for the nine months ended September 30, 2020, is incorporated herein by reference.
(d) Exhibits
Exhibit Index
|
|
|
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
2.1
|
|
|
|
|
|
2.2
|
|
|
|
|
|
3.1
|
|
|
|
|
|
3.2
|
|
|
|
|
|
4.1
|
|
|
|
|
|
4.2
|
|
|
|
|
|
4.3
|
|
|
|
|
|
10.1#§
|
|
|
|
|
|
10.2#§
|
|
|
|
|
|
10.3#§
|
|
|
|
|
|
10.4#§
|
|
|
|
|
|
10.5#§
|
|
|
|
|
|
10.6#§
|
|
|
|
|
|
10.7
|
|
|
|
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.9§
|
|
|
|
|
|
10.10§
|
|
|
|
|
|
10.11#
|
|
|
|
|
|
10.12#
|
|
|
|
|
|
10.13#
|
|
|
|
|
|
10.14#
|
|
|
|
|
|
10.15#
|
|
|
|
|
|
10.16
|
|
|
|
|
|
21.1
|
|
|
|
|
|
99.1
|
|
|
|
|
|
99.2
|
|
|
|
|
|
99.3
|
|
|
__________________
† Exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K and will be provided on a supplemental basis to the Securities and Exchange Commission upon request.
§ Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(a)(6) and Item 601(b)(10).
# Indicates a management contract or compensatory plan.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
|
|
|
|
MEDAVAIL HOLDINGS, INC.
|
|
|
By:
|
/s/ Ed Kilroy
|
|
Ed Kilroy
|
|
Chief Executive Officer
|
Date: November 18, 2020
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
MYOS RENS TECHNOLOGY INC.
MYOS RENS Technology Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), does hereby certify as follows:
A.The present name of the Corporation is MYOS RENS Technology Inc., and the original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware and became effective as of November 18, 2020 (the “Original Certificate”).
B.This Amended and Restated Certificate of Incorporation (this “Amended and Restated Certificate”), which amends and restates the provisions of the Original Certificate and changes the name of the Corporation, was duly adopted in accordance with sections 242 and 245 of the General Corporation Law of the State of Delaware (the “DGCL”).
C.This Amended and Restated Certificate of Incorporation shall be effective as of 5:01 a.m. Eastern time on November 18, 2020.
D.The text of the Original Certificate is hereby amended and restated in its entirety to read as follows:
ARTICLE I
The name of the Corporation is MedAvail Holdings, Inc.
ARTICLE II
The address of the Corporation’s registered office in the State of Delaware is 251 Little Falls Drive, Wilmington, County of New Castle, State of Delaware, 19808. The name of its registered agent at such address is the Corporation Service Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.
ARTICLE IV
Section 1.This Corporation is authorized to issue two classes of stock, to be designated, respectively, Common Stock and Preferred Stock. The total number of shares of stock that the Corporation shall have authority to issue is One Hundred Ten Million (110,000,000) of which One Hundred Million (100,000,000) shares are Common Stock, $0.001 par value, and Ten Million (10,000,000) are Preferred Stock, $0.001 par value.
Section 2.Each share of Common Stock shall entitle the holder thereof to one (1) vote on any matter submitted to a vote at a meeting of stockholders.
Section 3.The Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of
Directors (authority to do so being hereby expressly vested in the Board of Directors). The Board of Directors is further authorized, subject to limitations prescribed by law, to fix by resolution or resolutions the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of any wholly unissued series of Preferred Stock, including, without limitation, authority to fix by resolution or resolutions the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and liquidation preferences of any such series, and the number of shares constituting any such series and the designation thereof, or any of the foregoing. The Board of Directors is further authorized to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any series, the number of which was fixed by it, subsequent to the issuance of shares of such series then outstanding, subject to the powers, preferences and rights, and the qualifications, limitations and restrictions thereof stated in this Amended and Restated Certificate of Incorporation or the resolution of the Board of Directors originally fixing the number of shares of such series. If the number of shares of any series is so decreased, then the Corporation shall take all such steps as are necessary to cause the shares constituting such decrease to resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.
Section 4.Except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Amended and Restated Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon by law or pursuant to this Amended and Restated Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock).
ARTICLE V
Section 1.The number of directors that constitutes the entire Board of Directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation. At each annual meeting of stockholders, directors of the Corporation shall be elected to hold office until the expiration of the term for which they are elected and until their successors have been duly elected and qualified or until their earlier resignation or removal; except that if any such meeting shall not be so held, such election shall take place at a stockholders’ meeting called and held in accordance with the DGCL.
Section 2.From and after the effectiveness of this Amended and Restated Certificate of Incorporation, the directors of the Corporation (other than any who may be elected by holders of Preferred Stock under specified circumstances) shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. Directors already in office shall be assigned to each class at the time such classification becomes effective in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the date hereof, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the date hereof, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third
annual meeting of stockholders following the date hereof, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. If the number of directors is changed, any newly created directorships or decrease in directorships shall be so apportioned hereafter among the classes as to make all classes as nearly equal in number as is practicable, provided that no decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
ARTICLE VI
Section 1.Any director or the entire Board of Directors may be removed from office at any time, but only for cause, and only by the affirmative vote of the holders of at least a majority of the voting power of the issued and outstanding capital stock of the Corporation entitled to vote in the election of directors.
Section 2.Except as otherwise provided for or fixed by or pursuant to the provisions herein in relation to the rights of the holders of Preferred Stock to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors, created in accordance with the Bylaws of the Corporation, and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled only by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director, and not by the stockholders. A person so elected by the Board of Directors 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 chosen until his or her successor shall have been duly elected and qualified, or until such director’s earlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
ARTICLE VII
Section 1.The Corporation is to have perpetual existence.
Section 2.The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Amended and Restated Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.
Section 3.In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, alter, amend or repeal the Bylaws of the Corporation. The affirmative vote of at least a majority of the Board of Directors then in office shall be required in order for the Board of Directors to adopt, amend, alter or repeal the Corporation’s Bylaws. The Corporation’s Bylaws may also be adopted, amended, altered or repealed by the stockholders of the Corporation. Notwithstanding the above or any other provision of this Amended and Restated Certificate of Incorporation, the Bylaws of the Corporation may not be amended, altered or repealed except in accordance with Article X of the Bylaws. No Bylaw hereafter legally adopted, amended, altered or repealed shall invalidate any
prior act of the directors or officers of the Corporation that would have been valid if such Bylaw had not been adopted, amended, altered or repealed.
Section 4.The election of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
Section 5.No stockholder will be permitted to cumulate votes at any election of directors.
ARTICLE VIII
Section 1.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 stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.
Section 2.Special meetings of stockholders of the Corporation may be called only by the Chairperson of the Board of Directors, the Chief Executive Officer, the President or the Board of Directors acting pursuant to a resolution adopted by a majority of the Board of Directors, and any power of stockholders to call a special meeting of stockholders is specifically denied. Only such business shall be considered at a special meeting of stockholders as shall have been stated in the notice for such meeting.
Section 3.Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner and to the extent provided in the Bylaws of the Corporation.
ARTICLE IX
Section 1.To the fullest extent permitted by the DGCL as the same exists or as may hereafter be amended from time to time, 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 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.
Section 2.The Corporation shall indemnify, to the fullest extent permitted by applicable law, any director or officer of the Corporation 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 (a “Proceeding”) by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any such Proceeding. The Corporation shall be required to indemnify a person in connection with a Proceeding initiated by such person only if the Proceeding was authorized by the Board of Directors.
Section 3.The Corporation shall have the power to indemnify, to the extent permitted by applicable law, any employee or agent of the Corporation who was or is a party or is threatened to be made a party to any Proceeding by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any such Proceeding.
Section 4.Neither any amendment nor repeal of any Section of this Article IX, nor the adoption of any provision of this Amended and Restated Certificate of Incorporation or the Bylaws of the Corporation inconsistent with this Article IX, shall eliminate or reduce the effect of this Article IX in respect of any matter occurring, or any cause of action, suit, claim or proceeding accruing or arising or that, but for this Article IX, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
ARTICLE X
Meetings of stockholders may be held within or outside of the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.
ARTICLE XI
The Corporation reserves the right to amend or repeal any provision contained in this Amended and Restated Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided, however, that notwithstanding any other provision of this Amended and Restated Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote or no vote, the Board of Directors acting pursuant to a resolution adopted by a majority of the Board of Directors and the affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the then outstanding voting securities of the Corporation, voting together as a single class, shall be required for the amendment, repeal or modification of the provisions of Section 3 of Article IV, Section 2 of Article V, Article VI, Section 5 of Article VII, Article VIII or Article XI of this Amended and Restated Certificate of Incorporation.
IN WITNESS WHEREOF, MYOS RENS Technology Inc. has caused this Amended and Restated Certificate of Incorporation to be signed by Ed Kilroy, a duly authorized officer of the Corporation on this 18th day of November, 2020.
|
|
|
|
|
|
By:
|
/s/ Ed Kilroy
|
|
Ed Kilroy
|
|
Chief Executive Officer
|
AMENDED AND RESTATED BYLAWS OF
MEDAVAIL HOLDINGS, INC.
(amended and restated on November 18, 2020)
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
Page
|
ARTICLE I - CORPORATE OFFICES
|
|
|
|
|
1.1
|
REGISTERED OFFICE
|
1
|
1.2
|
OTHER OFFICES
|
1
|
|
|
|
ARTICLE II - MEETINGS OF STOCKHOLDERS
|
1
|
|
|
|
2.1
|
PLACE OF MEETINGS
|
1
|
2.2
|
ANNUAL MEETING
|
1
|
2.3
|
SPECIAL MEETING
|
1
|
2.4
|
ADVANCE NOTICE PROCEDURES
|
2
|
2.5
|
NOTICE OF STOCKHOLDERS’ MEETINGS
|
5
|
2.6
|
QUORUM
|
5
|
2.7
|
ADJOURNED MEETING; NOTICE
|
6
|
2.8
|
CONDUCT OF BUSINESS
|
6
|
2.9
|
VOTING
|
6
|
2.1
|
STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
|
7
|
2.11
|
RECORD DATES
|
7
|
2.12
|
PROXIES
|
7
|
2.13
|
LIST OF STOCKHOLDERS ENTITLED TO VOTE
|
8
|
2.14
|
INSPECTORS OF ELECTION
|
8
|
|
|
|
ARTICLE III - DIRECTORS
|
9
|
|
|
|
3.1
|
POWERS
|
9
|
3.2
|
NUMBER OF DIRECTORS
|
9
|
3.3
|
ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
|
9
|
3.4
|
RESIGNATION AND VACANCIES
|
10
|
3.5
|
PLACE OF MEETINGS; MEETINGS BY TELEPHONE
|
10
|
3.6
|
REGULAR MEETINGS
|
11
|
3.7
|
SPECIAL MEETINGS; NOTICE
|
11
|
3.8
|
QUORUM; VOTING
|
11
|
3.9
|
BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
|
12
|
3.1
|
FEES AND COMPENSATION OF DIRECTORS
|
12
|
3.11
|
REMOVAL OF DIRECTORS
|
12
|
|
|
|
ARTICLE IV - COMMITTEES
|
12
|
|
|
|
4.1
|
COMMITTEES OF DIRECTORS
|
12
|
4.2
|
COMMITTEE MINUTES
|
13
|
4.3
|
MEETINGS AND ACTION OF COMMITTEES
|
13
|
4.4
|
SUBCOMMITTEES
|
14
|
|
|
|
ARTICLE V - OFFICERS
|
14
|
|
|
|
5.1
|
OFFICERS
|
14
|
5.2
|
APPOINTMENT OF OFFICERS
|
14
|
TABLE OF CONTENTS
(continued)
Page
|
|
|
|
|
|
|
|
|
5.3
|
SUBORDINATE OFFICERS
|
14
|
5.4
|
REMOVAL AND RESIGNATION OF OFFICERS
|
14
|
5.5
|
VACANCIES IN OFFICES
|
15
|
5.6
|
REPRESENTATION OF SHARES OF OTHER CORPORATIONS
|
15
|
5.7
|
AUTHORITY AND DUTIES OF OFFICERS
|
15
|
|
|
|
ARTICLE VI - STOCK
|
15
|
|
|
|
6.1
|
STOCK CERTIFICATES; PARTLY PAID SHARES
|
15
|
6.2
|
SPECIAL DESIGNATION ON CERTIFICATES
|
16
|
6.3
|
LOST CERTIFICATES
|
16
|
6.4
|
DIVIDENDS
|
16
|
6.5
|
TRANSFER OF STOCK
|
16
|
6.6
|
STOCK TRANSFER AGREEMENTS
|
17
|
6.7
|
REGISTERED STOCKHOLDERS
|
17
|
|
|
|
ARTICLE VII - MANNER OF GIVING NOTICE AND WAIVER
|
17
|
|
|
|
7.1
|
DELIVERY OF NOTICE; NOTICE BY ELECTRONIC TRANSMISSION
|
17
|
7.2
|
NOTICE TO STOCKHOLDERS SHARING AN ADDRESS
|
18
|
7.3
|
NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL
|
19
|
7.4
|
WAIVER OF NOTICE
|
19
|
|
|
|
ARTICLE VIII - INDEMNIFICATION
|
19
|
|
|
|
8.1
|
INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGS
|
19
|
8.2
|
INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
|
20
|
8.3
|
SUCCESSFUL DEFENSE
|
20
|
8.4
|
INDEMNIFICATION OF OTHERS
|
20
|
8.5
|
ADVANCED PAYMENT OF EXPENSES
|
20
|
8.6
|
LIMITATION ON INDEMNIFICATION
|
21
|
8.7
|
DETERMINATION; CLAIM
|
21
|
8.8
|
NON-EXCLUSIVITY OF RIGHTS
|
22
|
8.9
|
INSURANCE
|
22
|
8.1
|
SURVIVAL
|
22
|
8.11
|
EFFECT OF REPEAL OR MODIFICATION
|
22
|
8.12
|
CERTAIN DEFINITIONS
|
22
|
|
|
|
ARTICLE IX - GENERAL MATTERS
|
23
|
|
|
|
9.1
|
EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
|
23
|
9.2
|
FISCAL YEAR
|
23
|
9.3
|
SEAL
|
23
|
9.4
|
CONSTRUCTION; DEFINITIONS
|
23
|
|
|
|
ARTICLE X - AMENDMENTS
|
23
|
|
|
|
ARTICLE XI - EXCLUSIVE FORUM
|
24
|
AMENDED AND RESTATED BYLAWS OF MEDAVAIL HOLDINGS, INC.
ARTICLE I - CORPORATE OFFICES
1.1REGISTERED OFFICE
The registered office of MedAvail Holdings, Inc. shall be fixed in the corporation’s certificate of incorporation, as the same may be amended from time to time.
1.2OTHER OFFICES
The corporation’s board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business.
ARTICLE II - MEETINGS OF STOCKHOLDERS
2.1PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the State of Delaware, determined by the board of directors. The board of directors may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law (the “DGCL”). In the absence of any such designation or determination, stockholders’ meetings shall be held at the corporation’s principal executive office.
2.2ANNUAL MEETING
The annual meeting of stockholders shall be held each year. The board of directors shall designate the date and time of the annual meeting. In the absence of such designation the annual meeting of stockholders shall be held on the second Tuesday of May of each year at 10:00 a.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding business day. At the annual meeting, directors shall be elected and any other proper business may be transacted.
2.3SPECIAL MEETING
(i)A special meeting of the stockholders, other than those required by statute, may be called at any time by (A) the board of directors, (B) the chairperson of the board of directors, (C) the chief executive officer or (D) the president (in the absence of a chief executive officer), but a special meeting may not be called by any other person or persons. The board of directors may cancel, postpone or reschedule any previously scheduled special meeting at any time, before or after the notice for such meeting has been sent to the stockholders.
(ii)The notice of a special meeting shall include the purpose for which the meeting is called. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting by or at the direction of the board of directors, chairperson of the board of directors, chief
executive officer or president (in the absence of a chief executive officer). Nothing contained in this Section 2.3(ii) shall be construed as limiting, fixing or affecting the time when a meeting of stockholders called by action of the board of directors may be held.
2.4ADVANCE NOTICE PROCEDURES
(i)Advance Notice of Stockholder Business. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be brought: (A) pursuant to the corporation’s proxy materials with respect to such meeting, (B) by or at the direction of the board of directors, or (C) by a stockholder of the corporation who (1) is a stockholder of record at the time of the giving of the notice required by this Section 2.4(i) and on the record date for the determination of stockholders entitled to vote at the annual meeting and (2) has timely complied in proper written form with the notice procedures set forth in this Section 2.4(i). In addition, for business to be properly brought before an annual meeting by a stockholder, such business must be a proper matter for stockholder action pursuant to these bylaws and applicable law. Except for proposals properly made in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “1934 Act”) and the rules and regulations thereunder (as so amended and inclusive of such rules and regulations), and included in the notice of meeting given by or at the direction of the board of directors, for the avoidance of doubt, clause (C) above shall be the exclusive means for a stockholder to bring business before an annual meeting of stockholders.
(a)To comply with clause (C) of Section 2.4(i) above, a stockholder’s notice must set forth all information required under this Section 2.4(i) and must be timely received by the secretary of the corporation. To be timely, a stockholder’s notice must be received by the secretary at the principal executive offices of the corporation not later than the 45th day nor earlier than the 75th day before the one-year anniversary of the date on which the corporation first mailed its proxy materials or a notice of availability of proxy materials (whichever is earlier) for the preceding year’s annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or if the date of the annual meeting is advanced by more than 30 days prior to or delayed by more than 60 days after the one-year anniversary of the date of the previous year’s annual meeting, then, for notice by the stockholder to be timely, it must be so received by the secretary not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of (i) the 90th day prior to such annual meeting, or (ii) the tenth day following the day on which Public Announcement (as defined below) of the date of such annual meeting is first made. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described in this Section 2.4(i)(a). “Public Announcement” shall mean disclosure in a press release reported by a 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 1934 Act.
(b)To be in proper written form, a stockholder’s notice to the secretary must set forth as to each matter of business the stockholder intends to bring before the annual meeting: (1) a brief description of the business intended to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (2) the name and address, as they appear on the corporation’s books, of the stockholder proposing such business and any Stockholder Associated Person (as defined below), (3) the class and number of shares of the corporation that are held of record or are beneficially owned by the stockholder or any Stockholder Associated Person and any derivative positions held or beneficially held by the stockholder or any Stockholder Associated Person, (4) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of such stockholder or any
Stockholder Associated Person with respect to any securities of the corporation, and a description of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit from share price changes for, or to increase or decrease the voting power of, such stockholder or any Stockholder Associated Person with respect to any securities of the corporation, (5) any material interest of the stockholder or a Stockholder Associated Person in such business, and (6) a statement whether either such stockholder or any Stockholder Associated Person will deliver a proxy statement and form of proxy to holders of at least the percentage of the corporation’s voting shares required under applicable law to carry the proposal (such information provided and statements made as required by clauses (1) through (6), a “Business Solicitation Statement”). In addition, to be in proper written form, a stockholder’s notice to the secretary must be supplemented not later than ten days following the record date for notice of the meeting to disclose the information contained in clauses (3) and (4) above as of the record date for notice of the meeting. For purposes of this Section 2.4, a “Stockholder Associated Person” of any stockholder shall mean (i) any person controlling, directly or indirectly, or acting in concert with, such stockholder, (ii) any beneficial owner of shares of stock of the corporation owned of record or beneficially by such stockholder and on whose behalf the proposal or nomination, as the case may be, is being made, or (iii) any person controlling, controlled by or under common control with such person referred to in the preceding clauses (i) and (ii).
(c)Without exception, no business shall be conducted at any annual meeting except in accordance with the provisions set forth in this Section 2.4(i) and, if applicable, Section 2.4(ii). In addition, business proposed to be brought by a stockholder may not be brought before the annual meeting if such stockholder or a Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Business Solicitation Statement applicable to such business or if the Business Solicitation Statement applicable to such business contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading. The chairperson of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that business was not properly brought before the annual meeting and in accordance with the provisions of this Section 2.4(i), and, if the chairperson should so determine, he or she shall so declare at the annual meeting that any such business not properly brought before the annual meeting shall not be conducted.
(ii)Advance Notice of Director Nominations at Annual Meetings. Notwithstanding anything in these bylaws to the contrary, only persons who are nominated in accordance with the procedures set forth in this Section 2.4(ii) shall be eligible for election or re-election as directors at an annual meeting of stockholders. Nominations of persons for election to the board of directors of the corporation shall be made at an annual meeting of stockholders only (A) by or at the direction of the board of directors or (B) by a stockholder of the corporation who (1) was a stockholder of record at the time of the giving of the notice required by this Section 2.4(ii), on the record date for the determination of stockholders entitled to notice of the annual meeting and on the record date for the determination of stockholders entitled to vote at the annual meeting and (2) has complied with the notice procedures set forth in this Section 2.4(ii). In addition to any other applicable requirements, for a nomination to be made by a stockholder, the stockholder must have given timely notice thereof in proper written form to the secretary of the corporation.
(a)To comply with clause (B) of Section 2.4(ii) above, a nomination to be made by a stockholder must set forth all information required under this Section 2.4(ii) and must be received by the secretary of the corporation at the principal executive offices of the corporation at the time set forth in, and in accordance with, the final three sentences of Section 2.4(i)(a) above.
(b)To be in proper written form, such stockholder’s notice to the secretary must set forth:
(1)as to each person (a “nominee”) whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of the nominee, (B) the principal occupation or employment of the nominee, (C) the class and number of shares of the corporation that are held of record or are beneficially owned by the nominee and any derivative positions held or beneficially held by the nominee, (D) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of the nominee with respect to any securities of the corporation, and a description of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit of share price changes for, or to increase or decrease the voting power of the nominee, (E) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, (F) a written statement executed by the nominee acknowledging that as a director of the corporation, the nominee will owe a fiduciary duty under Delaware law with respect to the corporation and its stockholders, and (G) any other information relating to the nominee that would be required to be disclosed about such nominee if proxies were being solicited for the election of the nominee as a director, or that is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including without limitation the nominee’s written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and
(2)as to such stockholder giving notice, (A) the information required to be provided pursuant to clauses (2) through (5) of Section 2.4(i)(b) above, and the supplement referenced in the second sentence of Section 2.4(i)(b) above (except that the references to “business” in such clauses shall instead refer to nominations of directors for purposes of this paragraph), and (B) a statement whether either such stockholder or Stockholder Associated Person will deliver a proxy statement and form of proxy to holders of a number of the corporation’s voting shares reasonably believed by such stockholder or Stockholder Associated Person to be necessary to elect such nominee(s) (such information provided and statements made as required by clauses (A) and (B) above, a “Nominee Solicitation Statement”).
(c)At the request of the board of directors, any person nominated by a stockholder for election as a director must furnish to the secretary of the corporation (1) 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 (2) 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 of the corporation or 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 2.4(ii).
(d)Without exception, no person shall be eligible for election or re-election as a director of the corporation at an annual meeting of stockholders unless nominated in accordance with the provisions set forth in this Section 2.4(ii). In addition, a nominee shall not be eligible for election or re-election if a stockholder or Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Nominee Solicitation Statement applicable to such nominee or if the Nominee Solicitation Statement applicable to such nominee contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading. The chairperson of the annual
meeting shall, if the facts warrant, determine and declare at the annual meeting that a nomination was not made in accordance with the provisions prescribed by these bylaws, and if the chairperson should so determine, he or she shall so declare at the annual meeting, and the defective nomination shall be disregarded.
(iii)Advance Notice of Director Nominations for Special Meetings.
(a)For a special meeting of stockholders at which directors are to be elected pursuant to Section 2.3, nominations of persons for election to the board of directors shall be made only (1) by or at the direction of the board of directors or (2) by any stockholder of the corporation who (A) is a stockholder of record at the time of the giving of the notice required by this Section 2.4(iii), on the record date for the determination of stockholders entitled to notice of the special meeting and on the record date for the determination of stockholders entitled to vote at the special meeting and (B) delivers a timely written notice of the nomination to the secretary of the corporation that includes the information set forth in Sections 2.4(ii)(b) and (ii)(c) above. To be timely, such notice must be received by the secretary at the principal executive offices of the corporation not later than the close of business on the later of the 90th day prior to such special meeting or the tenth 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 of directors to be elected at such meeting. A person shall not be eligible for election or re-election as a director at a special meeting unless the person is nominated (i) by or at the direction of the board of directors or (ii) by a stockholder in accordance with the notice procedures set forth in this Section 2.4(iii). In addition, a nominee shall not be eligible for election or re-election if a stockholder or Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Nominee Solicitation Statement applicable to such nominee or if the Nominee Solicitation Statement applicable to such nominee contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading.
(b)The chairperson of the special meeting shall, if the facts warrant, determine and declare at the meeting that a nomination or business was not made in accordance with the procedures prescribed by these bylaws, and if the chairperson should so determine, he or she shall so declare at the meeting, and the defective nomination or business shall be disregarded.
(iv)Other Requirements and Rights. In addition to the foregoing provisions of this Section 2.4, a stockholder must also comply with all applicable requirements of state law and of the 1934 Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.4, including, with respect to business such stockholder intends to bring before the annual meeting that involves a proposal that such stockholder requests to be included in the corporation’s proxy statement, the requirements of Rule 14a-8 (or any successor provision) under the 1934 Act. Nothing in this Section 2.4 shall be deemed to affect any right of the corporation to omit a proposal from the corporation’s proxy statement pursuant to Rule 14a-8 (or any successor provision) under the 1934 Act.
2.5NOTICE OF STOCKHOLDERS’ MEETINGS
Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting, if such date is different from the record date for determining stockholders entitled to notice of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Except as otherwise provided in the DGCL, the certificate of incorporation or these bylaws, the written notice of any
meeting of stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting.
2.6QUORUM
The holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. Where a separate vote by a class or series or classes or series is required, a majority of the outstanding shares of such class or series or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter, except as otherwise provided by law, the certificate of incorporation or these bylaws.
If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairperson of the meeting, or (ii) the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.
2.7ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. 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 of directors shall fix a new record date for notice of such adjourned meeting in accordance with Section 213(a) of the DGCL and Section 2.11 of these bylaws, 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.
2.8CONDUCT OF BUSINESS
The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business. The chairperson of any meeting of stockholders shall be designated by the board of directors; in the absence of such designation, the chairperson of the board, if any, the chief executive officer (in the absence of the chairperson) or the president (in the absence of the chairperson of the board and the chief executive officer), or in their absence any other executive officer of the corporation, shall serve as chairperson of the stockholder meeting.
2.9VOTING
The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to Section 217 (relating to voting rights of
fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL.
Except as may be otherwise provided in the certificate of incorporation or these bylaws, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.
Except as otherwise required by law, the certificate of incorporation or these bylaws, in all matters other than the election of directors, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise required by law, the certificate of incorporation or these bylaws, directors shall be elected by a plurality of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or series or classes or series is required, in all matters other than the election of directors, the affirmative vote of the majority of shares of such class or series or classes or series present in person or represented by proxy at the meeting shall be the act of such class or series or classes or series, except as otherwise provided by law, the certificate of incorporation or these bylaws.
2.10STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Subject to the rights of the holders of the shares of any series of preferred stock or any other class of stock or series thereof having a preference over the common stock as dividend or upon liquidation, 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 stockholders of the corporation and may not be effected by any consent in writing by such stockholders.
2.11RECORD DATES
In order that the corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If the board of directors 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 of directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination.
If no record date is fixed by the board of directors, 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 the 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 of directors 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 2.11 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 of directors 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 of directors adopts the resolution relating thereto.
2.12PROXIES
Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such 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.
2.13LIST OF STOCKHOLDERS ENTITLED TO VOTE
The corporation shall prepare, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting; provided, however, if the record date for determining the stockholders entitled to vote is less than 10 days before the meeting date, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the corporation’s principal place of business. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. If the meeting is to be held at a place, then a list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place 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 such 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.
2.14INSPECTORS OF ELECTION
Before any meeting of stockholders, the board of directors shall appoint an inspector or inspectors of election to act at the meeting or its adjournment. The number of inspectors shall be either one (1) or three (3). If any person appointed as inspector fails to appear or fails or refuses to act, then the chairperson of the meeting may, and upon the request of any stockholder or a stockholder’s proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(i)ascertain the number of shares outstanding and the voting power of each;
(ii)determine the shares represented at the meeting and the validity of proxies and ballots;
(iii)count all votes and ballots;
(iv)determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors; and
(v)certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots.
The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.
ARTICLE III - DIRECTORS
3.1POWERS
The business and affairs of the corporation shall be managed by or under the direction of the board of directors, except as may be otherwise provided in the DGCL or the certificate of incorporation.
3.2NUMBER OF DIRECTORS
The board of directors shall consist of one or more members, each of whom shall be a natural person. Unless the certificate of incorporation fixes the number of directors, the number of directors shall be determined from time to time by resolution of the board of directors. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.
3.3ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. The certificate of incorporation or these bylaws may prescribe other qualifications for directors.
If so provided in the certificate of incorporation, the directors of the corporation shall be divided into three classes.
3.4RESIGNATION AND VACANCIES
Any director may resign at any time upon notice given in writing or by electronic transmission to the corporation. 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. 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 of directors, 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.
Unless otherwise provided in the certificate of incorporation or these bylaws, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and not by stockholders. If the directors are divided into classes, a person so elected by the directors then in office 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 chosen and until his or her successor shall have been duly elected and qualified.
If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL.
If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board of directors (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the voting stock at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.
3.5PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors may hold meetings, both regular and special, 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 of directors or any subcommittee, may participate in a meeting of the board of directors, or any such committee or subcommittee, 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.
3.6REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board of directors.
3.7SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairperson of the board of directors, the chief executive officer, the president, the secretary or a majority of the authorized number of directors.
Notice of the time and place of special meetings shall be:
(i)delivered personally by hand, by courier or by telephone;
(ii)sent by United States first-class mail, postage prepaid;
(iii)sent by facsimile;
(iv)sent by electronic mail; or
(v)otherwise given by electronic transmission (as defined in Section 7.1),
directed to each director at that director’s address, telephone number, facsimile number, electronic mail address or other contact for notice by electronic transmission, as the case may be, as shown on the corporation’s records.
If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile, (iii) sent by electronic mail or (iv) otherwise given by electronic transmission, it shall be delivered, sent or otherwise directed to each director, as applicable, at least 24 hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the corporation’s principal executive office) nor the purpose of the meeting.
3.8QUORUM; VOTING
At all meetings of the board of directors, a majority of the total authorized number of directors shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws.
If the certificate of incorporation provides that one or more directors shall have more or less than one vote per director on any matter, every reference in these bylaws to a majority or other proportion of the directors shall refer to a majority or other proportion of the votes of the directors.
3.9BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee or subcommittee thereof, may be taken without a meeting if all members of the board of directors or committee or subcommittee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the board of directors or committee or subcommittee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. Any person (whether or not then a director) may provide, whether through instruction to an agent or otherwise, that a consent to action will be effective at a future time (including a time determined upon the happening of an event), no later than 60 days after such instruction is given or such provision is made and such consent shall be deemed to have been given for purposes of this Section 3.9 at such effective time so long as such person is then a director and did not revoke the consent prior to such time. Any such consent shall be revocable prior to its becoming effective.
3.10FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors.
3.11REMOVAL OF DIRECTORS
Consistent with Section 141(k) of the DGCL, so long as the board of directors remains classified as provided in Section 141(d) of the DGCL, any director may be removed from office by the stockholders of the corporation only for cause.
No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.
ARTICLE IV - COMMITTEES
4.1COMMITTEES OF DIRECTORS
The board of directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, 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 member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in these bylaws, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee
shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the corporation.
4.2COMMITTEE MINUTES
Each committee and subcommittee shall keep regular minutes of its meetings and report the same to the board of directors, or the committee, when required.
4.3MEETINGS AND ACTION OF COMMITTEES
A majority of the directors then serving on a committee or subcommittee shall constitute a quorum for the transaction of business by the committee or subcommittee, unless the certificate of incorporation, these bylaws, a resolution of the board of directors or a resolution of a committee that created the subcommittee requires a greater or lesser number, provided that in no case shall a quorum be less than 1/3 of the directors then serving on the committee or subcommittee. The vote of the majority of the members of a committee or subcommittee present at a meeting at which a quorum is present shall be the act of the committee or subcommittee, unless the certificate of incorporation, these bylaws, a resolution of the board of directors or a resolution of a committee that created the subcommittee requires a greater number. Meetings and actions of committees and subcommittees shall otherwise be governed by, and held and taken in accordance with, the provisions of:
(i)Section 3.5 (place of meetings and meetings by telephone);
(ii)Section 3.6 (regular meetings);
(iii)Section 3.7 (special meetings and notice);
(iv)Section 3.8 (quorum; voting);
(v)Section 7.4 (waiver of notice); and
(vi)Section 3.9 (action without a meeting)
with such changes in the context of those bylaws as are necessary to substitute the committee or subcommittee and its members for the board of directors and its members. However:
(i)the time and place of regular meetings of committees and subcommittees may be determined either by resolution of the board of directors or by resolution of the committee or subcommittee;
(ii)special meetings of committees and subcommittees may also be called by resolution of the board of directors or the committee or subcommittee; and
(iii)notice of special meetings of committees and subcommittees shall also be given to all alternate members, as applicable, who shall have the right to attend all meetings of the committee or subcommittee. The board of directors, or, in the absence of any such action by the board of directors, the committee or subcommittee, may adopt rules for the government of any committee or subcommittee not inconsistent with the provisions of these bylaws.
Any provision in the certificate of incorporation providing that one or more directors shall have more or less than one vote per director on any matter shall apply to voting in any committee or subcommittee, unless otherwise provided in the certificate of incorporation or these bylaws.
4.4SUBCOMMITTEES
Unless otherwise provided in the certificate of incorporation, these bylaws or the resolutions of the board of directors designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.
ARTICLE V - OFFICERS
5.1OFFICERS
The officers of the corporation shall be a president and a secretary. The corporation may also have, at the discretion of the board of directors, a chairperson of the board of directors, a vice chairperson of the board of directors, a chief executive officer, a chief financial officer or treasurer, one or more vice presidents, one or more assistant vice presidents, one or more assistant treasurers, one or more assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.
5.2APPOINTMENT OF OFFICERS
The board of directors shall appoint the officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 of these bylaws, subject to the rights, if any, of an officer under any contract of employment.
5.3SUBORDINATE OFFICERS
The board of directors may appoint, or empower the chief executive officer or, in the absence of a chief executive officer, the president, to appoint, such other officers and agents as the business of the corporation may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine.
5.4REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board of directors, or, for the avoidance of doubt, any duly authorized committee or subcommittee thereof or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
5.5VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled by the board of directors or as provided in Section 5.3.
5.6REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairperson of the board of directors, the president, any vice president, the treasurer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.
5.7AUTHORITY AND DUTIES OF OFFICERS
All officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the board of directors.
ARTICLE VI - STOCK
6.1STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates, provided that the board of directors may provide by resolution or resolutions that some or all of any or all classes or series of its 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. Unless otherwise provided by resolution of the board of directors, every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of, the corporation by any two authorized officers of the corporation representing the number of shares registered in certificate form. Any or all of 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 has 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. The corporation shall not have power to issue a certificate in bearer form.
The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
6.2SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the registered owner thereof shall be given a notice, in writing or by electronic transmission, containing the information required to be set forth or stated on certificates pursuant to this Section 6.2 or Sections 156, 202(a), 218(a) or 364 of the DGCL or with respect to this Section 6.2 a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated stock and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.
6.3LOST CERTIFICATES
Except as provided in this Section 6.3, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
6.4DIVIDENDS
The board of directors, subject to any restrictions contained in the certificate of incorporation or applicable law, may declare and pay dividends upon the shares of the corporation’s capital stock. Dividends may be paid in cash, in property, or in shares of the corporation’s capital stock, subject to the provisions of the certificate of incorporation.
The board of directors may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies.
6.5TRANSFER OF STOCK
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 an attorney duly authorized, and, if such stock is certificated, upon the
surrender of a certificate or certificates for a like number of shares, properly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer.
6.6STOCK TRANSFER AGREEMENTS
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.
6.7REGISTERED STOCKHOLDERS
The corporation:
(i)shall be entitled to treat the person registered on its books as the owner of any share or shares as the person exclusively entitled to receive dividends, vote, receive notifications and otherwise exercise all the rights and powers of an owner of such share or shares; and
(ii)shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII - MANNER OF GIVING NOTICE AND WAIVER
7.1.DELIVERY OF NOTICE; NOTICE BY ELECTRONIC TRANSMISSION
Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Company under any provision of the DGCL, the certificate of incorporation or these bylaws may be given in writing directed to the stockholder’s mailing address (or by electronic transmission directed to the stockholder’s electronic mail address, as applicable) as it appears on the records of the Company and shall be given (i) if mailed, when the notice is deposited in the U.S. mail, postage prepaid, (ii) if delivered by courier service, the earlier of when the notice is received or left at such stockholder’s address or (iii) if given by electronic mail, when directed to such stockholder’s electronic mail address unless the stockholder has notified the Company in writing or by electronic transmission of an objection to receiving notice by electronic mail or such notice is prohibited by this Section 7.1. A notice by electronic mail must include a prominent legend that the communication is an important notice regarding the Company.
Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Company under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by
the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice or electronic transmission to the Company.
Notice given pursuant to the preceding paragraph shall be deemed given:
(i)if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;
(ii)if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and
(iii)if by any other form of electronic transmission, when directed to the stockholder.
For purposes of the DGCL, the certificate of incorporation and these bylaws, (i) “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, including the use of, or participation in, one or more electronic networks or databases (including one or more distributed electronic networks or databases), that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process., (ii) “electronic mail” means an electronic transmission directed to a unique electronic mail address (which electronic mail shall be deemed to include any files attached thereto and any information hyperlinked to a website if such electronic mail includes the contact information of an officer or agent of the Company who is available to assist with accessing such files and information), (iii) “electronic mail address” means a destination, commonly expressed as a string of characters, consisting of a unique user name or mailbox (commonly referred to as the “local part” of the address) and a reference to an internet domain (commonly referred to as the “domain part” of the address), whether or not displayed, to which electronic mail can be sent or delivered, and (iv) “document” means any tangible medium on which information is inscribed, and includes handwritten, typed, printed or similar instruments, and copies of such instruments and an electronic transmission.
Notwithstanding the foregoing, a notice may not be given by an electronic transmission from and after the time that (i) the Company is unable to deliver by such electronic transmission two consecutive notices given by the Company and (ii) such inability becomes known to the Secretary or an Assistant Secretary of the Company or to the transfer agent, or other person responsible for the giving of notice; provided, however, the inadvertent failure to discover such inability shall not invalidate any meeting or other action.
An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the Company that notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
No provision of this section 7.1, except for subsection (i) of the first paragraph and subsections (ii) and (iii) of the seventh paragraph shall apply to Sections 164, 296, 311, 312 or 324 of the DGCL.
7.2.NOTICE TO STOCKHOLDERS SHARING AN ADDRESS
Except as otherwise prohibited under the DGCL, without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the corporation under
the provisions of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any stockholder who fails to object in writing to the corporation, within 60 days of having been given written notice by the corporation of its intention to send the single notice, shall be deemed to have consented to receiving such single written notice.
7.3.NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL
Whenever notice is required to be given, under the DGCL, the certificate of incorporation or these bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
7.4.WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, 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 at the beginning of the 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 need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.
ARTICLE VIII - INDEMNIFICATION
8.1.INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGS
Subject to the other provisions of this Article VIII, the corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, 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 (a “Proceeding”) (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 or officer of the corporation, or is or was a director or officer of the corporation serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct
was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.
8.2.INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
Subject to the other provisions of this Article VIII, the corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, 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 is or was a director or officer of the corporation, or is or was a director or officer of the corporation serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
8.3.SUCCESSFUL DEFENSE
To the extent that a present or former director or officer of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described in Section 8.1 or Section 8.2, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.
8.4.INDEMNIFICATION OF OTHERS
Subject to the other provisions of this Article VIII, the corporation shall have power to indemnify its employees and agents to the extent not prohibited by the DGCL or other applicable law. The board of directors shall have the power to delegate to such person or persons the determination of whether employees or agents shall be indemnified.
8.5.ADVANCED PAYMENT OF EXPENSES
Expenses (including attorneys’ fees) actually and reasonably incurred by an officer or director of the corporation in defending any Proceeding shall be paid by the corporation in advance of the final disposition of such Proceeding upon receipt of a written request therefor (together with documentation reasonably evidencing such expenses) and an undertaking by or on behalf of the person to repay such amounts if it shall ultimately be determined that the person is not entitled to be indemnified under this Article VIII or the DGCL. Such expenses (including attorneys’ fees) actually and reasonably incurred by former directors and officers or other employees and agents of the corporation or by persons serving at the request of the corporation as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other
enterprise may be so paid upon such terms and conditions, if any, as the corporation deems appropriate. The right to advancement of expenses shall not apply to any Proceeding (or any part of any Proceeding) for which indemnity is excluded pursuant to these bylaws, but shall apply to any Proceeding (or any part of any Proceeding) referenced in Section 8.6(ii) or 8.6(iii) prior to a determination that the person is not entitled to be indemnified by the corporation.
8.6.LIMITATION ON INDEMNIFICATION
Subject to the requirements in Section 8.3 and the DGCL, the corporation shall not be obligated to indemnify any person pursuant to this Article VIII in connection with any Proceeding (or any part of any Proceeding):
(i)for which payment has actually been made to or on behalf of such person under any statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any excess beyond the amount paid;
(ii)for an accounting or disgorgement of profits pursuant to Section 16(b) of the 1934 Act, or similar provisions of federal, state or local statutory law or common law, if such person is held liable therefor (including pursuant to any settlement arrangements);
(iii)for any reimbursement of the corporation by such person of any bonus or other incentive-based or equity-based compensation or of any profits realized by such person from the sale of securities of the corporation, as required in each case under the 1934 Act (including any such reimbursements that arise from an accounting restatement of the corporation pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the corporation of profits arising from the purchase and sale by such person of securities in violation of Section 306 of the Sarbanes-Oxley Act), if such person is held liable therefor (including pursuant to any settlement arrangements);
(iv)initiated by such person, including any Proceeding (or any part of any Proceeding) initiated by such person against the corporation or its directors, officers, employees, agents or other indemnitees, unless (a) the board of directors authorized the Proceeding (or the relevant part of the Proceeding) prior to its initiation, (b) the corporation provides the indemnification, in its sole discretion, pursuant to the powers vested in the corporation under applicable law, (c) otherwise required to be made under Section 8.7 or (d) otherwise required by applicable law; or
(v)if prohibited by applicable law.
8.7.DETERMINATION; CLAIM
If a claim for indemnification or advancement of expenses under this Article VIII is not paid in full within 90 days after receipt by the corporation of the written request therefor, the claimant shall be entitled to an adjudication by a court of competent jurisdiction of his or her entitlement to such indemnification or advancement of expenses. The corporation shall indemnify such person against any and all expenses that are actually and reasonably incurred by such person in connection with any action for indemnification or advancement of expenses from the corporation under this Article VIII, to the extent such person is successful in such action, and to the extent not prohibited by law. In any such suit, the corporation shall, to the fullest extent not prohibited by law, have the burden of proving that the claimant is not entitled to the requested indemnification or advancement of expenses.
8.8.NON-EXCLUSIVITY OF RIGHTS
The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the certificate of incorporation or any statute, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advancement of expenses, to the fullest extent not prohibited by the DGCL or other applicable law.
8.9.INSURANCE
The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of the DGCL.
8.10.SURVIVAL
The rights to indemnification and advancement of expenses conferred by this Article VIII shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
8.11.EFFECT OF REPEL OR MODIFICATION
A right to indemnification or to advancement of expenses arising under a provision of the certificate of incorporation or a bylaw shall not be eliminated or impaired by an amendment to the certificate of incorporation or these bylaws after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought, unless the provision in effect at the time of such act or omission explicitly authorizes such elimination or impairment after such action or omission has occurred.
8.12.CERTAIN DEFINITIONS
For purposes of this Article VIII, references to the “corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the corporation” shall
include any service as a director, officer, employee or agent of the corporation 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 such person reasonably believed to be in the interest 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 corporation” as referred to in this Article VIII.
ARTICLE IX - GENERAL MATTERS
9.1.EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
Except as otherwise provided by law, the certificate of incorporation or these bylaws, the board of directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute any document or instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors 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.
9.2.FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors.
9.3.SEAL
The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the board of directors. The corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
9.4.CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.
ARTICLE X - AMENDMENTS
These bylaws may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the affirmative vote of the holders of at least 66 2/3% of the total voting power of outstanding voting securities, voting together as a single class, shall be required for the stockholders of the corporation to alter, amend or repeal, or adopt any bylaw inconsistent with, the following provisions of these bylaws: Article II, Sections 3.1, 3.2, 3.4 and 3.11 of Article III, Article VIII and this Article X (including, without limitation, any such Article or Section as renumbered as a result of any amendment, alteration, change, repeal, or adoption of any other Bylaw). The board of directors shall also have the power to adopt, amend or repeal bylaws; provided, however, that a bylaw amendment adopted by stockholders which specifies the votes that
shall be necessary for the election of directors shall not be further amended or repealed by the board of directors.
ARTICLE XI - EXCLUSIVE FORUM
Unless the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation, (ii) 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, (iii) any action arising pursuant to any provision of the DGCL or the corporation’s certificate of incorporation or these bylaws (as either may be amended from time to time), or (iv) any action asserting a claim governed by the internal affairs doctrine, except for, as to each of (i) through (iv) above, any claim (A) as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within ten (10) days following such determination), (B) which is vested in the exclusive jurisdiction of a court or forum other than such court, or (C) for which such court does not have subject matter jurisdiction. Nothing herein contained shall be construed to preclude stockholders that assert claims under the Securities Act of 1933, as amended, the 1934 Act or any successor thereto, from bringing such claims in state or federal court, subject to applicable law.
Any person or entity purchasing or otherwise acquiring or holding any interest in any security of the corporation shall be deemed to have notice of and consented to the provisions of this Article XI.
THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
of
MEDAVAIL, INC.
Dated as of [●]
Void after the date specified in Section 8
THIS CERTIFIES THAT, for value received, [________________] or its registered assigns (the “Holder”), is entitled, subject to the provisions and upon the terms and conditions set forth herein, to purchase from MedAvail, Inc., a Delaware corporation (the “Company”), shares of the Shares (as defined below), in the amounts, at such times and at the price per share set forth in Section 1. The term “Warrant” as used herein shall include this Warrant and any warrants delivered in substitution or exchange therefor as provided herein. This Warrant is issued in connection pursuant to the terms of the [●] (the “Agreement”) by and among the Company, the original Holder hereof, and certain of the Investors (as defined therein) by and among the Company and the Warrant Holders (as defined therein). This Warrant is one of a series of warrants which may be issued pursuant to the Agreement (collectively, the “Warrants”).
The following is a statement of the rights of the Holder and the conditions to which this Warrant is subject, and to which Holder, by acceptance of this Warrant, agrees:
1.Number and Price of Shares; Exercise Period.
(a)Definition of Shares. “Shares” shall mean the Common Stock of the Company.
(b)Number of Shares. Subject to any previous exercise of the Warrant, the Holder shall have the right to purchase up to [●] Shares.
(c)Exercise Price. The exercise price per Share (the “Exercise Price”) shall be equal to [●] subject to adjustment as set forth herein.
(d)Exercise Period. This Warrant shall be exercisable, in whole or in part, at any time after the issuance hereof and prior to the expiration of this Warrant as set forth in Section 8.
2.Exercise of the Warrant.
(a)Exercise. The purchase rights represented by this Warrant may be exercised at the election of the Holder, in whole or in part, in accordance with Section 1, by:
(i)the tender to the Company at its principal office (or such other office or agency as the Company may designate) of a notice of exercise in the form of Exhibit A (the “Notice of
Exercise”), duly completed and executed by or on behalf of the Holder, together with the surrender of this Warrant; and
(ii)the payment to the Company of an amount equal to (x) the Exercise Price multiplied by (y) the number of Shares being purchased, by wire transfer or certified, cashier’s or other check acceptable to the Company and payable to the order of the Company.
(b)Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 2(a)(ii), if the fair market value of one Share is greater than the Exercise Price (at the date of calculation as set forth below), the Holder may elect to receive a number of Shares equal to the value of this Warrant (or of any portion of this Warrant being canceled) by surrender of this Warrant at the principal office of the Company (or such other office or agency as the Company may designate) together with a properly completed and executed Notice of Exercise reflecting such election, in which event the Company shall issue to the Holder that number of Shares computed using the following formula:
Where:
|
|
|
|
|
|
|
|
|
X
|
=
|
The number of Shares to be issued to the Holder
|
Y
|
=
|
The number of Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation)
|
A
|
=
|
The fair market value of one Share (at the date of such calculation)
|
B
|
=
|
The Exercise Price (as adjusted to the date of such calculation)
|
For purposes of the calculation above, the fair market value of one Share shall be determined by the Board of Directors of the Company, acting in good faith; provided, however, that:
(i)where a public market exists for the Company’s common stock at the time of such exercise, the fair market value per Share shall be the average of the closing bid prices of the common stock or the closing price quoted on the national securities exchange on which the common stock is listed as published in the Wall Street Journal, as applicable, for the ten (10) trading day period ending five (5) trading days prior to the date of determination of fair market value; and
(ii)if the Warrant is exercised in connection with the Company’s initial public offering of common stock, the fair market value per Share shall be the product of (x) the per share offering price to the public of the Company’s initial public offering and (y) the number of shares of common stock into which each Share is convertible at the time of such exercise, as applicable.
(c)Stock Certificates. The rights under this Warrant shall be deemed to have been exercised and the Shares issuable upon such exercise shall be deemed to have been issued immediately prior to the close of business on the date this Warrant is exercised in accordance with its terms, and the person entitled to receive the Shares issuable upon such exercise shall be treated for all purposes as the holder of record of such Shares as of the close of business on such date. As promptly as reasonably practicable on or after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for that number of shares issuable upon such exercise. In the event that the rights
under this Warrant are exercised in part and have not expired, the Company shall execute and deliver a new Warrant reflecting the number of Shares that remain subject to this Warrant.
(d)No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the rights under this Warrant. In lieu of such fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction.
(e)Automatic Exercise. If the Holder of this Warrant has not elected to exercise this Warrant prior to expiration of this Warrant pursuant to Section 8, then this Warrant shall automatically (without any act on the part of the Holder) be exercised pursuant to Section 2(b) effective immediately prior to the expiration of the Warrant to the extent such net issue exercise would result in the issuance of Shares, unless Holder shall earlier provide written notice to the Company that the Holder desires that this Warrant expire unexercised. If this Warrant is automatically exercised, the Company shall notify the Holder of the automatic exercise as soon as reasonably practicable, and the Holder shall surrender the Warrant to the Company in accordance with the terms hereof.
(f)Intentionally Omitted.
(g)Reservation of Stock. The Company agrees during the term the rights under this Warrant are exercisable to take all reasonable action to reserve and keep available from its authorized and unissued shares of common stock for the purpose of effecting the exercise of this Warrant such number of shares as shall from time to time be sufficient to effect the exercise of the rights under this Warrant; and if at any time the number of authorized but unissued shares of common stock shall not be sufficient for purposes of the exercise of this Warrant in accordance with its terms, without limitation of such other remedies as may be available to the Holder, the Company will use all reasonable efforts to take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized and unissued shares of its common stock to a number of shares as shall be sufficient for such purposes.
3.Replacement of the Warrant. Subject to the receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at the expense of the Holder shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount.
4.Transfer of the Warrant.
(a)Warrant Register. The Company shall maintain a register (the “Warrant Register”) containing the name and address of the Holder or Holders. Until this Warrant is transferred on the Warrant Register in accordance herewith, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary. Any Holder of this Warrant (or of any portion of this Warrant) may change its address as shown on the Warrant Register by written notice to the Company requesting a change.
(b)Warrant Agent. The Company may appoint an agent for the purpose of maintaining the Warrant Register referred to in Section 4(a), issuing the Shares or other securities then issuable upon the exercise of the rights under this Warrant, exchanging this Warrant, replacing this Warrant or conducting related activities.
(c)Transferability of the Warrant. Subject to the provisions of this Warrant with respect to compliance with the Securities Act of 1933, as amended (the “Securities Act”) and limitations on
assignments and transfers, including without limitation compliance with the restrictions on transfer set forth in Section 5, title to this Warrant may be transferred by endorsement (by the transferor and the transferee executing the assignment form attached as Exhibit B (the “Assignment Form”) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery.
(d)Exchange of the Warrant upon a Transfer. On surrender of this Warrant (and a properly endorsed Assignment Form) for exchange, subject to the provisions of this Warrant with respect to compliance with the Securities Act and limitations on assignments and transfers, the Company shall issue to or on the order of the Holder a new warrant or warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of shares issuable upon exercise hereof, and the Company shall register any such transfer upon the Warrant Register. This Warrant (and the securities issuable upon exercise of the rights under this Warrant) must be surrendered to the Company or its warrant or transfer agent, as applicable, as a condition precedent to the sale, pledge, hypothecation or other transfer of any interest in any of the securities represented hereby.
(e)Minimum Transfer. This Warrant may not be transferred in part.
(f)Taxes. In no event shall the Company be required to pay any stamp, duty, transfer, or other similar tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder, and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid or is not payable.
5.Restrictions on Transfer of the Warrant and Shares; Compliance with Securities Laws. By acceptance of this Warrant, the Holder agrees to comply with the following:
(a)Restrictions on Transfers. Subject to Section 5(b), this Warrant may not be transferred or assigned in whole or in part without the Company’s prior written consent (which shall not be unreasonably withheld or delayed), and any attempt by Holder to transfer or assign any rights, duties or obligations that arise under this Warrant without such permission shall be void. Any transfer of this Warrant or the Shares (the “Securities”) must be in compliance with all applicable federal and state securities laws. The Holder agrees not to make any sale, assignment, transfer, pledge or other disposition of all or any portion of the Securities, or any beneficial interest therein, unless and until the transferee thereof has agreed in writing for the benefit of the Company to take and hold such Securities subject to, and to be bound by, the terms and conditions set forth in this Warrant to the same extent as if the transferee were the original Holder hereunder, and
(i)there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement, or
(ii)(A) such Holder shall have given prior written notice to the Company of such Holder’s intention to make such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition, (B) the transferee shall have confirmed to the satisfaction of the Company in writing, substantially in the form of Exhibit A-1, that the Securities are being acquired (i) solely for the transferee’s own account and not as a nominee for any other party, (ii) for investment and (iii) not with a view toward distribution or resale in violation of the Securities Act or applicable state securities laws, and shall have confirmed such other matters related thereto as may be reasonably requested by the Company, and (C) such Holder shall have furnished the Company, at the Holder’s expense, with (i) an opinion of counsel, reasonably satisfactory to the Company, to the effect that
such disposition will not require registration of such Securities under the Securities Act or (ii) a “no action” letter from the Securities and Exchange Commission to the effect that the transfer of such Securities without registration will not result in a recommendation by the staff of the Securities and Exchange Commission that action be taken with respect thereto, whereupon such Holder shall be entitled to transfer such Securities in accordance with the terms of the notice delivered by the Holder to the Company. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances.
(b)Permitted Transfers. Permitted transfers include (i) a transfer not involving a change in beneficial ownership, or (ii) transactions involving the disposition of Securities by any Holder to (x) a parent, subsidiary or other affiliate of a Holder that is a corporation, (y) any of the Holder’s partners, members or other equity owners, or retired partners or members, or to the estate of any of its partners, members or other equity owners or retired partners or members, or (z) a venture capital fund or other investment fund or account that is controlled by or under common control with one or more general partners or managing members of, or shares the same management company with, the Holder; provided, in each case, that the Holder shall give written notice to the Company of the Holder’s intention to effect such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition.
(c)Investment Representation Statement. Unless the rights under this Warrant are exercised pursuant to an effective registration statement under the Securities Act that includes the Shares with respect to which the Warrant was exercised, it shall be a condition to any exercise of the rights under this Warrant that the Holder shall have confirmed to the satisfaction of the Company in writing, substantially in the form of Exhibit A-1, that the Shares so purchased are being acquired solely for the Holder’s own account and not as a nominee for any other party, for investment and not with a view toward distribution or resale in violation of the Securities Act or applicable state securities laws and that the Holder shall have confirmed such other matters related thereto as may be reasonably requested by the Company.
(d)Securities Law Legend. The Securities shall (unless otherwise permitted by the provisions of this Warrant) be stamped or imprinted with a legend substantially similar to the following (in addition to any legend required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS CERTIFICATE MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.
(e)Market Stand-off Legend. The Shares shall also be stamped or imprinted with a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE, INCLUDING A LOCK-UP PERIOD IN THE EVENT
OF A PUBLIC OFFERING, AS SET FORTH IN THE WARRANT PURSUANT TO WHICH THESE SHARES WERE ISSUED, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY.
(f)Instructions Regarding Transfer Restrictions. The Holder consents to the Company making a notation on its records and giving instructions to any transfer agent in order to implement the restrictions on transfer established in this Section 5.
(g)Removal of Legend. The legend referring to federal and state securities laws identified in Section 5(d) stamped on a certificate evidencing the Shares and the stock transfer instructions and record notations with respect to such securities shall be removed and the Company shall issue a certificate without such legend to the holder of such securities if (i) such securities are registered under the Securities Act, or (ii) such holder provides the Company with an opinion of counsel reasonably acceptable to the Company to the effect that a sale or transfer of such securities may be made without registration or qualification.
6.Adjustments. Subject to the expiration of this Warrant pursuant to Section 8, the number and kind of shares purchasable hereunder and the Exercise Price therefor are subject to adjustment from time to time, as follows:
(a)Merger or Reorganization. If at any time there shall be any reorganization, recapitalization, merger or consolidation (a “Reorganization”) involving the Company (other than the transactions described in Sections 6(b) or 6(c)) in which shares of the Company’s stock are converted into or exchanged for securities, cash or other property, then, as a part of such Reorganization, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, the kind and amount of securities, cash or other property of the successor corporation resulting from such Reorganization, equivalent in value to that which a holder of the Shares deliverable upon exercise of this Warrant would have been entitled in such Reorganization if the right to purchase the Shares hereunder had been exercised immediately prior to such Reorganization. In any such case, appropriate adjustment (as determined in good faith by the Board of Directors of the successor corporation) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after such Reorganization to the end that the provisions of this Warrant shall be applicable after the event, as near as reasonably may be, in relation to any shares or other securities deliverable after that event upon the exercise of this Warrant.
(b)Reclassification of Shares. If the securities issuable upon exercise of this Warrant are changed into the same or a different number of securities of any other class or classes by reclassification, capital reorganization, conversion of all outstanding shares of the relevant class or series or otherwise (a “Reclassification”), then, in any such event, in lieu of the number of Shares which the Holder would otherwise have been entitled to receive, the Holder shall have the right thereafter to exercise this Warrant for a number of shares of such other class or classes of stock that a holder of the number of securities deliverable upon exercise of this Warrant immediately before that change would have been entitled to receive in such Reclassification, all subject to further adjustment as provided herein with respect to such other shares.
(c)Subdivisions and Combinations. In the event that the outstanding shares of the securities issuable upon exercise of this Warrant are subdivided (by stock split, by payment of a stock dividend or otherwise) into a greater number of shares of such securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the outstanding shares of the securities issuable upon exercise of this Warrant are combined (by reclassification or otherwise) into a lesser number of shares of such securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to
such combination shall, concurrently with the effectiveness of such combination, be proportionately decreased, and the Exercise Price shall be proportionately increased.
(d)Notice of Adjustments. Upon any adjustment in accordance with this Section 6, the Company shall give notice thereof to the Holder, which notice shall state the event giving rise to the adjustment, the Exercise Price as adjusted and the number of securities or other property purchasable upon the exercise of the rights under this Warrant, setting forth in reasonable detail the method of calculation of each. The Company shall, upon the written request of any Holder, furnish or cause to be furnished to such Holder a certificate setting forth (i) such adjustments, (ii) the Exercise Price at the time in effect and (iii) the number of securities and the amount, if any, of other property that at the time would be received upon exercise of this Warrant.
7.Notification of Certain Events. Prior to the expiration of this Warrant pursuant to Section 8, in the event that the Company shall authorize:
(a)the issuance of any dividend or other distribution on the capital stock of the Company (other than (i) dividends or distributions otherwise provided for in Section 6, (ii) repurchases of common stock issued to or held by employees, officers, directors or consultants of the Company or its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of said repurchase; (iii) repurchases of common stock issued to or held by employees, officers, directors or consultants of the Company or its subsidiaries pursuant to rights of first refusal or first offer contained in agreements providing for such rights; or (iv) repurchases of capital stock of the Company in connection with the settlement of disputes with any stockholder), whether in cash, property, stock or other securities;
(b)the voluntary liquidation, dissolution or winding up of the Company; or
(c)any firm commitment underwritten initial public offering pursuant to an effective registration statement filed under the Securities Act covering the offering and sale of the Company’s common stock;
the Company shall send to the Holder of this Warrant at least ten (10) days prior written notice of the date on which a record shall be taken for any such dividend or distribution specified in clause (a) or the expected effective date of any such other event specified in clause (b) or (c), as applicable. The notice provisions set forth in this section may be shortened or waived prospectively or retrospectively by the consent of the holders of a majority of the Shares issuable upon exercise of the rights under the Warrants.
(d)The Holder may exercise this Warrant conditioned upon (and effective immediately prior to) consummation of any transaction set forth in this Section 7.
8.Expiration of the Warrant. This Warrant shall expire and shall no longer be exercisable as of [●].
9.No Rights as a Stockholder. Nothing contained herein shall entitle the Holder to any rights as a stockholder of the Company or to be deemed the holder of any securities that may at any time be issuable on the exercise of the rights hereunder for any purpose nor shall anything contained herein be construed to confer upon the Holder, as such, any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or any other rights of a stockholder of the Company until the rights under the Warrant shall have been exercised and the Shares purchasable upon exercise of the rights hereunder shall have become deliverable as provided herein.
10.Market Stand-off. The Holder of this Warrant hereby agrees that such Holder shall not sell or otherwise transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, of any common stock (or other securities) of the Company held by the Holder (other than those included in the registration) during the one hundred eighty (180) day period following the effective date of a registration statement of the Company filed under the Securities Act (or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto), provided that all officers and directors of the Company and holders of at least one percent (1%) of the Company’s voting securities are bound by and have entered into similar agreements. The obligations described in this section shall not apply to a registration relating solely to employee benefit plans on Form S-l or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions and may stamp each certificate with a legend as substantially set forth in Section 5(e) with respect to the shares of common stock (or other securities) subject to the foregoing restriction until the end of such one hundred eighty (180) day (or other) period. The Holder agrees to execute a market stand-off agreement with the underwriters in the offering in customary form consistent with the provisions of this section.
11.Representations and Warranties of the Holder. By acceptance of this Warrant, the Holder represents and warrants to the Company as follows:
(a)No Registration. The Holder understands that the Securities have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Holder’s representations as expressed herein or otherwise made pursuant hereto.
(b)Investment Intent. The Holder is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof in violation of the Securities Act or applicable state securities laws. The Holder has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.
(c)Investment Experience. The Holder has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.
(d)Speculative Nature of Investment. The Holder understands and acknowledges that the Company has a limited financial and operating history and that its investment in the Company is highly speculative and involves substantial risks. The Holder can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.
(e)Access to Data. The Holder has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Holder believes that it has received all the information that it considers necessary or appropriate for deciding whether to acquire the Securities. The Holder understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The Holder acknowledges that any business plans prepared by the
Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.
(f)Accredited Investor. The Holder is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company.
(g)Residency. The residency of the Holder (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth on the signature page hereto.
(h)Restrictions on Resales. The Holder acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Holder is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “broker’s transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Holder acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Holder wishes to sell the Securities and that, in such event, the Holder may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Holder acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Holder understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and the brokers who participate in the transactions do so at their own risk.
(i)No Public Market. The Holder understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.
(j)Brokers and Finders. The Holder has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Holder, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Securities.
(k)Legal Counsel. The Holder has had the opportunity to review this Warrant, the exhibits and schedules attached hereto and the transactions contemplated by this Warrant with its own legal counsel. The Holder is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by this Warrant.
(l)Tax Advisors. The Holder has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by this Warrant. With respect to such matters, the Holder relies solely on any such advisors and not on any statements or representations of the Company (other than those representations or warranties of the Company
set forth in the Agreement) or any of its agents, written or oral. The Holder understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment and the transactions contemplated by this Warrant.
12.Miscellaneous.
(a)Amendments. Except as expressly provided herein, neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Warrant and signed by the Company and the holders of Warrants issued pursuant to the Agreement and representing not less than [●] percent ([●]%) of the Shares issuable upon exercise of any and all outstanding Warrants issued pursuant to the Agreement, which [●] percent ([●]%) does not need to include the consent of the Holder; provided, however, that no such amendment, waiver or termination shall (i) increase the Exercise Price or (ii) otherwise decrease the number of Shares issuable pursuant to Section 1(b). Any amendment, waiver, discharge or termination effected in accordance with this Section 12(a) shall be binding upon each holder of the Warrants, each future holder of such Warrants and the Company.
(b)Waivers. No waiver of any single breach or default shall be deemed a waiver of any other breach or default theretofore or thereafter occurring.
(c)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 facsimile or electronic mail (if to the Holder) or otherwise delivered by hand, messenger or courier service addressed:
(i)if to the Holder, to the Holder at the Holder’s address, facsimile number or electronic mail address as shown in the Company’s records, as may be updated in accordance with the provisions hereof, or until any such Holder so furnishes an address, facsimile number or electronic mail address to the Company, then to and at the address, facsimile number or electronic mail address of the last holder of this Warrant for which the Company has contact information in its records; or
(ii)if to the Company, to the attention of the President or Chief Financial Officer of the Company at the Company’s address as shown on the signature page hereto, or at such other address as the Company shall have furnished to the Holder, with a copy to Philip H. Oettinger, Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, CA 94304-1050.
Each such notice or other communication shall for all purposes of this Warrant be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered, or (ii) if sent by mail, at the earlier of its receipt or 72 hours 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 by facsimile, upon confirmation of facsimile transfer or, if sent by electronic mail, upon confirmation of delivery when directed to the relevant electronic mail address. In the event of any conflict between the Company’s books and records and this Warrant or any notice delivered hereunder, the Company’s books and records will control absent fraud or error.
(d)Governing Law. This Warrant and all actions arising out of or in connection with this Warrant shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of law provisions of the State of Delaware, or of any other state.
(e)Jurisdiction and Venue. Each of the Holder and the Company irrevocably consents to the exclusive jurisdiction and venue of any court within the State of Delaware, in connection with any matter based upon or arising out of this Warrant or the matters contemplated herein, and agrees that process may be served upon them in any manner authorized by the laws of the State of Delaware for such persons.
(f)Titles and Subtitles. The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant. All references in this Warrant to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.
(g)Severability. If any provision of this Warrant becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Warrant, and such illegal, unenforceable or void provision shall be replaced with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, unenforceable or void provision. The balance of this Warrant shall be enforceable in accordance with its terms.
(h)Waiver of Jury Trial. EACH OF THE HOLDER AND THE COMPANY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATED TO THIS WARRANT. This paragraph shall not restrict the Holder or the Company from exercising remedies under the Uniform Commercial Code or from exercising pre-judgment remedies under applicable law.
(i)California Corporate Securities Law. THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS WARRANT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS WARRANT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
(j)Saturdays, Sundays and Holidays. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or U.S. federal holiday, then such action may be taken or such right may be exercised on the next succeeding day that is not a Saturday, Sunday or U.S. federal holiday.
(k)Rights and Obligations Survive Exercise of the Warrant. Except as otherwise provided herein, the rights and obligations of the Company and the Holder under this Warrant shall survive exercise of this Warrant.
(l)Entire Agreement. Except as expressly set forth herein, this Warrant (including the exhibits attached hereto) constitutes the entire agreement and understanding of the Company and the Holder with respect to the subject matter hereof and supersede all prior agreements and understandings relating to the subject matter hereof.
(signature page follows)
The Company and the Holder sign this Warrant as of the date stated on the first page.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEDAVAIL, INC.
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
Ed Kilroy, Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
|
|
|
|
6665 Millcreek Drive, Unit 1
Mississauga, ON L5N 5M4
|
|
|
|
|
|
|
|
AGREED AND ACKNOWLEDGED,
|
|
|
|
|
|
|
|
|
[________________________]
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
Signature
|
|
|
|
|
|
|
|
|
|
Name and Title
|
|
|
|
|
|
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Signature Page to Warrant to Purchase Shares of Common Stock of MedAvail, Inc.)
EXHIBIT A
NOTICE OF EXERCISE
TO: MEDAVAIL, INC. (the “Company”)
Attention: President
(1)Exercise. The undersigned elects to purchase the following pursuant to the terms of the attached warrant:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares:
|
|
|
|
|
|
|
|
Type of security:
|
|
|
|
|
|
|
|
If conditional exercise, indicate condition herein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)Method of Exercise. The undersigned elects to exercise the attached warrant pursuant to:
|
|
|
|
|
|
|
|
|
|
☐
|
A cash payment, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any.
|
|
|
|
|
☐
|
The net issue exercise provisions of Section 2(b) of the attached warrant.
|
(3)Stock Certificate. Please issue a certificate or certificates representing the shares in the name of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
☐
|
The undersigned
|
|
|
|
|
|
|
|
☐
|
Other—Name:
|
|
|
|
|
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
|
|
|
|
(4)Unexercised Portion of the Warrant. Please issue a new warrant for the unexercised portion of the attached warrant in the name of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
☐
|
The undersigned
|
|
|
|
|
|
|
|
☐
|
Other—Name:
|
|
|
|
|
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
☐
|
Not applicable
|
|
(5)Investment Intent. The undersigned represents and warrants that the aforesaid shares are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for
resale in connection with, the distribution thereof in violation of the Securities Act of 1933, as amended, or applicable state securities laws, and that the undersigned has no present intention of selling, granting any participation in, or otherwise distributing the shares, nor does it have any contract, undertaking, agreement or arrangement for the same, and all representations and warranties of the undersigned set forth in Section 11 of the attached warrant are true and correct as of the date hereof.
(6)Investment Representation Statement and Market Stand-Off Agreement. The undersigned has executed, and delivers herewith, an Investment Representation Statement and Market Stand-Off Agreement in a form substantially similar to the form attached to the warrant as Exhibit A-1.
(7)Consent to Receipt of Electronic Notice. Subject to the limitations set forth in Delaware General Corporation Law §232(e), the undersigned consents to the delivery of any notice to stockholders given by the Company under the Delaware General Corporation Law or the Company’s certificate of incorporation or bylaws by (i) facsimile telecommunication to the facsimile number provided below (or to any other facsimile number for the undersigned in the Company’s records), (ii) electronic mail to the electronic mail address provided below (or to any other electronic mail address for the undersigned in the Company’s records), (iii) posting on an electronic network together with separate notice to the undersigned of such specific posting or (iv) any other form of electronic transmission (as defined in the Delaware General Corporation Law) directed to the undersigned. This consent may be revoked by the undersigned by written notice to the Company and may be deemed revoked in the circumstances specified in Delaware General Corporation Law §232.
|
|
|
|
(Print name of the warrant holder)
|
|
|
(Signature)
|
|
|
(Name and title of signatory, if applicable)
|
|
|
(Date)
|
|
|
(Fax number)
|
|
|
(Email address)
|
(Signature page to the Notice of Exercise)
A-2
EXHIBIT A-l
INVESTMENT REPRESENTATION STATEMENT
AND
MARKET STAND-OFF AGREEMENT
|
|
|
|
|
|
|
|
|
|
|
|
INVESTOR:
|
|
|
|
|
|
|
COMPANY:
|
MEDAVAIL, INC.
|
|
|
|
|
SECURITIES:
|
THE WARRANT ISSUED ON [●] (THE “WARRANT”) AND THE SECURITIES ISSUED OR ISSUABLE UPON EXERCISE THEREOF
|
|
|
|
|
DATE:
|
|
|
|
In connection with the purchase or acquisition of the above-listed Securities, the undersigned Investor represents and warrants to, and agrees with, the Company as follows:
1.No Registration. The Investor understands that the Securities have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”), by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Investor’s representations as expressed herein or otherwise made pursuant hereto.
2.Investment Intent. The Investor is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof in violation of the Securities Act or applicable state securities laws. The Investor has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.
3.Investment Experience. The Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.
4.Speculative Nature of Investment. The Investor understands and acknowledges that the Company has a limited financial and operating history and that its investment in the Company is highly speculative and involves substantial risks. The Investor can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.
5.Access to Data. The Investor has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Investor believes that it has received all the information that it considers necessary or appropriate for deciding whether to acquire the Securities. The Investor understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The Investor acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.
6.Accredited Investor. The Investor is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company.
7.Residency. The residency of the Investor (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth on the signature page hereto.
8.Restrictions on Resales. The Investor acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Investor is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “broker’s transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Investor acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Investor wishes to sell the Securities and that, in such event, the Investor may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Investor understands and acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Investor understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for those offers or sales and that those persons and the brokers who participate in the transactions do so at their own risk.
9.No Public Market. The Holder understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.
10.Brokers and Finders. The Investor has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Investor, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Securities.
11.Legal Counsel. The Investor has had the opportunity to review the Warrant, the exhibits and schedules attached thereto and the transactions contemplated by the Warrant with its own legal counsel. The Investor is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by the Warrant.
12.Tax Advisors. The Investor has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by the Warrant. With respect to such matters, the Investor relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Investor understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Warrant.
13.Market Stand-off. The Investor agrees that the Investor shall not sell or otherwise transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, of any common stock (or other securities) of the Company held by the Investor (other than those included in the registration) during the one hundred eighty (180) day period following the effective date of a registration statement of the Company filed under the Securities Act (or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto), provided that all officers and directors of the Company and holders of at least one percent (1%) of the Company’s voting securities are bound by and have entered into similar agreements. The obligations described in this section shall not apply to a registration relating solely to employee benefit plans on Form S-l or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions and may stamp each certificate with a legend with respect to the shares of common stock (or other securities) subject to the foregoing restriction until the end of such one hundred eighty (180) day (or other) period. The Investor agrees to execute a market stand-off agreement with the relevant underwriters in customary form consistent with the provisions of this section.
(signature page follows)
The Investor is signing this Investment Representation Statement and Market Stand-Off Agreement on the date first written above.
|
|
|
INVESTOR
|
|
|
(Print name of the investor)
|
|
|
(Signature)
|
|
|
(Name and title of signatory, if applicable)
|
|
|
(Street address)
|
|
|
(City, state and ZIP)
|
EXHIBIT B
ASSIGNMENT FORM
|
|
|
|
|
|
|
|
|
|
|
|
ASSIGNOR:
|
|
|
|
|
|
|
COMPANY:
|
MEDAVAIL, INC.
|
|
|
|
|
SECURITIES:
|
THE WARRANT TO PURCHASE SHARES OF COMMON STOCK ISSUED ON [●] (THE “WARRANT”)
|
|
|
|
|
DATE:
|
|
|
|
(8)Assignment. The undersigned registered holder of the Warrant (“Assignor”) assigns and transfers to the assignee named below (“Assignee”) all of the rights of Assignor under the Warrant, with respect to the number of shares set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Assignee:
|
|
|
|
|
|
|
|
Address of Assignee:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Assigned:
|
|
and does irrevocably constitute and appoint ______________________ as attorney to make such transfer on the books of MedAvail, Inc., maintained for the purpose, with full power of substitution in the premises.
(9)Obligations of Assignee. Assignee agrees to take and hold the Warrant and any shares of stock to be issued upon exercise of the rights thereunder (the “Securities”) subject to, and to be bound by, the terms and conditions set forth in the Warrant to the same extent as if Assignee were the original holder thereof.
(10)Investment Intent. Assignee represents and warrants that the Securities are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof in violation of the Securities Act of 1933, as amended, or applicable state securities laws, and that Assignee has no present intention of selling, granting any participation in, or otherwise distributing the shares, nor does it have any contract, undertaking, agreement or arrangement for the same, and all representations and warranties set forth in Section 11 of the Warrant are true and correct as to Assignee as of the date hereof.
(11)Investment Representation Statement and Market Stand-Off Agreement. Assignee has executed, and delivers herewith, an Investment Representation Statement and Market Stand-Off Agreement in a form substantially similar to the form attached to the Warrant as Exhibit A-1.
Signature Page to Warrant
Assignor and Assignee are signing this Assignment Form on the date first set forth above.
|
|
|
|
|
|
|
|
|
ASSIGNOR
|
|
ASSIGNEE
|
|
|
|
|
|
|
(Print name of Assignor)
|
|
(Print name of Assignor)
|
|
|
|
|
|
|
(Signature of Assignee)
|
|
(Signature of Assignee)
|
|
|
|
|
|
|
(Print name of signatory, if applicable)
|
|
(Print name of signatory, if applicable)
|
|
|
|
|
|
|
(Print title of signatory, if applicable)
|
|
(Print title of signatory, if applicable)
|
|
|
|
Address:
|
|
Address:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
MEDAVAIL HOLDINGS, INC.
|
|
|
|
|
|
Warrant Shares: _______
|
Issue Date: November 18, 2020
|
|
|
|
Initial Exercise Date: November 18, 2020
|
THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date set forth above (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on November 18, 2025 (the “Termination Date”) but not thereafter, to subscribe for and purchase from MedAvail Holdings, Inc., a Delaware corporation (the “Company”), up to ______ shares (as subject to adjustment hereunder, the “Warrant Shares”) of the Company’s Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1.Definitions. In addition to the terms defined elsewhere in this Warrant, the following terms have the meanings indicated in this Section 1:
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Commission” means the United States Securities and Exchange Commission.
“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.
“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Subsidiary” means any subsidiary of the Company required to be listed pursuant to Item 601(b)(21) of Regulation S-K.
“Trading Day” means a day on which the principal Trading Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).
“Transfer Agent” means Transhare Corporation, 2849 Executive Drive, Suite 200, Clearwater, FL 33762, and any successor transfer agent of the Company.
“Warrants” means this Warrant and other Common Stock purchase warrants issued by the Company on the Issue Date.
Section 2.Exercise.
a)Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the Warrant Shares specified in the applicable Notice of Exercise by wire transfer or
cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Trading Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
b)Exercise Price. The exercise price per share of Common Stock under this Warrant shall be $0.01, subject to adjustment hereunder (the “Exercise Price”).
c)Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of the Warrant Shares to the Holder, then this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the principal Trading Market as reported by Bloomberg L.P. as of the time of the Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading
hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the close of “regular trading hours” on such Trading Day;
(B) = the Exercise Price of this Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.
“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Company and reasonably acceptable to the Holders of a majority in interest of the Securities then outstanding, the fees and expenses of which shall be paid by the Holders so exercising their Warrants by cashless exercise.
If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to take any position contrary to this Section 2(c).
Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).
d)Mechanics of Exercise.
i.Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received by the Warrant Share Delivery Date. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $5 per Trading Day (increasing to $10 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or
Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.
ii.Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii.Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv.Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v.No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
vi.Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
vii.Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
e)Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder
(together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one (1) Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon
exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
Section 3.Certain Adjustments.
a)Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.
b)Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock
acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, that to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
c)Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (and all of its Subsidiaries, taken as a whole), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise
Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3(c) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.
d)Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
e)Notice to Holder.
i.Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to
the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii.Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by email to the Holder at its last email address as it shall appear upon the Warrant Register of the Company, reasonably in advance of the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 4.Transfer of Warrant.
a)Transferability. Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b)New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Issue Date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c)Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
d)Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer,
that the Holder or transferee of this Warrant, as the case may be, provide to the Company an opinion of counsel, the form and substance of which opinion shall be reasonably satisfactory to the Company to the effect that the transfer of this Warrant does not require registration under the Securities Act.
e)Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.
Section 5.Representations and Warranties of Holder.
(a)No Registration. The Holder understands that the Warrant and the underlying shares have not been registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Holder’s representations as expressed herein or otherwise made pursuant hereto.
(b)Investment Intent. The Holder is acquiring the Warrant and the underlying shares for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Holder has no present intention of selling, granting any participation in, or otherwise distributing the Warrant and the underlying shares, nor does it have any contract, undertaking, agreement or arrangement for the same.
(c)Investment Experience. The Holder has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.
(d)Speculative Nature of Investment. The Holder understands and acknowledges that the Company has a limited financial and operating history and that its investment in the Company is highly speculative and involves substantial risks. The Holder can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Warrant and the underlying shares for an indefinite period of time and to suffer a complete loss of its investment.
(e)Accredited Investor. The Holder is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission.
(f)Restrictions on Resales. The Holder is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other
things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “broker’s transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Holder acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Holder wishes to sell the Warrant and the underlying shares and that, in such event, the Holder may be precluded from selling the Warrant and the underlying shares under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Holder acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Warrant and the underlying shares.
Section 6.Registration Rights.
(a)Registration Statement on Form S-3. If, and only if, the Company is eligible to file and use a registration statement on Form S-3 immediately after the Issue Date, as soon as practicable (and in any event within 30 calendar days following the Issue Date), the Company shall file a registration statement on Form S-3 providing for the resale by the Holder of the Warrant Shares issued and/or issuable upon exercise of the Warrants (the “S-3 Registration Statement”). The Company shall use commercially reasonable efforts to cause such S-3 Registration Statement to become effective within 60 days following the Issue Date (or, in the event of a “full review” by the Commission, the 90th calendar day following the Issue Date); provided, however, that in the event the Company is notified by the Commission that the S-3 Registration Statement will not be reviewed or is no longer subject to further review and comments, the effectiveness date as to such S-3 Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified, if such date precedes the dates otherwise required above, provided, further, if such effectiveness date falls on a day that is not a Trading Day, then the effectiveness date shall be the next succeeding Trading Day. The Company shall use commercially reasonable efforts to keep such S-3 Registration Statement effective at all times until the Holder does not owns any Warrants or Warrant Shares issuable upon exercise thereof.
(b)Piggyback Registration. If, and only if, the Company is not eligible to file and use a registration statement on Form S-3 immediately after the Issue Date, the Company shall file a registration statement on Form S-1 providing for the resale by the Holder of the Warrant Shares issued and/or issuable upon exercise of the Warrants along with the “Registrable Securities” within the meaning of that certain amendment and restated investors’ rights agreement, dated as of October 9, 2020, by and among MedAvail, Inc., the investors party thereto and MedAvail Holdings, Inc. (the “Rights Agreement”). The Holder shall be considered as an “Investor” and the Warrant Shares issued and/or issuable upon exercise of the Warrants shall be considered as “Registrable Securities” within the meaning of the Rights Agreement and the obligation of the Company with respect to any registration rights thereunder, including, but
not limited to, the timing of such rights, are hereby incorporated by reference, mutatis mutandis, and shall be the Company’s obligations with respect to the Holder and the Warrant Shares.
Section 7.Miscellaneous.
a)No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting the rights of a Holder to receive Warrant Shares on a “cashless exercise,” and to receive the cash payments contemplated pursuant to Sections 2(d)(i) and 2(d)(iv), in no event will the Company be required to net cash settle an exercise of this Warrant.
b)Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c)Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Trading Day, then, such action may be taken or such right may be exercised on the next succeeding Trading Day.
d)Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and
charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
e)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Warrant (whether brought against a party hereto or their respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action, suit or proceeding to enforce any provisions of this Warrant, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for their reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
f)Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g)Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies, notwithstanding the fact that the right to exercise this Warrant terminates on the Termination Date. Without limiting any other provision of this Warrant, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h)Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder, including, without limitation, any Notice of Exercise, shall be in writing and delivered personally, by facsimile or e-mail, or sent by a nationally recognized overnight courier service, addressed to the Company, at 6665 Millcreek Dr #1, Mississauga, ON L5N 5M4, Canada, Attention: Chief Financial Officer, email address: rferguson@medavail.com, or such other email address or address as the Company may specify for such purposes by notice to the Holders. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by e-mail, or sent by a nationally recognized overnight courier service addressed to each Holder at the e-mail address or address of such Holder appearing on the books of the Company. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the time of transmission, if such notice or communication is delivered via e-mail at the e-mail address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the time of transmission, if such notice or communication is delivered via facsimile at the facsimile number or via e-mail at the e-mail address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.
i)Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j)Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k)Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l)Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company, on the one hand, and the Holder of this Warrant, on the other hand.
m)Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n)Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature Page Follows)
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
|
|
|
|
|
|
MEDAVAIL HOLDINGS, INC.
|
|
|
|
|
By:
|
|
|
Name:
Title:
|
EXHIBIT A
NOTICE OF EXERCISE
To: MEDAVAIL HOLDINGS, INC.
(1)The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2)Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).
(3)Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
The Warrant Shares shall be delivered to the following DWAC Account Number:
(4)Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.
[SIGNATURE OF HOLDER]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Investing Entity:
|
|
|
|
|
Signature of Authorized Signatory of Investing Entity:
|
|
Name of Authorized Signatory:
|
|
|
Title of Authorized Signatory:
|
|
|
|
Date:
|
|
|
|
|
|
EXHIBIT B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to exercise the Warrant to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Please Print)
|
|
|
|
|
|
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Please Print)
|
|
|
|
|
|
|
|
|
|
|
Phone Number:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Email Address:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dated:
|
|
|
|
,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holder’s Signature:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holder’s Address:
|
|
|
|
MEDAVAIL HOLDINGS, INC.
2020 EQUITY INCENTIVE PLAN
1.Purposes of the Plan; Award Types.
(a)Purposes of the Plan. The purposes of this Plan are to attract and retain personnel for positions with the Company Group, to provide additional incentive to Employees, Directors, and Consultants, and to promote the success of the Company’s business.
(b)Award Types. The Plan permits the grant of Incentive Stock Options to any ISO Employee and the grant of Nonstatutory Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, and Performance Awards to any Service Provider.
2.Definitions. The following definitions are used in this Plan:
(a)“Administrator” means Administrator as defined in Section 4(a).
(b)“Applicable Laws” means the requirements relating to the administration of equity-based awards and the related issuance of Shares under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and, only to the extent applicable with respect to an Award or Awards, the tax, securities, exchange control, and other laws of any jurisdictions other than the United States where Awards are, or will be, granted under the Plan. Reference to a section of an Applicable Law or regulation related to that section shall include such section or regulation, any valid regulation issued under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(c)“Award” means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, or Performance Awards.
(d)“Award Agreement” means the written or electronic agreement setting forth the terms applicable to an Award granted under the Plan. The Award Agreement is subject to the terms of the Plan.
(e)“Board” means the Board of Directors of the Company.
(f)“Change in Control” means the occurrence of any of the following events:
(i)A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group (“Person”), acquires ownership of the stock of the Company that, with the stock held by such Person, constitutes more than 50% of the total voting power of the stock of the Company; provided, that for this subsection, the acquisition of additional stock by any one Person, who prior to such acquisition is considered to own more than 50% of the total voting power of the stock of the Company will not be considered a Change in Control. Further, if the stockholders of the Company immediately before such change in ownership continue to retain immediately after the change in ownership, in substantially the same proportions as their ownership of shares of the Company’s voting stock
immediately prior to the change in ownership, direct or indirect beneficial ownership of 50% or more of the total voting power of the stock of the Company, such event shall not be considered a Change in Control under this Section 2(f)(i). For this purpose, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company, as the case may be, either directly or through one or more subsidiary corporations or other business entities; or
(ii)A change in the effective control of the Company which occurs on the date a majority of members of the Board is replaced during any 12-month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the appointment or election. For this Section 2(f)(ii), if any Person is in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or
(iii)A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, that for this Section 2(f)(iii), the following will not constitute a change in the ownership of a substantial portion of the Company’s assets:
(1)a transfer to an entity controlled by the Company’s stockholders immediately after the transfer, or
(2)a transfer of assets by the Company to:
(A)a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock,
(B)an entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company,
(C)a Person, that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of the Company, or
(D)an entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a Person described in Section 2(f)(iii)(2)(A) to Section 2(f)(iii)(2)(C).
For this definition, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. For this definition, persons will be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
(iv)A transaction will not be a Change in Control:
(1)unless the transaction qualifies as a change in control event within the meaning of Code Section 409A; or
(2)if its sole purpose is to (1) change the state of the Company’s incorporation, or (2) create a holding company owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
(g)“Code” means the U.S. Internal Revenue Code of 1986. Reference to a section of the Code or regulation related to that section shall include such section or regulation, any valid regulation issued under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(h)“Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board.
(i)“Common Stock” means the common stock of the Company.
(j)“Company” means, prior to the Merger, MYOS Rens Technology, Inc., and on and following the Effective Date, MedAvail Holdings, Inc., a Delaware corporation, or any of its successors.
(k)“Company Group” means the Company, any Parent or Subsidiary, and any entity that, from time to time and at the time of any determination, directly or indirectly, is in control of, is controlled by or is under common control with the Company.
(l)“Consultant” means any natural person engaged by a member of the Company Group to render bona fide services to such entity, provided the services (i) are not in connection with the offer or sale of securities in a capital raising transaction, and (ii) do not directly promote or maintain a market for the Company’s securities. A Consultant must be a person to whom the issuance of Shares registered on Form S-8 under the Securities Act is permitted.
(m)“Director” means a member of the Board.
(n)“Employee” means any person, including Officers and Directors, employed by the Company or any member of the Company Group. However, with respect to Incentive Stock Options, an Employee must be employed by the Company or any Parent or Subsidiary of the Company (such an Employee, an “ISO Employee”). Notwithstanding, Options awarded to individuals not providing services to the Company or a Subsidiary of the Company should be carefully structured to comply with the payment timing rule of Code Section 409A. Neither service as a Director nor payment of a director’s fee by the Company will constitute “employment” by the Company.
(o)“Exchange Act” means the U.S. Securities Exchange Act of 1934.
(p)“Exchange Program” means a program under which (i) outstanding Awards are surrendered or cancelled in exchange for awards of the same type (which may have higher or lower Exercise Prices and different terms), awards of a different type, and/or cash, (ii) Participants would have the opportunity to transfer any outstanding Awards to a financial institution or other person or entity selected by the Administrator, and/or (iii) the Exercise Price of an outstanding Award is increased or reduced. The Administrator will determine the terms and conditions of any Exchange Program in its sole discretion.
(q)“Exercise Price” means the price payable per share to exercise an Award.
(r)“Expiration Date” means the last possible day on which an Option or Stock Appreciation Right may be exercised. Any exercise must be completed before midnight U.S. Pacific Time between the Expiration Date and the following date; provided, however, that any broker-assisted cashless exercise of an Option granted hereunder must be completed by the close of market trading on the Expiration Date.
(s)“Fair Market Value” means, as of any date, the value of a Share, determined as follows:
(i)If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the New York Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market of The NASDAQ Stock Market, the Fair Market Value will be the closing sales price for a Share (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported by such source as the Administrator determines to be reliable;
(ii)If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share will be the mean between the high bid and low asked prices for the Common Stock on the day of determination (or, if no bids and asks were reported on that date on the last Trading Day such bids and asks were reported), as reported by such source as the Administrator determines to be reliable; or
(iii)Absent an established market for the Common Stock, the Fair Market Value will be determined in good faith by the Administrator.
Notwithstanding the foregoing, if the determination date for the Fair Market Value occurs on a weekend, holiday or other day other than a Trading Day, the Fair Market Value will be the price as determined under subsections (s)(i) or (s)(ii) above on the immediately preceding Trading Day, unless otherwise determined by the Administrator. In addition, for purposes of determining the fair market value of shares for any reason other than the determination of the Exercise Price of Options or Stock Appreciation Rights, fair market value will be determined by the Administrator in a manner compliant with Applicable Laws and applied consistently for such purpose. Note that the determination of fair market value for purposes of tax withholding may be made in the Administrator’s sole discretion subject to Applicable Laws and is not required to be consistent with the determination of Fair Market Value for other purposes.
(t)“Fiscal Year” means a fiscal year of the Company.
(u)“Grant Date” means Grant Date as defined in Section 4(d).
(v)“Incentive Stock Option” means an Option that is intended to qualify and does qualify as an incentive stock option within the meaning of Code Section 422.
(w)“Merger” means the merger of MYOS Rens Technology, Inc. with the Company pursuant to the Agreement and Plan of Merger and Reorganization by and between the Company and MYOS Rens Technology, Inc. dated June 30, 2020.
(x)“Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
(y)“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act.
(z)“Option” means a stock option to acquire Shares granted under Section 5.
(aa)“Outside Director” means a Director who is not an Employee.
(bb)“Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Code Section 424(e).
(cc)“Participant” means the holder of an outstanding Award.
(dd)“Performance Awards” means an Award which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine and which may be cash- or stock-denominated and may be settled for cash, Shares or other securities or a combination of the foregoing under Section 9.
(ee)“Performance Period” means Performance Period as defined in Section 9(a)
(ff)“Period of Restriction” means the period during which the transfer of Shares of Restricted Stock is subject to restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the Administrator.
(gg)“Plan” means this 2020 Equity Incentive Plan.
(hh)“Restricted Stock” means Shares issued under an Award granted under Section 7 or issued as a result of the early exercise of an Option.
(ii)“Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market Value, granted under Section 8. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.
(jj)“Securities Act” means U.S. Securities Act of 1933.
(kk)“Service Provider” means an Employee, Director or Consultant.
(ll)“Share” means a share of Common Stock.
(mm)“Stock Appreciation Right” means an Award granted under Section 6.
(nn)“Subsidiary” means a “subsidiary corporation” as defined in Code Section 424(f), in relation to the Company.
(oo)“Tax Withholdings” means tax, social insurance and social security liability or premium obligations in connection with the Awards, including, without limitation, (i) all federal, state, and local income, employment and any other taxes (including the Participant’s U.S. Federal Insurance Contributions Act (FICA) obligation) that are required to be withheld by the Company or a member of the Company Group, (ii) the Participant’s and, to the extent required by the Company, the fringe benefit tax liability of the Company or a member of the Company Group, if any, associated with the grant, vesting, or exercise of an Award or sale of Shares issued under the Award, and (iii) any other taxes or social insurance or social security liabilities or premium the responsibility for which the Participant has, or has agreed to bear, with respect to such Award or the Shares subject to an Award.
(pp)“Ten Percent Owner” means Ten Percent Owner as defined in Section 5(b)(i).
(qq)“Termination of Status Date” means Termination of Status Date as defined in Section 4(c)(i).
(rr)“Trading Day” means a day on which the primary stock exchange or national market system on which the Common Stock trades is open for trading.
(ss)“Transaction” means Transaction as defined in Section 13(a).
3.Shares Subject to the Plan.
(a)Allocation of Shares to Plan. The maximum aggregate number of Shares that may be issued under the Plan is:
(i)3,520,000 Shares, plus
(ii)any additional Shares that become available for issuance under the Plan under Sections 3(b) and 3(c).
The Shares may be authorized but unissued Common Stock or Common Stock issued and then reacquired by the Company.
(b)Automatic Share Reserve Increase. Subject to the provisions of Sections (12)(a) and 16, the number of Shares available for issuance under the Plan will be
increased on the first day of each Fiscal Year beginning with the 2021 Fiscal Year, in an amount equal to the least of:
(i)5,000,000 Shares,
(ii)5% of the total number of shares of all classes of common stock of the Company outstanding on the last day of the immediately preceding Fiscal Year, and
(iii)a lesser number of Shares determined by the Administrator.
(c)Share Reserve Return.
(i)Options and Stock Appreciation Rights. If an Option or Stock Appreciation Right expires or becomes unexercisable without having been exercised in full or is surrendered under an Exchange Program, the unissued Shares subject to the Option or Stock Appreciation Right will become available for future issuance under the Plan.
(ii)Stock Appreciation Rights. Only Shares actually issued pursuant to a Stock Appreciation Right (i.e., the net Shares issued) will cease to be available under the Plan; all remaining Shares originally subject to the Stock Appreciation Right will remain available for future issuance under the Plan.
(iii)Full-Value Awards. Shares issued pursuant to Awards of Restricted Stock, Restricted Stock Units, or stock-settled Performance Awards that are reacquired by the Company due to failure to vest or are forfeited to the Company will become available for future issuance under the Plan.
(iv)Withheld Shares. Shares used to pay the Exercise Price of an Award or to satisfy Tax Withholdings related to an Award will become available for future issuance under the Plan.
(v)Cash-Settled Awards. If any portion of an Award under the Plan is paid to a Participant in cash rather than Shares, that cash payment will not reduce the number of Shares available for issuance under the Plan.
(d)Incentive Stock Options. The maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will equal 200% of the aggregate Share number stated in Section 3(a) plus, to the extent allowable under Code Section 422, any Shares that become available for issuance under the Plan under Sections 3(b) and 3(c).
(e)Adjustment. The numbers provided in Sections 3(a), 3(b), and 3(d) will be adjusted as a result of changes in capitalization and any other adjustments under Section 12.
(f)Substitute Awards. If the Committee grants Awards in substitution for equity compensation awards outstanding under a plan maintained by an entity acquired by or becomes a part of any member of the Company group, the grant of those substitute Awards will not decrease the number of Shares available for issuance under the Plan.
4.Administration of the Plan.
(a)Procedure.
(i)The Plan will be administered by the Board or a Committee (the “Administrator”). Different Administrators may administer the Plan with respect to different groups of Service Providers. The Board may retain the authority to concurrently administer the Plan with a Committee and may revoke the delegation of some or all authority previously delegated.
(ii)To the extent permitted by Applicable Laws, the Board or a Committee may delegate to one or more officers the authority to grant Awards to Employees of the Company or any of its Subsidiaries, provided that the delegation must comply with any limitations on the authority required by Applicable Laws, including the total number of Shares that may be subject to the Awards granted by such officer(s). This delegation may be revoked at any time by the Board or Committee.
(b)Powers of the Administrator. Subject to the terms of the Plan, any limitations on delegations specified by the Board, and any requirements imposed by Applicable Laws, the Administrator will have the authority, in its sole discretion, to make any determinations and perform any actions deemed necessary or advisable to administer the Plan including:
(i)to determine the Fair Market Value;
(ii)to approve forms of Award Agreements for use under the Plan (provided that all forms of Award Agreement must be approved by the Board or the Committee of Directors acting as the Administrator);
(iii)to select the Service Providers to whom Awards may be granted and grant Awards to such Service Providers;
(iv)to determine the number of Shares to be covered by each Award granted;
(v)to determine the terms and conditions, consistent with the Plan, of any Award granted. Such terms and conditions may include, but are not limited to, the Exercise Price, the time(s) when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating to an Award;
(vi)to institute and determine the terms and conditions of an Exchange Program;
(vii)to interpret the Plan and make any decisions necessary to administer the Plan;
(viii)to establish, amend and rescind rules relating to the Plan, including rules relating to sub-plans established to satisfy laws of jurisdictions other than the United States
or to qualify Awards for special tax treatment under laws of jurisdictions other than the United States;
(ix)to interpret, modify or amend each Award (subject to Section 17), including extending the Expiration Date and the post-termination exercisability period of such modified or amended Awards;
(x)to allow Participants to satisfy tax withholding obligations in any manner permitted by Section 14;
(xi)to delegate ministerial duties to any of the Company’s employees;
(xii)to authorize any person to take any steps and execute, on behalf of the Company, any documents required for an Award previously granted by the Administrator to be effective;
(xiii)to temporarily suspend the exercisability of an Award if the Administrator deems such suspension to be necessary or appropriate for administrative purposes, provided that, unless prohibited by Applicable Laws, such suspension shall be lifted in all cases not less than 10 Trading Days before the last date that the Award may be exercised;
(xiv)to allow Participants to defer the receipt of the payment of cash or the delivery of Shares otherwise due to any such Participants under an Award; and
(xv)to make any determinations necessary or appropriate under Section 12
(c)Termination of Status.
(i)Unless a Participant is on a leave of absence approved by the Company or a member of the Company Group, as set forth in Section 10, or unless otherwise expressly provided in an Award Agreement or required by Applicable Laws, the Participant’s status as a Service Provider, for purposes of the Plan and any Awards granted to him or her under the Plan, will end immediately before midnight U.S. Pacific Time between (x) the date on which the Participant last actively provides continuous services for a member of the Company Group and (y) the immediately following date (such time of termination, (the “Termination of Status Date”)). The Administrator has the sole discretion to determine the date on which a Participant stops actively providing continuous services and whether a Participant may still be considered to be actively providing continuous services while on a leave of absence and the Administrator may delegate this decision, other than with respect to Officers, to the Company’s senior human resources officer.
(ii)This termination of status as a Service Provider will occur regardless of the reason for such termination, even if the termination is later found to be invalid, in breach of employment laws in the jurisdiction where the Participant is providing services, or in violation of the terms of the Participant’s employment or service agreement, if any such agreement exists.
(iii)Unless otherwise expressly provided in an Award Agreement, determined by the Administrator or required by Applicable Laws, a Participant’s right to vest in any Award under the Plan will cease and a Participant’s right to exercise any Award under the Plan after termination, if any, will begin as of the Termination of Status Date and will not be extended by any notice period, whether arising under contract, statute or common law, including any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where the Participant is providing services.
(d)Grant Date. The grant date of an Award (“Grant Date”) will be the date that the Administrator makes the determination granting such Award or may be a later date if such later date is designated by the Administrator on the date of the determination or under an automatic grant policy. Notice of the determination will be provided to each Participant within a reasonable time after the Grant Date.
(e)Waiver. The Administrator may waive any terms, conditions or restrictions.
(f)Fractional Shares. Except as otherwise provided by the Administrator, any fractional Shares that result from the adjustment of Awards will be canceled. Any fractional Shares that result from vesting percentages will be accumulated and vested on the date that an accumulated full Share is vested.
(g)Electronic Delivery. The Company may deliver by e-mail or other electronic means (including posting on a website maintained by the Company or by a third party under contract with the Company or another member of the Company Group) all documents relating to the Plan or any Award and all other documents that the Company is required to deliver to its security holders (including prospectuses, annual reports and proxy statements).
(h)Choice of Law; Choice of Forum. The Plan, all Awards and all determinations made and actions taken under the Plan, to the extent not otherwise governed by the laws of the United States, will be governed by the laws of the State of Delaware without giving effect to principles of conflicts of law. For purposes of litigating any dispute that arises under this Plan, a Participant’s acceptance of an Award is his or her consent to the jurisdiction of the State of Delaware, and agreement that any such litigation will be conducted in Delaware Court of Chancery, or the federal courts for the United States for the District of Delaware, and no other courts, regardless of where a Participant’s services are performed.
(i)Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations will be final and binding on all Participants and any other holders of Awards.
5.Stock Options.
(a)Stock Option Award Agreement. Each Option will be evidenced by an Award Agreement that will specify the number of Shares subject to the Option, per share Exercise Price, its Expiration Date, and such other terms and conditions as the Administrator determines. Each Option will be designated in the Award Agreement as either an Incentive Stock
Option or a Nonstatutory Stock Option. An Option not designated as an Incentive Stock Option is a Nonstatutory Stock Option.
(b)Exercise Price. The Exercise Price for the Shares to be issued upon exercise of an Option will be determined by the Administrator and stated in the Award Agreement, subject to the following:
(i)In the case of an Incentive Stock Option:
(1)granted to an ISO Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Parent or Subsidiary (a “Ten Percent Owner”), the Exercise Price for the Shares to be issued will be no less than 110% of the Fair Market Value per Share on the date of grant; and
(2)granted to any ISO Employee other than a Ten Percent Owner, the Exercise Price for the Shares to be issued will be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii)In the case of a Nonstatutory Stock Option, the Exercise Price for the Shares to be issued will be no less than 100% of the Fair Market Value per Share on the date of grant.
(iii)Notwithstanding the foregoing, Options may be granted with an Exercise Price of less than 100% of the Fair Market Value per Share on the date of grant (i) pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code or (ii) to a Service Provider that is not a U.S. taxpayer.
(c)Form of Consideration. The Administrator will determine the acceptable form(s) of consideration for exercising an Option. Unless the Administrator determines otherwise, the consideration may consist of any one or more or combination of the following, to the extent permitted by Applicable Laws:
(i)cash;
(ii)check or wire transfer;
(iii)promissory note, if and to the extent approved by the Company;
(iv)other Shares that have a fair market value on the date of surrender equal to the aggregate Exercise Price of the Shares as to which such Option will be exercised. To the extent not prohibited by the Administrator, this shall include the ability to tender Shares to exercise the Option and then use the Shares received on exercise to exercise the Option with respect to additional Shares;
(v)consideration received by the Company under a cashless exercise arrangement (whether through a broker or otherwise) implemented by the Company for the exercise of Options that has been approved by the Board or a Committee of Directors, if and to the extent approved by the Company;
(vi)consideration received by the Company under a net exercise program under which Shares are withheld from otherwise deliverable Shares that has been approved by the Board or a Committee of Directors, if and to the extent approved by the Company; and
(vii)any other consideration or method of payment to issue Shares (provided that other forms of considerations may only be approved by the Administrator).
(d)Term of Option. The term of each Option will be determined by the Administrator and stated in the Award Agreement, provided that, in the case of an Incentive Stock Option: (a) granted to a Ten Percent Owner, the Option may not be exercisable after the expiration of 5 years from the date such Option is granted, or such shorter term as may be provided in the Award Agreement; and (b) granted to an ISO Employee other than a Ten Percent Owner, the Option may not be exercisable after the expiration of 10 years from the date such Option is granted term, or such shorter term as may be provided in the Award Agreement.
(e)Incentive Stock Option Limitations.
(i)To the extent that the aggregate fair market value of the shares with respect to which incentive stock options under Code Section 422(b) are exercisable for the first time by a Participant during any calendar year (under all plans and agreements of the Company Group) exceeds $100,000, the incentive stock options whose value exceeds $100,000 will be treated as nonstatutory stock options. Incentive stock options will be considered in the order in which they were granted. For this purpose, the fair market value of the shares subject to an option will be determined as of the grant date of each option.
(ii)If an Option is designated in the Administrator action that granted it as an Incentive Stock Option but the terms of the Option do not comply with Sections 5(b) and 5(d), then the Option will not qualify as an Incentive Stock Option.
(f)Exercise of Option. An Option is exercised when the Company receives: (i) a notice of exercise (in such form as the Administrator may specify from time to time) from the person entitled to exercise the Option and (ii) full payment for the Shares with respect to which the Option is exercised (together with applicable tax withholdings). Shares issued upon exercise of an Option will be issued in the name of the Participant. Until the Shares are issued (as evidenced by the entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares subject to an Option, despite the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. An Option may not be exercised for a fraction of a Share. Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan (except as provided in Section 3(c) and for purchase under the Option, by the number of Shares as to which the Option is exercised.
(g)Expiration of Options. Subject to Section 5(d), an Option’s Expiration Date will be set forth in the Award Agreement. An Option may expire before its expiration date
under the Plan (including pursuant to Sections 4(c), 12, 13, or 15(d) or under the Award Agreement.
(h)Tolling of Expiration. If exercising an Option prior to its expiration is not permitted because of Applicable Laws, other than the rules of any stock exchange or quotation system on which the Common Stock is listed or quoted, the Option will remain exercisable until 30 days after the first date on which exercise no longer would be prevented by such provisions. If this would result in the Option remaining exercisable past its Expiration Date, then unless earlier terminated pursuant to Section 13, the Stock Appreciation Right will remain exercisable only until the end of the later of (x) the first day on which its exercise would not be prevented by Section 18(a) and (y) its Expiration Date.
6.Stock Appreciation Rights.
(a)Stock Appreciation Right Award Agreement. Each Stock Appreciation Right grant will be evidenced by an Award Agreement that will specify the number of Shares subject to the Stock Appreciation Right, its per share Exercise Price, its Expiration Date, and such other terms and conditions as the Administrator determines.
(b)Exercise Price. The Exercise Price of a Stock Appreciation Right will be determined by the Administrator, provided that in the case of a Stock Appreciation Right granted to a U.S. taxpayer, the Exercise Price will be no less than 100% of the Fair Market Value of a Share on the date of grant.
(c)Payment of Stock Appreciation Right Amount. Payment upon Stock Appreciation Right exercise may be made in cash, in Shares (which, on the date of exercise, have an aggregate Fair Market Value equal to the amount of payment to be made under the Award), or any combination of cash and Shares, with the determination of form of payment made by the Administrator. When a Participant exercises a Stock Appreciation Right, he or she will be entitled to receive a payment from the Company equal to:
(i)the excess, if any, between the fair market value on the date of exercise over the Exercise Price multiplied by
(ii)the number of Shares with respect to which the Stock Appreciation Right is exercised.
(d)Exercise of Stock Appreciation Right. A Stock Appreciation Right is exercise when the Company receives a notice of exercise (in such form as the Administrator may specify from time to time) from the person entitled to exercise the Stock Appreciation Right. Shares issued upon exercise of a Stock Appreciation Right will be issued in the name of the Participant. Until the Shares are issued (as evidenced by the entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares subject to a Stock Appreciation Right, despite the exercise of the Stock Appreciation Right. The Company will issue (or cause to be issued) such Shares promptly after the Stock Appreciation Right is exercised. A Stock Appreciation Right may not be exercised for a fraction of a Share. Exercising a Stock Appreciation Right in any manner will decrease (x) the number of Shares thereafter
available under the Stock Appreciation Right by the number of Shares as to which the Stock Appreciation Right is exercised and (y) the number of Shares thereafter available under the Plan by the number of Shares issued upon such exercise.
(e)Expiration of Stock Appreciation Rights. A Stock Appreciation Right’s Expiration Date will be set forth in the Award Agreement. A Stock Appreciation Right may expire before its expiration date under the Plan (including pursuant to Sections 4(c), 12, 13, or 15(c) or under the Award Agreement.
(f)Tolling of Expiration. If exercising a Stock Appreciation Right prior to its expiration is not permitted because of Applicable Laws, other than the rules of any stock exchange or quotation system on which the Common Stock is listed or quoted, the Stock Appreciation Right will remain exercisable until 30 days after the first date on which exercise no longer would be prevented by such provisions. If this would result in the Stock Appreciation Right remaining exercisable past its Expiration Date, then unless earlier terminated pursuant to Section 13, the Stock Appreciation Right will remain exercisable only until the end of the later of (x) the first day on which its exercise would not be prevented by Section 18(a) and (y) its Expiration Date.
7.Restricted Stock.
(a)Restricted Stock Award Agreement. Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the number of Shares subject to the Award of Restricted Stock and such other terms and conditions as the Administrator determines. For the avoidance of doubt, Restricted Stock may be granted without any Period of Restriction (e.g., vested stock bonuses). Unless the Administrator determines otherwise, Shares of Restricted Stock will be held in escrow while unvested.
(b)Restrictions.
(i)Except as provided in this Section 7(b) or the Award Agreement, while unvested, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated.
(ii)While unvested, Service Providers holding Shares of Restricted Stock may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise.
(iii)Service Providers holding a Share covered by an Award of Restricted Stock will not be entitled to receive dividends and other distributions paid with respect to such Shares while such Shares are unvested, unless the Administrator provides otherwise. If the Administrator provides that dividends and distributions will be received and any such dividends or distributions are paid in cash they will be subject to the same provisions regarding forfeitability as the Shares with respect to which they were paid and if such dividend or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Shares with respect to which they were paid and, unless the Administrator determines otherwise, the Company will hold such dividends until the restrictions on the Shares with respect to which they were paid have lapsed.
(iv)Except as otherwise provided in this Section 7(b) or an Award Agreement, a Share covered by each Award of Restricted Stock made under the Plan will be released from escrow when practicable after the last day of the applicable Period of Restriction.
(v)The Administrator may impose, prior to grant, or remove any restrictions on Shares covered by an Award of Restricted Stock.
8.Restricted Stock Units.
(a)Restricted Stock Unit Award Agreement. Each Award of Restricted Stock Units will be evidenced by an Award Agreement that will specify the number of Restricted Stock Units subject to the Award of Restricted Stock Units and such other terms and conditions as the Administrator determines.
(b)Vesting Criteria and Other Terms. The Administrator will set vesting criteria that, depending on the extent to which the criteria are met, will determine the number of Restricted Stock Units paid out to the Participant. The Administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit, or individual goals (that may include continued employment or service) or any other basis determined by the Administrator in its sole discretion.
(c)Earning Restricted Stock Units. Upon meeting any applicable vesting criteria, the Participant will have earned the Restricted Stock Units and will be paid as determined in Section 8(d). The Administrator may reduce or waive any criteria that must be met to earn the Restricted Stock Units.
(d)Form and Timing of Payment. Payment of earned Restricted Stock Units will be made at the time(s) set forth in the Award Agreement and determined by the Administrator. Unless otherwise provided in the Award Agreement, the Administrator may settle earned Restricted Stock Units in cash, Shares, or a combination of both.
9.Performance Awards.
(a)Award Agreement. Each Performance Award will be evidenced by an Award Agreement that will specify the specify any time period during which any performance objectives or other vesting provisions will be measured (“Performance Period”), and such other terms and conditions as the Administrator determines.
(b)Objectives or Vesting Provisions and Other Terms. The Administrator will set objectives or vesting provisions that, depending on the extent to which the objectives or vesting provisions are met, will determine the value of the payout for the Performance Awards. The Administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit, or individual goals (that may include continued employment or service) or any other basis determined by the Administrator in its sole discretion.
(c)Form and Timing of Payment. Payment of earned Performance Awards will be made at the time(s) specified in the Award Agreement. Payment with respect to earned Performance Awards will be made in cash, in Shares of equivalent value, or any combination of
cash and Shares, with the determination of form of payment made by the Administrator at the time of payment.
(d)Value of Performance Awards. Each Performance Award’s threshold, target, and maximum payout values will be established by the Administrator on or before the Grant Date.
(e)Earning Performance Awards. After an applicable Performance Period has ended, the holder of a Performance Award will be entitled to receive a payout for the Performance Award earned by the Participant over the Performance Period. The Administrator may reduce or waive any performance objectives or other vesting provisions for such Performance Award.
10.Leaves of Absence/Transfer Between Locations/Change of Status.
(a)Leaves of Absence/Transfer Between Locations. Unless the Administrator provides otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of absence. A Participant will not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or within the Company Group.
(b)Vesting. Unless a leave policy approved by the Administrator provides otherwise or it is otherwise required by Applicable Law, vesting of Awards granted under the Plan will continue only for Participants on an approved leave of absence.
(c)Incentive Stock Options. With respect to Incentive Stock Options, no such leave may exceed 3 months, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then six (6) months following the first (1st) day of such leave any Incentive Stock Option held by a Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option.
11.Transferability of Awards. Unless determined otherwise by the Administrator, or otherwise required by Applicable Laws, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, the Award will be limited by any additional terms and conditions imposed by the Administrator. Any unauthorized transfer of an Award will be void.
12.Adjustments; Dissolution or Liquidation.
(a)Adjustments. If any extraordinary dividend or other extraordinary distribution (whether in cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, reclassification, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to acquire securities of the Company, other change in the corporate structure of the Company affecting the Shares, or any similar equity restructuring transaction, as
that term is used in Statement of Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any of its successors) affecting the Shares occurs (including a Change in Control), the Administrator, to prevent diminution or enlargement of the benefits or potential benefits intended to be provided under the Plan, will adjust the number and class of shares that may be delivered under the Plan and/or the number, class, and price of shares covered by each outstanding Award, and the numerical Share limits in Section 3. Notwithstanding the foregoing, the conversion of any convertible securities of the Company and ordinary course repurchases of Shares or other securities of the Company will not be treated as an event that will require adjustment.
(b)Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator will notify each Participant, at such time prior to the effective date of such proposed transaction as the Administrator determines. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.
13.Change in Control.
(a)Administrator Discretion. If a Change in Control or a merger of the Company with or into another corporation or other entity occurs (each, a “Transaction”), each outstanding Award will be treated as the Administrator determines, including that such Award be continued by the successor corporation or a Parent or Subsidiary of the successor corporation or that the vesting of any such Awards may accelerate automatically upon consummation of a Transaction.
(b)Identical Treatment Not Required. The Administrator need not take the same action or actions with respect to all Awards or portions thereof or with respect to all Participants. The Administrator may take different actions with respect to the vested and unvested portions of an Award. The Administrator will not be required to treat all Awards similarly in the Transaction.
(c)Continuation. An Award will be considered continued if, following the Change in Control or merger:
(i)the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Transaction, the consideration (whether stock, cash, or other securities or property) received in the Transaction by holders of Shares for each Share held on the effective date of the Transaction (and if holders were offered a choice of consideration, the type of consideration received by the holders of a majority of the outstanding Shares) and the Award otherwise is continued in accordance with its terms (including vesting criteria, subject to Section 13(iii) below and Section 12(a); provided that if the consideration received in the Transaction is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon exercising an Option or Stock Appreciation Right or upon the payout of a Restricted Stock Unit, or Performance Award, for each Share subject to such Award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Transaction; or
(ii)the Award is terminated in exchange for an amount of cash and/or property, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Participant’s rights as of the date of the occurrence of the Transaction. Any such cash or property may be subjected to any escrow applicable to holders of Common Stock in the Change in Control. If as of the date of the occurrence of the Transaction the Administrator determines that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment. The amount of cash or property can be subjected to vesting and paid to the Participant over the original vesting schedule of the Award.
(iii)Notwithstanding anything in this Section 13(c) to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participant’s consent; provided, however, a modification to such performance goals only to reflect the successor corporation’s post-Transaction corporate structure will not invalidate an otherwise valid Award assumption.
(d)Modification. The Administrator will have authority to modify Awards in connection with a Change in Control or merger:
(i)in a manner that causes the Awards to lose their tax-preferred status,
(ii)to terminate any right a Participant has to exercise an Option prior to vesting in the Shares subject to the Option (i.e., “early exercise”), so that following the closing of the Transaction the Option may only be exercised only to the extent it is vested;
(iii)to reduce the Exercise Price subject to the Award in a manner that is disproportionate to the increase in the number of Shares subject to the Award, as long as the amount that would be received upon exercise of the Award immediately before and immediately following the closing of the Transaction is equivalent and the adjustment complies with U.S. Treasury Regulation Section 1.409A-1(b)(v)(D); and
(iv)to suspend a Participant’s right to exercise an Option during a limited period of time preceding and or following the closing of the Transaction without Participant consent if such suspension is administratively necessary or advisable to permit the closing of the Transaction.
(e)Non-Continuation. If the successor corporation does not continue an Award (or some portion such Award), the Participant will fully vest in (and have the right to exercise) 100% of the then-unvested Shares subject to his or her outstanding Options and Stock Appreciation Rights, all restrictions on 100% of the Participant’s outstanding Restricted Stock and Restricted Stock Units will lapse, and, regarding 100% of Participant’s outstanding Awards with performance-based vesting, all performance goals or other vesting criteria will be treated as achieved at 100% of target levels and all other terms and conditions met. In no event will vesting of an Award accelerate as to more than 100% of the Award. If Options or Stock Appreciation Rights are not continued when a Change in Control or a merger of the Company with or into
another corporation or other entity occurs, the Administrator will notify the Participant in writing or electronically that the Participant’s vested Options or Stock Appreciation Rights (after considering the foregoing vesting acceleration, if any) will be exercisable for a period of time determined by the Administrator in its sole discretion and all of the Participant’s Options or Stock Appreciation Rights will terminate upon the expiration of such period (whether vested or unvested).
(f)Outside Director Grants.
(i)With respect to Awards granted to an Outside Director, in the event of a Change in Control, the Participant will fully vest in and have the right to exercise outstanding Options and/or Stock Appreciation Rights as to all of the Shares underlying such Award, including those Shares which otherwise would not be vested or exercisable, all restrictions on other outstanding Awards will lapse, and, with respect to Awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met, unless specifically provided otherwise under the applicable Award Agreement or other written agreement between the Participant and the Company or any of its Subsidiaries or Parents, as applicable, that specifically references this default rule.
(ii)No Outside Director may be paid, issued or granted, in any Fiscal Year, cash compensation and equity awards (including any Awards issued under this Plan) with an aggregate value greater than $400,000 (with the value of each equity award based on its grant date fair value (determined in accordance with U.S. generally accepted accounting principles)). Any cash compensation paid or Awards granted to an individual for his or her services as an Employee, or for his or her services as a Consultant (other than as an Outside Director), will not count for purposes of the limitation under this Section 13(f)(ii)
14.Tax Matters.
(a)Withholding Requirements. Prior to the delivery of any Shares or cash under an Award (or exercise thereof) or such earlier time as any Tax Withholding are due, the Company may deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy any Tax Withholding with respect to such Award or Shares subject to an Award (including upon exercise of an Award).
(b)Withholding Arrangements. The Administrator, in its sole discretion and under such procedures as it may specify from time to time, may elect to satisfy such Tax Withholding, in whole or in part by (without limitation) (i) requiring the Participant to pay cash, (ii) withholding otherwise deliverable cash (including cash from the sale of Shares issued to the Participant) or Shares having a fair market value equal to the amount required to be withheld, (iii) forcing the sale of Shares issued pursuant to an Award (or exercise thereof) having a fair market value equal to the minimum statutory amount required to be withheld or a greater amount if such greater amount would not result in unfavorable financial accounting treatment, (iv) requiring the Participant to deliver to the Company already-owned Shares having a fair market value equal to the minimum statutory amount required to be withheld or a greater amount if such greater amount would not result in unfavorable financial accounting treatment, or
(v) requiring the Participant to engage in a cashless exercise transaction (whether through a broker or otherwise) implemented by the Company in connection with the Plan, provided that, in all instances, the satisfaction of the Tax Withholding will not result in any adverse accounting consequence to the Company, as the Administrator may determine in its sole discretion. The fair market value of the Shares to be withheld or delivered will be determined as of the date the taxes must be withheld.
(c)Compliance With Code Section 409A. Unless the Administrator determines that compliance with Code Section 409A is not necessary, it is intended that Awards will be designed and operated so that they are either exempt from the application of Code Section 409A or comply with any requirements necessary to avoid the imposition of additional tax under Code Section 409A(a)(1)(B) so that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Code Section 409A and the Plan and each Award Agreement will be interpreted consistent with this intent. This Section 14(c) is not a guarantee to any Participant of the consequences of his or her Awards. In no event will the Company have any responsibility, liability or obligation to reimburse, indemnify or hold harmless Participant for any taxes that may be imposed or other costs that may be incurred, as a result of Section 409A.
15.Other Terms.
(a)No Effect on Employment or Service. Neither the Plan nor any Award will confer upon a Participant any right regarding continuing the Participant’s relationship as a Service Provider with the Company or member of the Company Group, nor will they interfere with the Participant’s right, or the Participant’s employer’s right, to terminate such relationship with or without cause, to the extent permitted by Applicable Laws.
(b)Interpretation and Rules of Construction. The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.”
(c)Plan Governs. In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of any Grant Agreement, the terms and conditions of the Plan will prevail.
(d)Forfeiture Events.
(i)All Awards granted under the Plan will be subject to recoupment under any clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other Applicable Laws. In addition, the Administrator may impose such other clawback, recovery or recoupment provisions in an Award Agreement as the Administrator determines necessary or appropriate, including to a reacquisition right regarding previously acquired Shares or other cash or property. Unless this Section 15(d)(i) is specifically mentioned and waived in an Award Agreement or other document, no recovery of compensation under a clawback policy or otherwise will be an event that triggers or contributes to any right of a
Participant to resign for “good reason” or “constructive termination” (or similar term) under any agreement with the Company or a member of the Company Group.
(ii)The Administrator may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award will be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, but will not be limited to, termination of such Participant’s status as Service Provider for cause or any specified action or inaction by a Participant, whether before or after such Participant’s Termination of Status Date, that would constitute cause for termination of such Participant’s status as a Service Provider.
(iii)If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under securities laws, any Participant who (x) knowingly or through gross negligence engaged in the misconduct or who knowingly or through gross negligence failed to prevent the misconduct or (y) is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, must reimburse the Company the amount of any payment in settlement of an Award earned or accrued during the 12-month period following the first public issuance or filing with the United States Securities and Exchange Commission (whichever first occurred) of the financial document embodying such financial reporting requirement.
16.Term of Plan. Subject to Section 19, the Plan will become effective upon the closing of the Merger (the “Effective Date”). It will continue in effect until terminated under Section 17, but no Incentive Stock Options may be granted after ten (10) years from the Effective Date and Section 3(b) related to automatic share reserve increases will operate only until the tenth (10th) anniversary of the Effective Date.
17.Amendment and Termination of the Plan.
(a)Amendment and Termination. The Board or Compensation Committee of the Board may amend, alter, suspend or terminate the Plan.
(b)Stockholder Approval. The Company will obtain stockholder approval of any Plan amendment to the extent necessary or desirable to comply with Applicable Laws.
(c)Consent of Participants Generally Required. Subject to Section 17(d) below, no amendment, alteration, suspension or termination of the Plan or an Award under it will materially impair the rights of any Participant without a signed, written agreement between the Participant and the Company. Termination of the Plan will not affect the Administrator’s ability to exercise the powers granted to it regarding Awards granted under the Plan prior to such termination.
(d)Exceptions to Consent Requirement.
(i)A Participant’s rights will not be deemed to have been impaired by any amendment, alteration, suspension or termination if the Administrator, in its sole discretion,
determines that the amendment, alteration, suspension or termination taken as a whole, does not materially impair the Participant’s rights; and
(ii)Subject to any limitations of Applicable Laws, the Administrator may amend the terms of any one or more Awards without the affected Participant’s consent even if it does materially impair the Participant’s right if such amendment is done
(ii)in a manner specified by the Plan,
(iii)to maintain the qualified status of the Award as an Incentive Stock Option under Code Section 422,
(iv)to change the terms of an Incentive Stock Option, if such change results in impairment of the Award only because it impairs the qualified status of the Award as an Incentive Stock Option under Code Section 422,
(v)to clarify the manner of exemption from Code Section 409A or compliance with any requirements necessary to avoid the imposition of additional tax under Code Section 409A(a)(1)(B), or
(vi)to comply with other Applicable Laws.
18.Conditions Upon Issuance of Shares.
(a)Legal Compliance. The Company will make good faith efforts to comply with all Applicable Laws related to the issuance of Shares. Shares will not be issued pursuant to an Award, including without limitation upon exercise thereof, unless the issuance and delivery of such Shares and exercise of the Award, as applicable, will comply with Applicable Laws. If required by the Administrator, issuance will be further subject to the approval of counsel for the Company with respect to such compliance. The inability of the Company to obtain authority from any regulatory body having jurisdiction or to complete or comply with the requirements of any Applicable Laws will relieve the Company of any liability regarding the failure to issue or sell such Shares as to which such authority, registration, qualification or rule compliance was not obtained and the Administrator reserves the authority, without the consent of a Participant, to terminate or cancel Awards with or without consideration in such a situation.
(b)Investment Representations. As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant during any such exercise that the Shares are being purchased only for investment and with no present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.
(c)Failure to Accept Award. If a Participant has not accepted an Award or has not taken all administrative and other steps (e.g., setting up an account with a broker designated by the Company) necessary for the Company to issue Shares upon the vesting, exercise, or settlement of the Award prior to the first date the Shares subject to such Award are scheduled to vest, then the Award will be cancelled on such date and the Shares subject to such
Award immediately will revert to the Plan for no additional consideration unless otherwise provided by the Administrator.
19.Stockholder Approval. The Plan will be subject to approval by the stockholders of the Company within 12 months after the date the Plan is adopted by the Board. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
MEDAVAIL HOLDINGS, INC.
2020 EQUITY INCENTIVE PLAN
NOTICE OF STOCK OPTION GRANT AND STOCK OPTION AGREEMENT
Capitalized terms that are not defined in this Notice of Stock Option Grant and Stock Option Agreement (the “Notice of Grant”), the Terms and Conditions of Stock Option Grant, or any of the exhibits to these documents (all together, the “Agreement”) have the meanings given to them in the MedAvail Holdings, Inc. 2020 Equity Incentive Plan (the “Plan”).
The Participant has been granted an Option according to the terms below and subject to the terms and conditions of the Plan and this Agreement:
|
|
|
|
|
|
|
|
|
Participant
|
|
|
Participant I.D.
|
|
|
Grant Number
|
|
|
Grant Date
|
|
|
Vesting Start Date
|
|
|
Number of Shares Granted
|
|
|
Exercise Price per Share
|
|
|
Total Exercise Price
|
|
|
Type of Option
|
|
Incentive Stock Option
|
|
|
Nonstatutory Stock Option
|
Expiration Date
|
|
|
Vesting Schedule:
Unless the vesting is accelerated, this Option will be exercisable to the extent vested on the following schedule:
[One-fourth (1/4th) of the Number of Shares Granted under this Option will be scheduled to vest on the one (1) year anniversary of the Vesting Start Date, and one forty-eighth (1/48th) of the Number of Shares Granted under this Option will be scheduled to vest each month thereafter on the same day of the month as the Vesting Start Date (or if there is no corresponding day in a particular month, then the last day of that month), in each case, subject to the Participant continuing to be a Service Provider through the applicable vesting date. All vesting will be rounded in accordance with Section 4(f) of the Plan.]
In addition to the vesting terms set forth above for this award, the Option’s vesting will be accelerated in accordance with any vesting acceleration provisions approved by the Administrator. If the Participant ceases to be a Service Provider for any or no reason before he or
she fully vests in this Option, the unvested portion of this Option will terminate according to the terms of Section 4 of this Agreement.
Exercise of Option:
(a)If the Participant dies or his or her status as a Service Provider is terminated due to his or her Disability, the vested portion of this Option will remain exercisable for 12 months after the Termination of Status Date. For any other termination of status as a Service Provider, the vested portion of this Option will remain exercisable for 3 months after the Termination of Status Date.
(b)If a Transaction occurs, Section 13 of the Plan may further limit this Option’s exercisability.
(c)This Option will not be exercisable after the Expiration Date, except as may be permitted in accordance with Section 5(h) of the Plan (which tolls expiration in very limited cases when there are legal restrictions on exercise).
The Participant’s signature below indicates that:
(i)He or she agrees that this Option is granted under and governed by the terms and conditions of the Plan and this Agreement, including their exhibits and appendices.
(ii)He or she understands that the Company is not providing any tax, legal, or financial advice and is not making any recommendations regarding his or her participation in the Plan or his or her acquisition or sale of Shares.
(iii)He or she has reviewed the Plan and this Agreement, has had an opportunity to obtain the advice of personal tax, legal, and financial advisors prior to signing this Agreement, and fully understands all provisions of the Plan and Agreement. He or she will consult with his or her own personal tax, legal, and financial advisors before taking any action related to the Plan.
(iv)He or she has read and agrees to each provision of Section 11 of this Agreement.
(v)He or she will notify the Company of any change to the contact address below.
|
|
|
|
|
|
PARTICIPANT
|
|
|
Signature
|
|
|
Address:
|
|
|
|
|
|
EXHIBIT A
TERMS AND CONDITIONS OF STOCK OPTION GRANT
1.Grant. The Company grants the Participant an Option to purchase Shares of Common Stock as described in the Notice of Grant. If there is a conflict between the Plan, this Agreement, or any other agreement with the Participant governing this Option, those documents will take precedence and prevail in the following order: (a) the Plan, (b) the Agreement, and (c) any other agreement between the Company and the Participant governing this Option.
If the Notice of Grant designates this Option as an Incentive Stock Option (“ISO”), this Option is intended to qualify as an ISO under Code Section 422. Even if this Option is designated an ISO, to the extent it first become exercisable as to more than $100,000 in any calendar year, the portion in excess of $100,000 is not an ISO under Code Section 422(d) and that portion will be a Nonstatutory Stock Option (“NSO”). In addition, if the Participant exercises the Option after 3 months have passed since he or she ceased to be an employee of the Company or a Parent or Subsidiary of the Company, it will no longer be an ISO. If there is any other reason this Option (or a portion of it) will not qualify as an ISO, to the extent of such nonqualification, the Option will be an NSO. The Participant understands that he or she will have no recourse against the Administrator, any member of the Company Group, or any officer or director of a member of the Company Group if any portion of this Option is not an ISO.
2.Vesting. This Option will only be exercisable (also referred to as vested) under the Vesting Schedule in the Notice of Grant, Section 3 of this Agreement, or Section 13 of the Plan. Shares scheduled to vest on a certain date or upon the occurrence of a certain condition will not vest unless the Participant continues to be a Service Provider until the time such vesting is scheduled to occur.
3.Administrator Discretion. The Administrator has the discretion to accelerate the vesting of any portion of this Option. In that case, this Option will be vested as of the date and to the extent specified by the Administrator.
4.Forfeiture upon Termination of Status as a Service Provider. Upon the Participant’s termination as a Service Provider for any reason, this Option will immediately stop vesting and any portion of this Option that has not yet vested will be immediately forfeited for no consideration upon: (a) the 30th day following the Termination of Status Date (or any earlier date on or following the Termination of Status Date determined by the Administrator) if Participant’s termination as a Service Provider is due to the Participant’s death or (b) the Termination of Status Date if Participant’s termination as a Service Provider is for any reason other than the Participant’s death, in all cases, subject to Applicable Laws. The date of the Participant’s termination as a Service Provider is detailed in Section 4(c) of the Plan.
5.Death of Participant. Any distribution or delivery to be made to the Participant under this Agreement will, if he or she is then deceased, be made to the administrator or executor of his or her estate or, if the Administrator permits, his or her designated beneficiary. Any such transferee must furnish the Company with (a) written notice of his or her status as transferee, and
(b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations that apply to the transfer.
6.Exercise of Option.
(a)Right to Exercise. This Option may be exercised only before its Expiration Date and only under the Plan and this Agreement.
(b)Method of Exercise. To exercise this Option, the Participant must deliver and the Administrator must receive an exercise notice according to procedures determined by the Administrator. The exercise notice must:
(i)state the number of Shares as to which this Option is being exercised (“Exercised Shares”),
(ii)make any representations or agreements required by the Company,
(iii)be accompanied by a payment of the total exercise price for all Exercised Shares, and
(iv)be accompanied by a payment of all required Tax-Related Items (defined in Section 8(a) of this Agreement) for all Exercised Shares.
The Option is exercised when both the exercise notice and payments due under Sections 6(b)(iii) and 6(b)(iv) have been received by the Company for all Exercised Shares. The Administrator may designate a particular exercise notice to be used, but until a designation is made, the exercise notice attached to this Agreement as Exhibit C may be used.
7.Method of Payment. The Participant may pay the total exercise price for Exercised Shares by any of the following methods or a combination of methods:
(a)cash;
(b)check;
(c)wire transfer;
(d)consideration received by the Company under a formal cashless exercise program adopted by the Company; or
(e)surrender of other Shares, as long as the Company determines that accepting such Shares does not result in any adverse accounting consequences to the Company. If Shares are surrendered, the value of those Shares will be the Fair Market Value for those Shares on the date they are surrendered.
A non-U.S. resident’s methods of exercise may be restricted by the terms and condition of any appendix to this Agreement for the Participant’s country (the “Appendix”).
8.Tax Obligations.
(a)Tax Withholding.
(i)No Shares will be issued to the Participant until he or she makes satisfactory arrangements (as determined by the Administrator) for the payment of Tax Withholdings, payment on account, or other tax-related items related to his or her participation in the Plan and legally applicable to him or her that the Administrator determines must be withheld (“Tax-Related Items”), including those that result from the grant, vesting, or exercise of this Option, the subsequent sale of Shares acquired under this Option or the receipt of any dividends. If the Participant is a non-U.S. employee, the method of payment of Tax-Related Items may be restricted by any Appendix. If the Participant fails to make satisfactory arrangements for the payment of any Tax-Related Items under this Agreement at the time of an attempted Option exercise, the Company may refuse to honor the exercise and refuse to deliver the Shares.
(ii)The Company has the right (but not the obligation) to satisfy any Tax-Related Items by withholding from proceeds of a sale of Shares acquired upon the exercise of this Option arranged by the Company (on the Participant’s behalf pursuant to this authorization without further consent).
(iii)The Company has the right (but not the obligation) to satisfy any Tax-Related Items by reducing the number of Shares otherwise deliverable to the Participant), and this will be the method by which such tax withholding obligations are satisfied until the Company determines otherwise, subject to Applicable Laws.
(iv)The Participant authorizes the Company and/or any member(s) of the Company Group for whom he or she is performing services (each, an “Employer”) to withhold any Tax-Related Items legally payable by the Participant from his or her wages or other cash compensation paid to the Participant by the Company and/or the Employer(s) or from proceeds of the sale of Shares.
(v)Further, if the Participant is subject to taxation in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, the Company and/or the Employer(s) or former Employer(s) may withhold or account for tax in more than one jurisdiction.
(vi)Regardless of any action of the Company or the Employer(s), the Participant acknowledges that the ultimate liability for all Tax-Related Items is and remains his or her responsibility and may exceed the amount actually withheld by the Company or the Employer(s). The Participant further acknowledges that the Company and the Employer(s) (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option; and (2) do not commit to and are under no obligation to structure the terms of the grant or any aspect of this Option to reduce or eliminate his or her liability for Tax-Related Items or achieve any particular tax result.
(b)Tax Reporting. This Section 8(b) applies if the Participant is a U.S. income taxpayer. If this Option is partially or wholly an ISO, and if the Participant sells or otherwise disposes of any the Shares acquired by exercising the ISO portion on or before the
later of (i) the date 2 years after the Grant Date, or (ii) the date 1 year after the date of exercise, he or she may be subject to withholding of Tax-Related Items by the Company on the compensation income recognized by him or her and must immediately notify the Company in writing of the disposition.
9.Forfeiture or Clawback. This Option (including any proceeds, gains or other economic benefit received by the Participant upon its exercise or the subsequent sale of Shares resulting from the exercise) will be subject to any compensation recovery or clawback policy implemented by the Company before or after the date of this Agreement. This includes any clawback policy adopted to comply with the requirements of Applicable Laws.
10.Rights as Stockholder. The Participant’s rights as a stockholder of the Company (including the right to vote and to receive dividends and distributions) will not begin until Shares have been issued and recorded on the records of the Company or its transfer agents or registrars.
11.Acknowledgements and Agreements. The Participant’s signature on the Notice of Grant accepting this Option indicates that:
(a)HE OR SHE ACKNOWLEDGES AND AGREES THAT THE VESTING OF THIS OPTION IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AND THAT BEING HIRED, GRANTED THIS OPTION, AND EXERCISING THE OPTION WILL NOT RESULT IN VESTING.
(b)HE OR SHE FURTHER ACKNOWLEDGES AND AGREES THAT THIS OPTION AND AGREEMENT DO NOT CREATE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND WILL NOT INTERFERE IN ANY WAY WITH HIS OR HER RIGHT OR THE RIGHT OF THE EMPLOYER(S) TO TERMINATE HIS OR HER RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE, SUBJECT TO APPLICABLE LAWS.
(c)The Participant agrees that this Agreement and its incorporated documents reflect all agreements on its subject matters and that he or she is not accepting this Agreement based on any promises, representations, or inducements other than those reflected in the Agreement.
(d)The Participant understands that exercise of this Option is governed strictly by Sections 6, 7, and 8 of this Agreement and that failure to comply with those Sections could result in the expiration of this Option, even if an attempt was made to exercise.
(e)The Participant agrees that the Company’s delivery of any documents related to the Plan or this Option (including the Plan, the Agreement, the Plan’s prospectus and any reports of the Company provided generally to the Company’s stockholders) to him or her may be made by electronic delivery, which may include but does not necessarily include the delivery of a link to a Company intranet or the Internet site of a third party involved in administering the Plan, the delivery of the document via e-mail, or any other means of electronic delivery specified by the Company. If the attempted electronic delivery of such documents fails, the Participant will be provided with a paper copy of the documents. The Participant
acknowledges that he or she may receive from the Company a paper copy of any documents that were delivered electronically at no cost to him or her by contacting the Company by telephone or in writing. The Participant may revoke his or her consent to the electronic delivery of documents or may change the electronic mail address to which such documents are to be delivered (if the Participant has provided an electronic mail address) at any time by notifying the Company of such revoked consent or revised e-mail address by telephone, postal service or electronic mail. Finally, the Participant understands that he or she is not required to consent to electronic delivery of documents.
(f)The Participant may deliver any documents related to the Plan or this Option to the Company by e-mail or any other means of electronic delivery approved by the Administrator, but he or she must provide the Company or any designated third party administrator with a paper copy of any documents if his or her attempted electronic delivery of such documents fails.
(g)The Participant accepts that all good faith decisions or interpretations of the Administrator regarding the Plan and Awards under the Plan are binding, conclusive, and final. No member of the Administrator will be personally liable for any such decisions or interpretations.
(h)The Participant agrees that the Plan is established voluntarily by the Company, is discretionary in nature, and may be amended, suspended, or terminated by the Company at any time, to the extent permitted by the Plan.
(i)The Participant agrees that the grant of this Option is voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted in the past.
(j)The Participant agrees that any decisions regarding future Awards will be in the Company’s sole discretion.
(k)The Participant agrees that he or she is voluntarily participating in the Plan.
(l)The Participant agrees that this Option and any Shares acquired under the Plan are not intended to replace any pension rights or compensation.
(m)The Participant agrees that this Option, any Shares acquired under the Plan, and their income and value are not part of normal or expected compensation for any purpose, including for calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, holiday pay, long-service awards, pension or retirement or welfare benefits, or similar payments.
(n)The Participant agrees that the future value of the Shares underlying this Option is unknown, indeterminable, and cannot be predicted with certainty.
(o)The Participant understands that if the underlying Shares do not increase in value, this Option will have no intrinsic monetary value.
(p)The Participant understands that if this Option is exercised, the value of each Share received on exercise may increase or decrease in value, even below the Exercise Price.
(q)The Participant agrees that, for purposes of this Option, his or her engagement as a Service Provider is terminated as of the Termination of Status Date (regardless of the reason for such termination and whether or not the termination is later found to be invalid or in breach of employment laws in the jurisdiction where he or she is a Service Provider or the terms of his or her service agreement, if any), unless otherwise expressly provided in this Agreement or determined by the Administrator.
(r)The Participant agrees that any right to vest in this Option will be extended by any notice period (e.g., the period that he or she is a Service Provider would include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws (including common law, if applicable) in the jurisdiction where he or she is a Service Provider or by his or her service agreement or employment agreement, if any) and the Termination of Status Date will not occur until the end of such period, unless otherwise expressly provided in this Agreement or determined by the Administrator or required by Applicable Law.
(s)The Participant agrees that the period during which the Participant may exercise the vested portion of this Option after a termination of his or her status as a Service Provider (if any) will start as of the Termination of Status Date (regardless of the reason for such termination and whether or not the termination is later found to be invalid or in breach of employment laws in the jurisdiction where he or she is a Service Provider or the terms of his or her service agreement, if any), unless otherwise expressly provided in this Agreement or determined by the Administrator or required by Applicable Law.
(t)The Participant agrees that the Administrator has the exclusive discretion to determine when he or she is no longer actively providing services for purposes of this Option (including whether he or she is still considered to be providing services while on a leave of absence).
(u)The Participant agrees that no member of the Company Group is liable for any foreign exchange rate fluctuation between the Participant’s local currency and the United States Dollar that may affect the value of this Option or of any amounts due to him or her from the exercise of this Option or the subsequent sale of any Shares acquired upon exercise.
(v)The Participant has read and agrees to the Data Privacy provisions of Section 12 of this Agreement.
(w)The Participant agrees that he or she has no claim or entitlement to compensation or damages from any forfeiture of this Option resulting from the termination of his or her status as a Service Provider (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where he or she is a Service Provider or the terms of his or her service agreement, if any), and in consideration of the grant of this Option to which he or she is otherwise not entitled, he or she irrevocably agrees never to institute
any claim against the Company or any member of the Company Group, waives his or her ability (if any) to bring any such claim, and releases the Company and all members of the Company Group from any such claim. If any such claim is nevertheless allowed by a court of competent jurisdiction, then the Participant’s participation in the Plan constitutes his or her irrevocable agreement to not pursue such claim and to execute any and all documents necessary to request dismissal or withdrawal of such claim.
12.Data Privacy.
(a)The Participant voluntarily consents to the collection, use and transfer, in electronic or other form, of his or her personal data as described in this Agreement and any other Award materials (“Data”) by and among, as applicable, the Employer(s), the Company and any member of the Company Group for the exclusive purpose of implementing, administering, and managing his or her participation in the Plan.
(b)The Participant understands that the Company and the Employer(s) may hold certain personal information about him or her, including, but not limited to, his or her name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all equity awards or any other entitlement to stock awarded, canceled, exercised, vested, unvested or outstanding in his or her favor, for the exclusive purpose of implementing, administering, and managing the Plan.
(c)The Participant understands that Data will be transferred to one or more a stock plan service provider(s) selected by the Company, which may assist the Company with the implementation, administration, and management of the Plan. The Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than his or her country. The Participant understands that if he or she resides outside the United States, he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Participant authorizes the Company and any other possible recipients that may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing his or her participation in the Plan.
(d)The Participant understands that Data will be held only as long as is necessary to implement, administer and manage his or her participation in the Plan. The Participant understands that if he or she resides in certain jurisdictions outside the United States, to the extent required by Applicable Laws, he or she may, at any time, request access to Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents given by accepting this Option, in any case without cost, by contacting in writing his or her local human resources representative. Further, the Participant understands that he or she is providing these consents on a purely voluntary basis. If the Participant does not consent or if he or she later seeks to revoke his or her consent, his or her engagement as a Service Provider with the Employer(s) will not be adversely affected; the only consequence of refusing or withdrawing his or her consent is that the
Company will not be able to grant him or her awards under the Plan or administer or maintain awards. Therefore, the Participant understands that refusing or withdrawing his or her consent may affect his or her ability to participate in the Plan (including the right to retain this Option). The Participant understands that he or she may contact his or her local human resources representative for more information on the consequences of his or her refusal to consent or withdrawal of consent.
13.Miscellaneous
(a)Address for Notices. Any notice to be given to the Company under the terms of this Agreement must be addressed to the Company at 6665 Millcreek Dr. Unit 1, Mississauga ON Canada L5N 5M4.
(b)Transferability of Option. This Option may not be transferred other than by will or the laws of descent or distribution and may be exercised during the lifetime of the Participant only by him or her or his or her representative following a Disability.
(c)Binding Agreement. If this Option is transferred, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors, and assigns of the parties to this Agreement.
(d)Additional Conditions to Issuance of Stock. If the Company determines that the listing, registration, qualification, or rule compliance of the Common Stock on any securities exchange or under any state, federal, or foreign law or the tax code and related regulations or the consent or approval of any governmental regulatory authority is necessary or desirable as a condition to the issuance of Shares to the Participant (or his or her estate), the Company will try to meet the requirements of any such state, federal, or foreign law or securities exchange and to obtain any such consent or approval of any such governmental authority or securities exchange, but the Shares will not be issued until such conditions have been met in a manner acceptable to the Company.
(e)Captions. Captions provided in this Agreement are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
(f)Agreement Severable. If any provision of this Agreement is held invalid or unenforceable, that provision will be severed from the remaining provisions of this Agreement and the invalidity or unenforceability will have no effect on the remainder of the Agreement.
(g)Non-U.S. Appendix. This Option is subject to any special terms and conditions set forth in any Appendix. If the Participant relocates to a country included in the Appendix, the special terms and conditions for that country will apply to him or her to the extent the Company determines that applying such terms and conditions is necessary or advisable for legal or administrative reasons.
(h)Choice of Law; Choice of Forum. The Plan, this Agreement, this Option, and all determinations made and actions taken under the Plan, to the extent not otherwise governed by the laws of the United States, will be governed by the laws of the State of Delaware without giving effect to principles of conflicts of law. For purposes of litigating any dispute that
arises under the Plan, the Participant's acceptance of this Option is his or her consent to the jurisdiction of the State of Delaware and his or her agreement that any such litigation will be conducted in the Delaware Court of Chancery or the federal courts for the United States for the District of Delaware and no other courts, regardless of where he or she is performing services.
(i)Modifications to the Agreement. The Plan and this Agreement constitute the entire understanding of the parties on the subjects covered. The Participant expressly warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. The Company reserves the right to revise the Agreement as it deems necessary or advisable, in its sole discretion and without the consent of the Participant, to comply with Code Section 409A, to otherwise avoid imposition of any additional tax or income recognition under Code Section 409A in connection with this Option, or to comply with other Applicable Laws.
(j)Waiver. The Participant acknowledges that a waiver by the Company of a breach of any provision of this Agreement will not operate or be construed as a waiver of any other provision of this Agreement or of any subsequent breach of this Agreement by him or her.
EXHIBIT B
APPENDIX TO STOCK OPTION AGREEMENT
Terms and Conditions
This Appendix to Stock Option Agreement (the “Appendix”) includes additional terms and conditions that govern this Option granted to the Participant under the Plan if he or she resides in one of the countries listed below on the Grant Date or he or she moves to one of the listed countries.
Notifications
This Appendix may also include information regarding exchange controls and certain other issues of which the Participant should be aware with respect to participation in the Plan. The information is based on the securities, exchange control, and other Applicable Laws in effect in the respective countries as of [DATE]. Such Applicable Laws are often complex and change frequently. As a result, the Company strongly recommends that the Participant not rely on the information in this Appendix as the only source of information relating to the consequences of participation in the Plan because the information may be out of date at the time the Participant sells Shares acquired under the Plan.
In addition, the information contained in this Appendix is general in nature and may not apply to the Participant’s particular situation, and the Company is not in a position to assure him or her of a particular result. The Participant is advised to seek appropriate professional advice as to how the Applicable Laws in his or her country may apply to his or her situation.
Finally, if the Participant is a citizen or resident of a country other than the one in which he or she is currently working, transfers employment after this Option is granted, or is considered a resident of another country for local law purposes, the information in this Appendix may not apply to him or her, and the Administrator will determine to what extent the terms and conditions in this Appendix apply.
Countries
[INSERT COUNTRY SPECIFIC PROVISIONS]
EXHIBIT C
MEDAVAIL HOLDINGS, INC.
2020 EQUITY INCENTIVE PLAN
EXERCISE NOTICE
MedAvail Holdings, Inc.
6665 Millcreek Dr. Unit 1,
Mississauga ON Canada
L5N 5M4
Attention: Stock Administration
|
|
|
|
|
|
Purchaser Name:
|
|
Grant Date of Stock Option (the “Option”):
|
|
Grant Number:
|
|
Exercise Date:
|
|
Number of Shares Exercised:
|
|
Per Share Exercise Price:
|
|
Total Exercise Price:
|
|
Exercise Price Payment Method:
|
|
Tax-Related Items Payment Method:
|
|
The information in the table above is incorporated in this Exercise Notice.
1.Exercise of Option. Effective as of the Exercise Date, I elect to purchase the Number of Shares Exercised (“Exercised Shares”) under the Stock Option Agreement for the Option (the “Agreement”) for the Total Exercise Price. Capitalized terms used but not defined in this Exercise Notice have the meanings given to them in the 2020 Equity Incentive Plan (the “Plan”) and/or the Agreement.
2.Delivery of Payment. With this Exercise Notice, I am delivering the Total Exercise Price and any required Tax-Related Items to be paid in connection with the purchase of the Exercised Shares. I am paying my total purchase price by the Exercise Price Payment Method and the Tax-Related Items by the Tax-Related Items Payment Method.
3.Representations of Purchaser. I acknowledge that:
(a)I have received, read, and understood the Plan and the Agreement and agree to be bound by their terms and conditions.
(b)The exercise will not be completed until this Exercise Notice, Total Exercise Price, and all Tax-Related Payments are received by the Company.
(c)I have no rights as a stockholder of the Company (including the right to vote and receive dividends and distributions) on the Exercised Shares until the Exercised Shares have been issued and recorded on the records of the Company or its transfer agents or registrars.
(d)No adjustment will be made for a dividend or other right for which the record date is before the date of issuance, except for adjustments under Section 12 of the Plan.
(e)There may be adverse tax consequences to exercising the Option, and I am not relying on the Company for tax advice and have had an opportunity to obtain the advice of personal tax, legal, and financial advisors prior to exercising.
(f)The modification and choice of law provisions of the Agreement also govern this Exercise Notice.
4.Entire Agreement; Choice of Law; Choice of Forum. The Plan and the Agreement are incorporated by reference. This Exercise Notice, the Plan, and the Agreement are the entire agreement of the parties with respect to the Options and this exercise and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to their subject matter. The Plan, the Agreement, and this Exercise Notice, to the extent not otherwise governed by the laws of the United States, will be governed by the laws of the State of Delaware without giving effect to principles of conflicts of law. For purposes of litigating any dispute that arises under the Plan (including without limitation under this Exercise Notice), the Participant consents to the jurisdiction of the State of Delaware and any such litigation being conducted in the Delaware Court of Chancery or the federal courts for the United States for the District of Delaware and no other courts, regardless of where he or she is performing services.
|
|
|
|
|
|
|
|
|
Submitted by:
|
|
|
|
|
PURCHASER
|
|
|
|
|
|
|
|
Signature
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
|
MEDAVAIL HOLDINGS, INC.
2020 EQUITY INCENTIVE PLAN
NOTICE OF RESTRICTED STOCK UNIT AWARD AND RESTRICTED STOCK UNIT AGREEMENT
Capitalized terms that are not defined in this Notice of Restricted Stock Unit Award and Restricted Stock Unit Agreement (the “Notice of Grant”), the Terms and Conditions of Restricted Stock Unit Award, or any of the exhibits to these documents (all together, the “Agreement”) have the meanings given to them in the MedAvail Holdings, Inc. 2020 Equity Incentive Plan (the “Plan”).
The Participant has been granted this Restricted Stock Unit (“RSU”) award according to the terms below and subject to the terms and conditions of the Plan and this Agreement, as follows:
|
|
|
|
|
|
|
|
|
Participant
|
|
|
Participant I.D.
|
|
|
Grant Number
|
|
|
Grant Date
|
|
|
Vesting Start Date
|
|
|
Number of RSUs Granted
|
|
|
Vesting Schedule:
Unless the vesting is accelerated, these RSUs will vest on the following schedule:
[One-fourth (1/4th) of the Number of RSUs Granted will be scheduled to vest on the one (1) year anniversary of the Vesting Start Date, and one-sixteenth (1/16th) of the Number of RSUs Granted will be scheduled to vest each quarter thereafter over the following twelve (12) calendar quarters on the same day of the month as the Vesting Start Date (or, if there is no corresponding day in a particular month, then the last day of that month), in each case, subject to the Participant continuing to be a Service Provider through the applicable vesting date. All vesting will be rounded in accordance with Section 4(f) of the Plan.]
If the Participant ceases to be a Service Provider for any or no reason before he or she fully vests in these RSUs, the unvested RSUs will terminate according to the terms of Section 5 of this Agreement.
The Participant’s signature below indicates that:
(i)He or she agrees that this Restricted Stock Unit award is granted under and governed by the terms and conditions of the Plan and this Agreement, including their exhibits and appendices.
(ii)He or she understands that the Company is not providing any tax, legal, or financial advice and is not making any recommendations regarding his or her participation in the Plan or his or her acquisition or sale of Shares.
(iii)He or she has reviewed the Plan and this Agreement, has had an opportunity to obtain the advice of personal tax, legal, and financial advisors prior to signing this Agreement, and fully understands all provisions of the Plan and Agreement. He or she will consult with his or her own personal tax, legal, and financial advisors before taking any action related to the Plan.
(iv)He or she has read and agrees to each provision of Section 10 of this Agreement.
(v)He or she will notify the Company of any change to the contact address below.
|
|
|
|
|
|
|
|
|
PARTICIPANT
|
|
|
|
|
|
|
|
Signature
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
|
EXHIBIT A
TERMS AND CONDITIONS OF RESTRICTED STOCK UNIT AWARD
1.Grant. The Company grants the Participant an award of RSUs as described in the Notice of Grant. If there is a conflict between the Plan, this Agreement, or any other agreement with the Participant governing these RSUs, those documents will take precedence and prevail in the following order: (a) the Plan, (b) the Agreement, and (c) any other agreement between the Company and the Participant governing these RSUs.
2.Company’s Obligation to Pay. Each RSU is a right to receive a Share on the date it vests. Until an RSU vests, the Participant has no right to payment of the Share. Before a vested RSU is paid, the RSU is an unsecured obligation of the Company, payable (if at all) only from the Company’s general assets. A vested RSU will be paid to the Participant (or in the event of his or her death, to his or her estate or such other person as specified in Section 6 below) in whole Shares as soon as practicable after vesting (but no later than sixty (60) days following the vesting date), subject to him or her satisfying any obligations for Tax-Related Items (as defined in Section 7 of this Agreement) and any delay in payment required under Section 7 of this Agreement. The Participant cannot specify (directly or indirectly) the taxable year of the payment of any vested RSU under this Agreement.
3.Vesting. These RSUs will vest only under the Vesting Schedule in the Notice of Grant, Section 4 of this Agreement, or Section 13 of the Plan. RSUs scheduled to vest on a certain date or upon the occurrence of a certain condition will not vest unless the Participant continues to be a Service Provider until the time such vesting is scheduled to occur.
4.Administrator Discretion. The Administrator has the discretion to accelerate the vesting of any RSUs at any time, subject to the terms of the Plan. In that case, those RSUs will be vested as of the date specified by the Administrator.
5.Forfeiture upon Termination of Status as a Service Provider. Upon the Participant’s termination as a Service Provider for any reason, these RSUs will immediately stop vesting and any of these RSUs that have not yet vested will be forfeited by the Participant upon: (a) the thirtieth (30th) day following the Termination of Status Date (or any earlier date on or following the Termination of Status Date determined by the Administrator) if Participant’s termination as a Service Provider is due to the Participant’s death or (b) the Termination of Status Date if Participant’s termination as a Service Provider is for any reason other than the Participant’s death, in all cases, subject to Applicable Laws. The date of the Participant’s termination as a Service Provider is detailed in Section 4(c) of the Plan.
6.Death of Participant. Any distribution or delivery to be made to the Participant under this Agreement will, if he or she is then deceased, be made to the administrator or executor of his or her estate or, if the Administrator permits, his or her designated beneficiary. Any such transferee must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations that apply to the transfer.
7.Tax Obligations.
(a)Tax Withholding.
(i)No Shares will be issued to the Participant until he or she makes satisfactory arrangements (as determined by the Administrator) for the payment of Tax Withholdings, payment on account, or other tax-related items related to his or her participation in the Plan and legally applicable to him or her that the Administrator determines must be withheld (“Tax-Related Items”), including those that result from the grant, vesting, or payment of these RSUs, the subsequent sale of Shares acquired pursuant to such payment, or the receipt of any dividends. If the Participant is a non-U.S. employee, the method of payment of Tax-Related Items may be restricted by any Appendix (as defined below). If the Participant fails to make satisfactory arrangements for the payment of any Tax-Related Items under this Agreement when any of these RSUs otherwise are supposed to vest or TaxRelated Items related to RSUs otherwise are due, he or she will permanently forfeit the applicable RSUs and any right to receive Shares under such RSUs, and such RSUs will be returned to the Company at no cost to the Company.
(ii)The Company has the right (but not the obligation) to satisfy any Tax-Related Items by withholding from proceeds of a sale of Shares acquired upon payment of these RSUs arranged by the Company (on the Participant’s behalf pursuant to this authorization without further consent).
(iii)The Company also has the right (but not the obligation) to satisfy any Tax-Related Items by reducing the number of Shares otherwise deliverable to the Participant), and this will be the method by which such tax withholding obligations are satisfied until the Company determines otherwise, subject to Applicable Laws.
(iv)Further, if the Participant is subject to taxation in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, the Company and/or any member of the Company Group for whom he or she is performing services (each, an “Employer”) or former Employer(s) may withhold or account for tax in more than one jurisdiction.
(v)Regardless of any action of the Company or the Employer(s), the Participant acknowledges that the ultimate liability for all Tax-Related Items is and remains his or her responsibility and may exceed the amount actually withheld by the Company or the Employer(s). The Participant further acknowledges that the Company and the Employer(s) (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of these RSUs and (2) do not commit to and are under no obligation to structure the terms of the grant or any aspect of these RSUs to reduce or eliminate his or her liability for Tax-Related Items or achieve any particular tax result.
(b)Code Section 409A. This Section 7(b) does not apply if the Participant is not a U.S. income taxpayer.
(i)If the vesting of any RSUs is accelerated in connection with a termination of the Participant’s status as a Service Provider that is a “separation from service”
within the meaning of Code Section 409A and (x) the Participant is a “specified employee” within the meaning of Code Section 409A at that time and (y) the payment of such accelerated RSUs would result in the imposition of additional tax under Code Section 409A if paid to the Participant within the 6-month period following such termination, then the accelerated RSUs will not be paid until the first day after the 6-month period ends.
(ii)If the Participant’s status as a Service Provider terminates due to death or the Participant dies after he or she stops being a Service Provider, the delay under Section 7(b)(i) of this Agreement will not apply, and these RSUs will be paid in Shares to the Participant’s estate (or such other person as specified in Section 6 above) as soon as practicable.
(iii)All payments and benefits under this Agreement are intended to be exempt from Code Section 409A or comply with any requirements necessary to avoid the imposition of additional tax under Code Section 409A(a)(1)(B) so that none of these RSUs or Shares issuable upon the vesting of RSUs will be subject to the additional tax imposed under Code Section 409A, and any ambiguities or ambiguous terms will be interpreted according to that intent. In no event will any member of the Company Group have any obligation or liability to reimburse, indemnify, or hold harmless the Participant for any taxes imposed, or other costs incurred, as a result of Code Section 409A.
(iv)Each payment under this Agreement is a separate payment under Treasury Regulations Section 1.409A-2(b)(2).
8.Forfeiture or Clawback. These RSUs (including any proceeds, gains or other economic benefit received by the Participant upon its payment or the subsequent sale of Shares issued upon payment of the RSUs) will be subject to any compensation recovery or clawback policy implemented by the Company before or after the date of this Agreement. This includes any clawback policy adopted to comply with the requirements of Applicable Laws.
9.Rights as Stockholder. The Participant’s rights as a stockholder of the Company (including the right to vote and to receive dividends and distributions) will not begin until Shares have been issued and recorded on the records of the Company or its transfer agents or registrars.
10.Acknowledgements and Agreements. The Participant’s signature on the Notice of Grant accepting these RSUs indicates that:
(a)HE OR SHE ACKNOWLEDGES AND AGREES THAT THE VESTING OF THESE RSUS IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AND THAT BEING HIRED OR BEING GRANTED THESE RSUS WILL NOT RESULT IN VESTING.
(b)HE OR SHE FURTHER ACKNOWLEDGES AND AGREES THAT THESE RSUS AND THIS AGREEMENT DO NOT CREATE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL AND WILL NOT INTERFERE IN ANY WAY WITH HIS OR HER RIGHT OR THE RIGHT OF THE EMPLOYER(S) TO TERMINATE HIS OR HER RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE, SUBJECT TO APPLICABLE LAWS.
(c)The Participant agrees that this Agreement and its incorporated documents reflect all agreements on its subject matters and that he or she is not accepting this Agreement based on any promises, representations, or inducements other than those reflected in the Agreement.
(d)The Participant agrees that the Company’s delivery of any documents related to the Plan or these RSUs (including the Plan, the Agreement, the Plan’s prospectus, and any reports of the Company provided generally to the Company’s stockholders) to him or her may be made by electronic delivery, which may include but does not necessarily include the delivery of a link to a Company intranet or to the Internet site of a third party involved in administering the Plan, the delivery of the document via email, or any other means of electronic delivery specified by the Company. If the attempted electronic delivery of such documents fails, the Participant will be provided with a paper copy of the documents. The Participant acknowledges that he or she may receive from the Company a paper copy of any documents that were delivered electronically at no cost to him or her by contacting the Company by telephone or in writing. The Participant may revoke his or her consent to the electronic delivery of documents or may change the electronic mail address to which such documents are to be delivered (if the Participant has provided an electronic mail address) at any time by notifying the Company of such revoked consent or revised e-mail address by telephone, postal service or electronic mail. Finally, the Participant understands that he or she is not required to consent to electronic delivery of documents.
(e)The Participant may deliver any documents related to the Plan or these RSUs to the Company by e-mail or any other means of electronic delivery approved by the Administrator, but he or she must provide the Company or any designated third party administrator with a paper copy of any documents if his or her attempted electronic delivery of such documents fails.
(f)The Participant accepts that all good faith decisions or interpretations of the Administrator regarding the Plan and Awards under the Plan are binding, conclusive, and final. No member of the Administrator will be personally liable for any such decisions or interpretations.
(g)The Participant agrees that the Plan is established voluntarily by the Company, is discretionary in nature, and may be amended, suspended, or terminated by the Company at any time, to the extent permitted by the Plan.
(h)The Participant agrees that the grant of these RSUs is voluntary and occasional and does not create any contractual or other right to receive future grants of restricted stock units or benefits in lieu of restricted stock units, even if restricted stock units have been granted in the past.
(i)The Participant agrees that any decisions regarding future Awards will be in the Company’s sole discretion.
(j)The Participant agrees that he or she is voluntarily participating in the Plan.
(k)The Participant agrees that these RSUs and any Shares acquired under these RSUs are not intended to replace any pension rights or compensation.
(l)The Participant agrees that these RSUs, any Shares acquired under these RSUs, and their income and value are not part of normal or expected compensation for any purpose, including for calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, holiday pay, long-service awards, pension or retirement or welfare benefits, or similar payments.
(m)The Participant agrees that the future value of the Shares underlying these RSUs is unknown, indeterminable, and cannot be predicted with certainty.
(n)The Participant agrees that, for purposes of these RSUs, his or her engagement as a Service Provider is terminated as of the Termination of Status Date (regardless of the reason for such termination and whether or not the termination is later found to be invalid or in breach of employment laws in the jurisdiction where he or she is a Service Provider or the terms of his or her service agreement, if any), unless otherwise expressly provided in this Agreement or determined by the Administrator.
(o)The Participant agrees that any right to vest in these RSUs will be extended by any notice period (e.g., the period that he or she is a Service Provider would include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws (including common law, if applicable) in the jurisdiction where he or she is a Service Provider or by his or her service agreement or employment agreement, if any) and the Termination of Status Date will not occur until the end of such period, unless otherwise expressly provided in this Agreement or determined by the Administrator or required by Applicable Law.
(p)The Participant agrees that the Administrator has the exclusive discretion to determine when he or she is no longer actively providing services for purposes of these RSUs (including whether he or she is still considered to be providing services while on a leave of absence).
(q)The Participant agrees that no member of the Company Group is liable for any foreign exchange rate fluctuation between the Participant’s local currency and the United States Dollar that may affect the value of these RSUs or of any amounts due to him or her from the payment of these RSUs or the subsequent sale of any Shares acquired upon such payment.
(r)The Participant has read and agrees to the Data Privacy provisions of Section 11 of this Agreement.
(s)The Participant agrees that he or she has no claim or entitlement to compensation or damages from any forfeiture of these RSUs resulting from the termination of his or her status as a Service Provider (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where he or she is a Service Provider or the terms of his or her service agreement, if any), and in consideration of the grant of these RSUs to which he or she is otherwise not entitled, he or she irrevocably agrees never to institute any claim against the Company or any member of the Company Group, waives his or
her ability (if any) to bring any such claim, and releases the Company and all members of the Company Group from any such claim. If any such claim is nevertheless allowed by a court of competent jurisdiction, then the Participant’s participation in the Plan constitutes his or her irrevocable agreement to not pursue such claim and to execute any and all documents necessary to request dismissal or withdrawal of such claim.
11.Data Privacy.
(a)The Participant voluntarily consents to the collection, use and transfer, in electronic or other form, of his or her personal data as described in this Agreement and any other Award materials (“Data”) by and among, as applicable, the Employer(s), the Company and any member of the Company Group for the exclusive purpose of implementing, administering, and managing his or her participation in the Plan.
(b)The Participant understands that the Company and the Employer(s) may hold certain personal information about him or her, including, but not limited to, his or her name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all equity awards or any other entitlement to stock awarded, canceled, exercised, vested, unvested or outstanding in his or her favor, for the exclusive purpose of implementing, administering, and managing the Plan.
(c)The Participant understands that Data will be transferred to one or more stock plan service provider(s) selected by the Company, which may assist the Company with the implementation, administration, and management of the Plan. The Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than his or her country. The Participant understands that if he or she resides outside the United States, he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Participant authorizes the Company and any other possible recipients that may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing his or her participation in the Plan.
(d)The Participant understands that Data will be held only as long as is necessary to implement, administer and manage his or her participation in the Plan. The Participant understands that if he or she resides in certain jurisdictions outside the United States, to the extent required by Applicable Laws, he or she may, at any time, request access to Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents given by accepting these RSUs, in any case without cost, by contacting in writing his or her local human resources representative. Further, the Participant understands that he or she is providing these consents on a purely voluntary basis. If the Participant does not consent or if he or she later seeks to revoke his or her consent, his or her engagement as a Service Provider with the Employer(s) will not be adversely affected; the only consequence of refusing or withdrawing his or her consent is that the Company will not be able to grant him or her awards under the Plan or administer or maintain
awards. Therefore, the Participant understands that refusing or withdrawing his or her consent may affect his or her ability to participate in the Plan (including the right to retain these RSUs). The Participant understands that he or she may contact his or her local human resources representative for more information on the consequences of his or her refusal to consent or withdrawal of consent.
12.Miscellaneous.
(a)Address for Notices. Any notice to be given to the Company under the terms of this Agreement must be addressed to the Company at MedAvail Holdings, Inc., 6665 Millcreek Dr. Unit 1, Mississauga ON Canada L5N 5M4, until the Company designates another address in writing.
(b)Non-Transferability of RSUs. These RSUs may not be transferred other than by will or the laws of descent or distribution.
(c)Binding Agreement. If any RSUs are transferred, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors, and assigns of the parties to this Agreement.
(d)Additional Conditions to Issuance of Stock. If the Company determines that the listing, registration, qualification, or rule compliance of the Common Stock on any securities exchange or under any state, federal, or foreign law or the tax code and related regulations or the consent or approval of any governmental regulatory authority is necessary or desirable as a condition to the issuance of Shares to the Participant (or his or her estate), the Company will try to meet the requirements of any such state, federal, or foreign law or securities exchange and to obtain any such consent or approval of any such governmental authority or securities exchange, but the Shares will not be issued until such conditions have been met in a manner acceptable to the Company.
(e)Captions. Captions provided in this Agreement are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
(f)Agreement Severable. If any provision of this Agreement is held invalid or unenforceable, that provision will be severed from the remaining provisions of this Agreement and the invalidity or unenforceability will have no effect on the remainder of the Agreement.
(g)Non-U.S. Appendix. These RSUs are subject to any special terms and conditions set forth in any appendix to this Agreement for the Participant’s country (the “Appendix”). If the Participant relocates to a country included in the Appendix, the special terms and conditions for that country will apply to him or her to the extent the Company determines that applying such terms and conditions is necessary or advisable for legal or administrative reasons.
(h)Choice of Law; Choice of Forum. The Plan, this Agreement, these RSUs, and all determinations made and actions taken under the Plan, to the extent not otherwise governed by the laws of the United States, will be governed by the laws of the State of Delaware without giving effect to principles of conflicts of law. For purposes of litigating any dispute that
arises under the Plan, the Participant's acceptance of these RSUs is his or her consent to the jurisdiction of the State of Delaware and his or her agreement that any such litigation will be conducted in the Delaware Court of Chancery or the federal courts for the United States for the District of Delaware and no other courts, regardless of where he or she is performing services.
(i)Modifications to the Agreement. The Plan and this Agreement constitute the entire understanding of the parties on the subjects covered. The Participant expressly warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. The Company reserves the right to revise the Agreement as it deems necessary or advisable, in its sole discretion and without the consent of the Participant, to comply with Code Section 409A, to otherwise avoid imposition of any additional tax or income recognition under Code Section 409A in connection with these RSUs, or to comply with other Applicable Laws.
(j)Waiver. The Participant acknowledges that a waiver by the Company of a breach of any provision of this Agreement will not operate or be construed as a waiver of any other provision of this Agreement or of any subsequent breach of this Agreement by him or her.
EXHIBIT B
APPENDIX TO RESTRICTED STOCK UNIT AGREEMENT
Terms and Conditions
This Appendix to Restricted Stock Unit Agreement (the “Appendix”) includes additional terms and conditions that govern these RSUs granted to the Participant under the Plan if he or she resides in one of the countries listed below on the Grant Date or he or she moves to one of the listed countries.
Notifications
This Appendix may also include information regarding exchange controls and certain other issues of which the Participant should be aware with respect to participation in the Plan. The information is based on the securities, exchange control, and other Applicable Laws in effect in the respective countries as of [DATE]. Such Applicable Laws are often complex and change frequently. As a result, the Company strongly recommends that the Participant not rely on the information in this Appendix as the only source of information relating to the consequences of participation in the Plan because the information may be out of date at the time the Participant sells Shares acquired under the Plan.
In addition, the information contained in this Appendix is general in nature and may not apply to the Participant’s particular situation, and the Company is not in a position to assure him or her of a particular result. The Participant is advised to seek appropriate professional advice as to how the Applicable Laws in his or her country may apply to his or her situation.
Finally, if the Participant is a citizen or resident of a country other than the one in which he or she is currently working, transfers employment after these RSUs are granted, or is considered a resident of another country for local law purposes, the information in this Appendix may not apply to him or her, and the Administrator will determine to what extent the terms and conditions in this Appendix apply.
Countries
[INSERT COUNTRY SPECIFIC PROVISIONS]
MEDAVAIL HOLDINGS, INC.
2020 EMPLOYEE STOCK PURCHASE PLAN
1.Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Companies with an opportunity to purchase Common Stock through accumulated Contributions. The Company intends for the Plan to have two components: a component that is intended to qualify as an “employee stock purchase plan” under Section 423 of the Code (the “423 Component”) and a component that is not intended to qualify as an “employee stock purchase plan” under Section 423 of the Code (the “Non-423 Component”). The provisions of the 423 Component, accordingly, will be construed so as to extend and limit Plan participation in a uniform and nondiscriminatory basis consistent with the requirements of Section 423 of the Code. An option to purchase shares of Common Stock under the Non-423 Component will be granted pursuant to rules, procedures, or sub-plans adopted by the Administrator designed to achieve tax, securities laws, or other objectives for Eligible Employees and the Company. Except as otherwise provided herein, the Non-423 Component will operate and be administered in the same manner as the 423 Component.
2.Definitions.
(a)“Administrator” means the Board or any Committee designated by the Board to administer the Plan pursuant to Section 14.
(b)“Affiliate” means any entity, other than a Subsidiary, in which the Company has an equity or other ownership interest.
(c)“Applicable Laws” means the legal and regulatory requirements relating to the administration of equity-based awards, including but not limited to the related issuance of shares of Common Stock, including but not limited to, under U.S. federal and state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any non-U.S. country or jurisdiction where options are, or will be, granted under the Plan.
(d)“Board” means the Board of Directors of the Company.
(e)“Change in Control” means the occurrence of any of the following events, unless specifically provided otherwise by the Administrator with respect to a particular Offering:
(i)A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group (“Person”), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection, the acquisition of additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control. Further, if the stockholders of the Company immediately before such change in ownership continue to retain immediately after the change in ownership, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately prior to the change in
ownership, direct or indirect beneficial ownership of fifty percent (50%) or more of the total voting power of the stock of the Company or of the ultimate parent entity of the Company, such event shall not be considered a Change in Control under this subsection (i). For this purpose, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company, as the case may be, either directly or through one or more subsidiary corporations or other business entities; or
(ii)A change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any twelve (12)-month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this subsection (ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or
(iii)A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve (12)-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection, the following will not constitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person described in this subsection (iii)(B)(3). For purposes of this subsection, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
For purposes of this Section 2(e), persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase, or acquisition of stock, or similar business transaction with the Company. For the avoidance of doubt, wholly-owned subsidiaries of the Company shall not be considered “Persons” for purposes of this Section 2(e).
Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any applicable Treasury Regulations and formal, effective Internal Revenue Service guidance of either general
applicability or direct applicability that has been promulgated or may be promulgated thereunder from time to time.
Further and for the avoidance of doubt, a transaction will not constitute a Change in Control if: (i) its primary purpose is to change the jurisdiction of the Company’s incorporation, or (ii) its primary purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
(f)“Code” means the U.S. Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or U.S. Treasury Regulation thereunder will include such section or regulation, any valid regulation or other official applicable guidance promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(g)“Committee” means a committee of the Board appointed in accordance with Section 14 hereof.
(h)“Common Stock” means the common stock of the Company.
(i)“Company” means, prior to the Merger, MYOS Rens Technology, Inc., and on and following the Effective Date, MedAvail Holdings, Inc., a Delaware corporation, or any of its successors.
(j)“Compensation” includes an Eligible Employee’s base straight time gross earnings but excludes payments for commissions, incentive compensation, bonuses, payments for overtime and shift premium, equity compensation income and other similar compensation. For the avoidance of doubt, “Compensation” excludes any payments that an Eligible Employee receives from external sources, including government agencies or insurance carriers, such as disability insurance payments or paid family leave payments, during any leave of absence taken by an Eligible Employee. The Administrator, in its discretion, may, on a uniform and nondiscriminatory basis, establish a different definition of Compensation for a subsequent Offering Period.
(k)“Contributions” means the payroll deductions and other additional payments that the Company may permit to be made by a Participant to fund the exercise of options granted pursuant to the Plan.
(l)“Designated Company” means any Subsidiary or Affiliate of the Company that has been designated by the Administrator from time to time in its sole discretion as eligible to participate in the Plan. For purposes of the 423 Component, only the Company and its Subsidiaries may be Designated Companies, provided, however that at any given time, a Subsidiary that is a Designated Company under the 423 Component will not be a Designated Company under the Non-423 Component.
(m)“Director” means a member of the Board.
(n)“Eligible Employee” means any individual who is a common law employee providing services to the Company or a Designated Company and is customarily employed for at least twenty (20) hours per week and more than five (5) months in any calendar year by the Employer, or any lesser number of hours per week and/or number of months in any calendar year established by the Administrator (if required under applicable local law) for purposes of any separate Offering or the Non-423 Component. For purposes of the Plan, the employment relationship will be treated as continuing intact while the individual is on sick leave or other leave of absence that the Employer approves or is legally protected under Applicable Laws. Where the period of leave exceeds three (3) months and the individual’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated three (3) months and one (1) day following the commencement of such leave. The Administrator, in its discretion, from time to time may, prior to an Enrollment Date for all options to be granted on such Enrollment Date in an Offering, determine (for each Offering under the 423 Component, on a uniform and nondiscriminatory basis or as otherwise permitted by Treasury Regulation Section 1.423-2) that the definition of Eligible Employee will or will not include an individual if he or she: (i) has not completed at least two (2) years of service since his or her last hire date (or such lesser period of time as may be determined by the Administrator in its discretion), (ii) customarily works not more than twenty (20) hours per week (or such lesser period of time as may be determined by the Administrator in its discretion), (iii) customarily works not more than five (5) months per calendar year (or such lesser period of time as may be determined by the Administrator in its discretion), (iv) is a highly compensated employee within the meaning of Section 414(q) of the Code, or (v) is a highly compensated employee within the meaning of Section 414(q) of the Code with compensation above a certain level or is an officer or subject to the disclosure requirements of Section 16(a) of the Exchange Act, provided the exclusion is applied with respect to each Offering under the 423 Component in an identical manner to all highly compensated individuals of the Employer whose Eligible Employees are participating in that Offering under the 423 Component. Each exclusion will be applied with respect to an Offering under the 423 Component in a manner complying with U.S. Treasury Regulation Section 1.423-2(e)(2)(ii). Such exclusions may be applied with respect to an Offering under the Non- 423 Component without regard to the limitations of Treasury Regulation Section 1.423-2.
(o)“Employer” means the employer of the applicable Eligible Employee(s).
(p)“Enrollment Date” means the first Trading Day of an Offering Period.
(q)“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, including the rules and regulations promulgated thereunder.
(r)“Exercise Date” means the last Trading Day of the Purchase Period. Notwithstanding the foregoing, in the event that an Offering Period is terminated prior to its expiration pursuant to Section 20, the Administrator, in its sole discretion, may determine that any Purchase Period also terminating under such Offering Period will terminate without options being exercised on the Exercise Date that otherwise would have occurred on the last Trading Day of such Purchase Period.
(s)“Fair Market Value” means, as of any date, the closing sales price for Common Stock as quoted on any established stock exchange or national market system (including without limitation the New York Stock Exchange, NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market of The NASDAQ Stock Market) on which the Common Stock is listed on the date of determination (or the closing bid, if no sales were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable. If the determination date for the Fair Market Value occurs on a non-Trading Day (i.e., a weekend or holiday), the Fair Market Value will be such price on the immediately preceding Trading Day, unless otherwise determined by the Administrator. In the absence of an established market for the Common Stock, the Fair Market Value thereof will be determined in good faith by the Administrator.
The determination of fair market value for purposes of tax withholding may be made in the Administrator’s discretion subject to Applicable Laws and is not required to be consistent with the determination of Fair Market Value for other purposes.
(t)“Fiscal Year” means a fiscal year of the Company.
(u)“Merger” means the merger of MedAvail, Inc. with the Company pursuant to the Agreement and Plan of Merger and Reorganization by and between the Company and MedAvail, Inc. dated June 30, 2020.
(v)“New Exercise Date” means a new Exercise Date if the Administrator shortens any Offering Period then in progress.
(w)“Offering” means an offer under the Plan of an option that may be exercised during an Offering Period as further described in Section 4. For purposes of the Plan, the Administrator may designate separate Offerings under the Plan (the terms of which need not be identical) in which Eligible Employees of one or more Employers will participate, even if the dates of the applicable Offering Periods of each such Offering are identical and the provisions of the Plan will separately apply to each Offering. To the extent permitted by U.S. Treasury Regulation Section 1.423-2(a)(1), the terms of each Offering need not be identical provided that the terms of the Plan and an Offering together satisfy U.S. Treasury Regulation Section 1.423-2(a)(2) and (a)(3).
(x)“Offering Periods” means a period beginning on such date as may be determined by the Administrator in its discretion and ending on such Exercise Date as may be determined by the Administrator in its discretion, in each case on a uniform and nondiscriminatory basis. The duration and timing of Offering Periods may be changed pursuant to Sections 4, 20 and 30.
(y)“Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.
(z)“Participant” means an Eligible Employee that participates in the Plan.
(aa) “Plan” means this MedAvail Holdings, Inc. 2020 Employee Stock Purchase Plan.
(bb) “Purchase Period” means the period, as determined by the Administrator in its discretion on a uniform and nondiscriminatory basis, during an Offering Period that commences on the Offering Period’s Enrollment Date and ends on the next Exercise Date, except that if the Administrator determines that more than one Purchase Period should occur within an Offering Period, subsequent Purchase Periods within such Offering Period commence after one Exercise Date and end with the next Exercise Date at such time or times as the Administrator determines prior to the commencement of the Offering Period.
(cc) “Purchase Price” means an amount equal to eighty-five percent (85%) of the Fair Market Value on the Enrollment Date or on the Exercise Date, whichever is lower; provided however, that the Purchase Price may be determined for subsequent Offering Periods by the Administrator subject to compliance with Section 423 of the Code (or any successor rule or provision or any other Applicable Law, regulation or stock exchange rule) or pursuant to Section 20.
(dd) “Section 409A” or “Code Section 409A” means Code Section 409A and the applicable U.S. Treasury Regulations and formal, effective guidance of either general applicability or direct applicability thereunder, and any applicable state law equivalent, as each may be promulgated, amended or modified from time to time.
(ee) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.
(ff) “Trading Day” means a day on which the primary stock exchange (or national market system, or other trading platform, as applicable) upon which the Common Stock is listed is open for trading.
(gg) “U.S. Treasury Regulations” means the Treasury Regulations of the Code. Reference to a specific Treasury Regulation will include such Treasury Regulation, the Section of the Code under which such regulation was promulgated, any valid regulation or other official applicable guidance promulgated under such Section, and any comparable provision of any future legislation or regulation amending, supplementing, or superseding such Section or regulation.
3.Eligibility.
(a)Offering Periods. Any Eligible Employee on a given Enrollment Date will be eligible to participate in the Plan, subject to the requirements of Section 5.
(b)Non-U.S. Employees. Eligible Employees who are citizens or residents of a non-U.S. jurisdiction (without regard to whether they also are citizens or residents of the United States or resident aliens (within the meaning of Section 7701(b)(1)(A) of the Code)) may be excluded from participation in the Plan or an Offering if the participation of such Eligible Employees is prohibited under the laws of the applicable jurisdiction or if complying with the laws of the applicable jurisdiction would cause the Plan or an Offering to violate Section 423 of the Code. In the case of the Non-423 Component, Eligible Employees may be excluded from participation in the Plan or an Offering if the Administrator determines that participation of such Eligible Employees is not advisable or practicable.
(c)Limitations. Any provisions of the Plan to the contrary notwithstanding, no Eligible Employee will be granted an option under the Plan (i) to the extent that, immediately after the grant, such Eligible Employee (or any other person whose stock would be attributed to such Eligible Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company or any Parent or Subsidiary of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Parent or Subsidiary of the Company, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans (as defined in Section 423 of the Code) of the Company or any Parent or Subsidiary of the Company accrues at a rate, which exceeds twenty-five thousand dollars ($25,000) worth of stock (determined at the Fair Market Value of the stock at the time such option is granted) for each calendar year in which such option is outstanding at any time, as determined in accordance with Section 423 of the Code and the regulations thereunder.
4.Offering Periods. Offering Periods will expire on the earliest to occur of (i) the completion of the purchase of Shares on the last Exercise Date occurring within twenty-seven (27) months of the applicable Enrollment Date on which the option to purchase Shares was granted, or (ii) such shorter period as may be established by the Administrator from time to time, in its discretion and on a uniform and nondiscriminatory basis, prior to an Enrollment Date for all options to be granted on such Enrollment Date.
5.Participation. An Eligible Employee may participate in the Plan pursuant to Section 3(b) by (i) submitting to the Company’s stock administration office (or its designee) a properly completed subscription agreement authorizing Contributions in the form provided by the Administrator for such purpose or (ii) following an electronic or other enrollment procedure determined by the Administrator, in either case on or before a date determined by the Administrator prior to an applicable Enrollment Date.
6.Contributions.
(a)At the time a Participant enrolls in the Plan pursuant to Section 5, he or she will elect to have Contributions (in the form of payroll deductions or otherwise, to the extent permitted by the Administrator) made on each pay day during the Offering Period in an amount that the Administrator may establish from time to time, in its discretion and on a uniform and nondiscriminatory basis, for all options to be granted on any Enrollment Date (for illustrative purposes, should a pay day occur on an Exercise Date, a Participant will have any Contributions made on such day applied to his or her account under the then-current Purchase Period or Offering Period with respect to which that Exercise Date relates). The Administrator, in its sole discretion, may permit all Participants in a specified Offering to contribute amounts to the Plan through payment by cash, check or other means set forth in the subscription agreement prior to each Exercise Date of each Purchase Period. A Participant’s subscription agreement will remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof (or Participant’s participation is terminated as provided in Section 11 hereof).
(b)In the event Contributions are made in the form of payroll deductions, such payroll deductions for a Participant will commence on the first pay day following the Enrollment Date and will end on the last pay day on or prior to the last Exercise Date of such
Offering Period to which such authorization is applicable, unless sooner terminated by the Participant as provided in Section 10 hereof (or Participant’s participation is terminated as provided in Section 11 hereof).
(c)All Contributions made for a Participant will be credited to his or her account under the Plan and Contributions will be made in whole percentages of his or her Compensation only. A Participant may not make any additional payments into such account.
(d)A Participant may discontinue his or her participation in the Plan as provided under Section 10. Except as may be permitted by the Administrator, as determined in its sole discretion, a Participant may not change the rate of his or her Contributions during an Offering Period.
(e)Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(d), a Participant’s Contributions may be decreased to zero percent (0%) at any time during a Purchase Period. Subject to Section 423(b)(8) of the Code and Section 3(d) hereof, Contributions will recommence at the rate originally elected by the Participant effective as of the beginning of the first Purchase Period scheduled to end in the following calendar year, unless terminated by the Participant as provided in Section 10 (or Participant’s participation is terminated as provided in Section 11).
(f)Notwithstanding any provisions to the contrary in the Plan, the Administrator may allow Participants to participate in the Plan via cash contributions instead of payroll deductions if (i) payroll deductions are not permitted or advisable under applicable local law, (ii) the Administrator determines that cash contributions are permissible under Section 423 of the Code for Participants participating in the 423 Component; and/or (iii) the Participants are participating in the Non-423 Component.
(g)At the time the option is exercised, in whole or in part, or at the time some or all of the Common Stock issued under the Plan is disposed of (or at any other time that a taxable event related to the Plan occurs), the Participant must make adequate provision for the Company’s or Employer’s federal, state, local or any other tax liability payable to any authority including taxes imposed by jurisdictions outside of the U.S., national insurance, social security or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock (or any other time that a taxable event related to the Plan occurs). At any time, the Company or the Employer may, but will not be obligated to, withhold from the Participant’s compensation the amount necessary for the Company or the Employer to meet applicable withholding obligations, including any withholding required to make available to the Company or the Employer any tax deductions or benefits attributable to the sale or early disposition of Common Stock by the Eligible Employee. In addition, the Company or the Employer may, but will not be obligated to, withhold from the proceeds of the sale of Common Stock or use any other method of withholding the Company or the Employer deems appropriate to the extent permitted by U.S. Treasury Regulation Section 1.423-2(f).
7.Grant of Option. On the Enrollment Date of each Offering Period, each Eligible Employee participating in such Offering Period will be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of
shares of Common Stock determined by dividing such Eligible Employee’s Contributions accumulated prior to such Exercise Date and retained in the Eligible Employee’s account as of the Exercise Date by the applicable Purchase Price; provided that in no event will an Eligible Employee be permitted to purchase during each Purchase Period more than a fixed number shares of Common Stock (subject to any adjustment pursuant to Section 19) in an amount that the Administrator may establish from time to time, in its discretion and on a uniform and nondiscriminatory basis, for all options to be granted on any Enrollment Date, and provided further that such purchase will be subject to the limitations set forth in Sections 3(d) and 13 and in the subscription agreement. The Eligible Employee may accept the grant of such option, with respect to any Offering Period under the Plan, by electing to participate in the Plan in accordance with the requirements of Section 5. The Administrator may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of Common Stock that an Eligible Employee may purchase during each Purchase Period and/or Offering Period, as applicable. Exercise of the option will occur as provided in Section 8, unless the Participant has withdrawn pursuant to Section 10 (or Participant’s participation is terminated as provided in Section 11). The option will expire on the last day of the Offering Period.
8.Exercise of Option.
(a)Unless a Participant withdraws from the Plan as provided in Section 10 (or Participant’s participation is terminated as provided in Section 11), his or her option for the purchase of shares of Common Stock will be exercised automatically on each Exercise Date, and the maximum number of full shares of Common Stock subject to the option will be purchased for such Participant at the applicable Purchase Price with the accumulated Contributions from his or her account. No fractional shares of Common Stock will be purchased; any Contributions accumulated in a Participant’s account, which are not sufficient to purchase a full share will be retained in the Participant’s account for the subsequent Purchase Period or Offering Period, as applicable, subject to earlier withdrawal by the Participant as provided in Section 10 (or the earlier termination of Participant’s participation as provided in Section 11). Any other funds left over in a Participant’s account after the Exercise Date will be returned to the Participant. During a Participant’s lifetime, a Participant’s option to purchase shares of Common Stock hereunder is exercisable only by him or her.
(b)If the Administrator determines that, on a given Exercise Date, the number of shares of Common Stock with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares of Common Stock available for sale under the Plan on such Exercise Date, the Administrator may in its sole discretion (x) provide that the Company will make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all Participants exercising options to purchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect or (y) provide that the Company will make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all participants exercising options to
purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect pursuant to Section 20. The Company may make a pro rata allocation of the shares of Common Stock available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional shares of Common Stock for issuance under the Plan by the Company’s stockholders subsequent to such Enrollment Date.
9.Delivery. As soon as reasonably practicable after each Exercise Date on which a purchase of shares of Common Stock occurs, the Company will arrange the delivery to each Participant of the shares of Common Stock purchased upon exercise of his or her option in a form determined by the Administrator (in its sole discretion) and pursuant to rules established by the Administrator. The Company may permit or require that shares of Common Stock be deposited directly with a broker designated by the Company or to a trustee or designated agent of the Company, and the Company may utilize electronic or automated methods of share transfer. The Company may require that shares of Common Stock be retained with such broker, trustee or agent for a designated period of time and/or may establish other procedures to permit tracking of disqualifying dispositions or other dispositions of such shares. No Participant will have any voting, dividend, or other stockholder rights with respect to shares of Common Stock subject to any option granted under the Plan until such shares have been purchased and delivered to the Participant as provided in this Section 9.
10.Withdrawal.
(a)A Participant may withdraw all but not less than all the Contributions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by (i) submitting to the Company’s stock administration office (or its designee) a written notice of withdrawal in the form determined by the Administrator for such purpose (which may be similar to the form attached hereto as Exhibit B), or (ii) following an electronic or other withdrawal procedure determined by the Administrator. The Administrator may set forth a deadline of when a withdrawal must occur to be effective prior to a given Exercise Date in accordance with policies it may approve from time to time. All of the Participant’s Contributions credited to his or her account will be paid to such Participant as soon as administratively practicable after receipt of notice of withdrawal and such Participant’s option for the Offering Period will be automatically terminated, and no further Contributions for the purchase of shares of Common Stock will be made for such Offering Period. If a Participant withdraws from an Offering Period, Contributions will not resume at the beginning of the succeeding Offering Period, unless the Participant re-enrolls in the Plan in accordance with the provisions of Section 5.
(b)A Participant’s withdrawal from an Offering Period will not have any effect on his or her eligibility to participate in any similar plan that may hereafter be adopted by the Company or in succeeding Offering Periods that commence after the termination of the Offering Period from which the Participant withdraws.
11.Termination of Employment. Upon a Participant’s ceasing to be an Eligible Employee, for any reason, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to such Participant’s account during the Offering Period but not yet used to purchase shares of Common Stock under the Plan will be returned to such Participant
or, in the case of his or her death, to the person or persons entitled thereto under Section 15, and such Participant’s option will be automatically terminated. Unless determined otherwise by the Administrator in a manner that, with respect to an Offering under the 423 Component, is permitted by, and compliant with, Section 423 of the Code, a Participant whose employment transfers between entities through a termination with an immediate rehire (with no break in service) by the Company or a Designated Company will not be treated as terminated under the Plan; however, if a Participant transfers from an Offering under the 423 Component to the Non-423 Component, the exercise of the option will be qualified under the 423 Component only to the extent it complies with Section 423 of the Code; further, no Participant shall be deemed to switch from an Offering under the Non-423 Component to an Offering under the 423 Component or vice versa unless (and then only to the extent) such switch would not cause the 423 Component or any option thereunder to fail to comply with Code Section 423.
12.Interest. No interest will accrue on the Contributions of a participant in the Plan, except as may be required by Applicable Law, as determined by the Company, and if so required by the laws of a particular jurisdiction, will, with respect to Offerings under the 423 Component, apply to all Participants in the relevant Offering, except to the extent otherwise permitted by U.S. Treasury Regulation Section 1.423-2(f).
13.Stock.
(a)Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, the maximum number of shares of Common Stock that will be made available for sale under the Plan will be 700,000 shares of Common Stock. The number of shares of Common Stock available for issuance under the Plan will be increased on the first day of each Fiscal Year beginning for the Fiscal Year following the Fiscal Year in which the first Enrollment Date (if any) occurs equal to the least of (i) 1,000,000 shares of Common Stock, (ii) one percent (1%) of the outstanding shares of Common Stock on the last day of the immediately preceding Fiscal Year, or (iii) an amount determined by the Administrator.
(b)Until the shares of Common Stock are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), a Participant will have only the rights of an unsecured creditor with respect to such shares, and no right to vote or receive dividends or any other rights as a stockholder will exist with respect to such shares.
(c)Shares of Common Stock to be delivered to a Participant under the Plan will be registered in the name of the Participant or, if so required under Applicable Laws, in the name of the Participant and his or her spouse.
14.Administration. The Plan will be administered by the Board or a Committee appointed by the Board, which Committee will be constituted to comply with Applicable Laws. The Administrator will have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to delegate ministerial duties to any of the Company’s employees, to designate separate Offerings under the Plan, to designate Subsidiaries and Affiliates of the Company as participating in the 423 Component or Non-423 Component, to determine eligibility, to adjudicate all disputed claims filed under the Plan and to establish such procedures
that it deems necessary or advisable for the administration of the Plan (including, without limitation, to adopt such procedures, sub-plans, and appendices to the enrollment agreement as are necessary or appropriate to permit the participation in the Plan by employees who are foreign nationals or employed outside the U.S., the terms of which sub-plans and appendices may take precedence over other provisions of this Plan, with the exception of Section 13(a) hereof, but unless otherwise superseded by the terms of such sub-plan or appendix, the provisions of this Plan will govern the operation of such sub-plan or appendix). Unless otherwise determined by the Administrator, the Eligible Employees eligible to participate in each sub-plan will participate in a separate Offering under the 423 Component, or if the terms would not qualify under the 423 Component, in the Non-423 Component, in either case unless such designation would cause the 423 Component to violate the requirements of Section 423 of the Code. Without limiting the generality of the foregoing, the Administrator is specifically authorized to adopt rules and procedures regarding eligibility to participate, the definition of Compensation, handling of Contributions, making of Contributions to the Plan (including, without limitation, in forms other than payroll deductions), establishment of bank or trust accounts to hold Contributions, payment of interest, conversion of local currency, obligations to pay payroll tax, determination of beneficiary designation requirements, withholding procedures and handling of stock certificates that vary with applicable local requirements. The Administrator also is authorized to determine that, to the extent permitted by U.S. Treasury Regulation Section 1.423-2(f), the terms of an option granted under the Plan or an Offering to citizens or residents of a non-U.S. jurisdiction will be less favorable than the terms of options granted under the Plan or the same Offering to employees resident solely in the U.S. Every finding, decision, and determination made by the Administrator will, to the full extent permitted by law, be final and binding upon all parties.
15.Designation of Beneficiary.
(a)If permitted by the Administrator, a Participant may file a designation of a beneficiary who is to receive any shares of Common Stock and cash, if any, from the Participant’s account under the Plan in the event of such Participant’s death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such Participant of such shares and cash. In addition, if permitted by the Administrator, a Participant may file a designation of a beneficiary who is to receive any cash from the Participant’s account under the Plan in the event of such Participant’s death prior to exercise of the option. If a Participant is married and the designated beneficiary is not the spouse, spousal consent will be required for such designation to be effective.
(b)Such designation of beneficiary may be changed by the Participant at any time by notice in a form determined by the Administrator. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant’s death, the Company will deliver such shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
(c)All beneficiary designations will be in such form and manner as the Administrator may designate from time to time. Notwithstanding Sections 15(a) and (b) above, the Company and/or the Administrator may decide not to permit such designations by Participants in non-U.S. jurisdictions to the extent permitted by U.S. Treasury Regulation Section 1.423-2(f).
16.Transferability. Neither Contributions credited to a Participant’s account nor any rights with regard to the exercise of an option or to receive shares of Common Stock under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition will be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof.
17.Use of Funds. The Company may use all Contributions received or held by it under the Plan for any corporate purpose, and the Company will not be obligated to segregate such Contributions except under Offerings or for Participants in the Non-423 Component for which Applicable Laws require that Contributions to the Plan by Participants be segregated from the Company’s general corporate funds and/or deposited with an independent third party, provided that, if such segregation or deposit with an independent third party is required by Applicable Laws, it will apply to all Participants in the relevant Offering under the 423 Component, except to the extent otherwise permitted by U.S. Treasury Regulation Section 1.423-2(f). Until shares of Common Stock are issued, Participants will have only the rights of an unsecured creditor with respect to such shares.
18.Reports. Individual accounts will be maintained for each Participant in the Plan. Statements of account will be given to participating Eligible Employees at least annually, which statements will set forth the amounts of Contributions, the Purchase Price, the number of shares of Common Stock purchased and the remaining cash balance, if any.
19.Adjustments, Dissolution, Liquidation, Merger, or Change in Control.
(a)Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, reclassification, repurchase, or exchange of Common Stock or other securities of the Company, or other change in the corporate structure of the Company affecting the Common Stock occurs (other than any ordinary dividends or other ordinary distributions), the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, will, in such manner as it may deem equitable, adjust the number and class of Common Stock that may be delivered under the Plan, the Purchase Price per share, the class and the number of shares of Common Stock covered by each option under the Plan that has not yet been exercised, and the numerical limits of Sections 7 and 13.
(b)Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, any Offering Period then in progress will be shortened by setting a New Exercise Date, and will terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Administrator. The New Exercise Date will be before the date of the Company’s proposed dissolution or liquidation. The Administrator will notify each Participant in writing or electronically, prior to the New Exercise Date, that the Exercise Date for the Participant’s option has been changed to the New Exercise Date and that the Participant’s option will be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offering Period as provided in Section 10 hereof (or, prior to such New Exercise Date, Participant’s participation has terminated as provided in Section 11 hereof).
(c)Merger or Change in Control. In the event of a merger or Change in Control, each outstanding option will be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, the Offering Period with respect to which such option relates will be shortened by setting a New Exercise Date on which such Offering Period will end. The New Exercise Date will occur before the date of the Company’s proposed merger or Change in Control. The Administrator will notify each Participant in writing or electronically prior to the New Exercise Date, that the Exercise Date for the Participant’s option has been changed to the New Exercise Date and that the Participant’s option will be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offering Period as provided in Section 10 hereof (or, prior to such New Exercise Date, Participant’s participation has terminated as provided in Section 11 hereof).
20.Amendment or Termination.
(a)The Administrator, in its sole discretion, may amend, suspend, or terminate the Plan, or any part thereof, at any time and for any reason. If the Plan is terminated, the Administrator, in its discretion, may elect to terminate all outstanding Offering Periods either immediately or upon completion of the purchase of shares of Common Stock on the next Exercise Date (which may be sooner than originally scheduled, if determined by the Administrator in its discretion), or may elect to permit Offering Periods to expire in accordance with their terms (and subject to any adjustment pursuant to Section 19). If the Offering Periods are terminated prior to expiration, all amounts then credited to Participants’ accounts that have not been used to purchase shares of Common Stock will be returned to the Participants (without interest thereon, except as otherwise required under Applicable Laws, as further set forth in Section 12 hereof) as soon as administratively practicable.
(b)Without stockholder consent and without limiting Section 20(a), the Administrator will be entitled to change the Offering Periods and/or Purchase Periods, designate separate Offerings, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit Contributions in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company’s processing of properly completed Contribution elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with Contribution amounts, and establish such other
limitations or procedures as the Administrator determines in its sole discretion advisable that are consistent with the Plan.
(c)In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, in its discretion and, to the extent necessary or desirable, modify, amend or terminate the Plan to reduce or eliminate such accounting consequence including, but not limited to:
(i)amending the Plan to conform with the safe harbor definition under the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto), including with respect to an Offering Period underway at the time;
(ii)altering the Purchase Price for any Offering Period or Purchase Period including an Offering Period or Purchase Period underway at the time of the change in Purchase Price;
(iii)shortening any Offering Period or Purchase Period by setting a New Exercise Date, including an Offering Period or Purchase Period underway at the time of the Administrator action;
(iv)reducing the maximum percentage of Compensation a Participant may elect to set aside as Contributions; and
(v)reducing the maximum number of shares of Common Stock a Participant may purchase during any Offering Period or Purchase Period.
Such modifications or amendments will not require stockholder approval or the consent of any Participants.
21.Notices. All notices or other communications by a Participant to the Company under or in connection with the Plan will be deemed to have been duly given when received in the form and manner specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
22.Conditions Upon Issuance of Shares. Shares of Common Stock will not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto will comply with all applicable provisions of law, domestic or foreign, including, without limitation, the U.S. Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and will be further subject to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.
23.Code Section 409A. The Plan is intended to be exempt from the application of Section 409A, and, to the extent not exempt, is intended to comply with Section 409A and any ambiguities herein will be interpreted to so be exempt from, or comply with, Section 409A. In furtherance of the foregoing and notwithstanding any provision in the Plan to the contrary, if the Administrator determines that an option granted under the Plan may be subject to Section 409A or that any provision in the Plan would cause an option under the Plan to be subject to Section 409A, the Administrator may amend the terms of the Plan and/or of an outstanding option granted under the Plan, or take such other action the Administrator determines is necessary or appropriate, in each case, without the Participant’s consent, to exempt any outstanding option or future option that may be granted under the Plan from or to allow any such options to comply with Section 409A, but only to the extent any such amendments or action by the Administrator would not violate Section 409A. Notwithstanding the foregoing, the Company and any of its Parent, Subsidiaries or Affiliates shall have no obligation or liability to reimburse, indemnify, or hold harmless a Participant or any other party for any taxes or costs that may be imposed on or incurred by a Participant or any other person as a result of Section 409A, including but not limited to if the option to purchase Common Stock under the Plan that is intended to be exempt from or compliant with Section 409A is not so exempt or compliant or for any action taken by the Administrator with respect thereto. The Company makes no representation that the option to purchase Common Stock under the Plan is compliant with or exempt from Section 409A.
24.Term of Plan. The Plan will become effective upon the later to occur of (i) its adoption by the Board or (ii) the closing of the Merger (the “Effective Date”). It will continue in effect for a term of twenty (20) years from the Effective Date, unless sooner terminated under Section 20.
25.Stockholder Approval. The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted by the Board. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
26.Governing Law. The Plan will be governed by, and construed in accordance with, the laws of the State of Delaware (except its choice-of-law provisions).
27.No Right to Employment. Participation in the Plan by a Participant will not be construed as giving a Participant the right to be retained as an employee of the Company or a Subsidiary or Affiliate of the Company, as applicable. Further, the Company or a Subsidiary or Affiliate of the Company may dismiss a Participant from employment at any time, free from any liability or any claim under the Plan.
28.Severability. If any provision of the Plan is or becomes or is deemed to be invalid, illegal, or unenforceable for any reason in any jurisdiction or as to any Participant, such invalidity, illegality or unenforceability will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as to such jurisdiction or Participant as if the invalid, illegal or unenforceable provision had not been included.
29.Compliance with Applicable Laws. The terms of this Plan are intended to comply with all Applicable Laws and will be construed accordingly.
30.Automatic Transfer to Low Price Offering Period. To the extent permitted by Applicable Laws, if the Fair Market Value on any Exercise Date in an Offering Period is lower than the Fair Market Value on the Enrollment Date of such Offering Period, then all Participants in such Offering Period automatically will be withdrawn from such Offering Period immediately after the exercise of their option on such Exercise Date and automatically re-enrolled in the immediately following Offering Period as of the first day thereof.
EXHIBIT A
MEDAVAIL HOLDINGS, INC.
2020 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original Application
|
Offering Date:
|
|
|
|
|
|
|
|
|
Change in Payroll Deduction Rate
|
|
|
|
1.____________________ (“Employee”) hereby elects to participate in the MedAvail Holdings, Inc. 2020 Employee Stock Purchase Plan (the “Plan”) and subscribes to purchase shares of the Company’s Common Stock in accordance with this Subscription Agreement and the Plan. Any capitalized terms not specifically defined in this Subscription Agreement will have the meaning ascribed to them under the Plan.
2.I hereby authorize and consent to payroll deductions from each paycheck in the amount of ____% of my Compensation (from one (1%) to fifteen percent (15%)); a decrease in rate may be to zero percent (0%)) during the Offering Period in accordance with the Plan. (Please note that no fractional percentages are permitted.)
3.I understand that, subject to the terms and conditions of the Plan, I may not change the rate of my Contributions during an Offering Period.
4.I understand that said payroll deductions will be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option and purchase Common Stock under the Plan. I further understand that if I am outside of the U.S., my payroll deductions will be converted to U.S. dollars at an exchange rate selected by the Company on the purchase date.
5.I have received a copy of the complete Plan and its accompanying prospectus. I understand that my participation in the Plan is in all respects subject to the terms of the Plan.
6.Shares of Common Stock purchased for me under the Plan should be issued in the name(s) of the Eligible Employee.
7.If I am a U.S. taxpayer, I understand that if I dispose of any shares received by me pursuant to the Plan within two (2) years after the Offering Date (the first day of the Offering Period during which I purchased such shares) or one (1) year after the Exercise Date, I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased by me over the price that I paid for the shares. I hereby agree to notify the Company in writing within thirty (30) days after the date of any disposition of my shares and I will make adequate provision for federal, state or other tax withholding obligations,
if any, which arise upon the disposition of the Common Stock. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the two (2)-year and one (1)-year holding periods, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (a) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (b) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain.
8.For employees that may be subject to tax in non U.S. jurisdictions, I acknowledge and agree that, regardless of any action taken by the Company or any Designated Company with respect to any or all income tax, social security, social insurances, National Insurance Contributions, payroll tax, fringe benefit, or other tax-related items related to my participation in the Plan and legally applicable to me including, without limitation, in connection with the grant of such options, the purchase or sale of shares of Common Stock acquired under the Plan and/or the receipt of any dividends on such shares (“Tax-Related Items”), the ultimate liability for all Tax-Related Items is and remains my responsibility and may exceed the amount actually withheld by the Company or a Designated Company. Furthermore, I acknowledge that the Company and/or any Designated Company (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the options under the Plan and (b) do not commit to and are under no obligation to structure the terms of the grant of options or any aspect of my participation in the Plan to reduce or eliminate my liability for Tax-Related Items or achieve any particular tax result. Further, if I have become subject to tax in more than one jurisdiction between the date of my enrollment and the date of any relevant taxable or tax withholding event, as applicable, I acknowledge that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to the purchase of shares of Common Stock under the Plan or any other relevant taxable or tax withholding event, as applicable, I agree to make adequate arrangements satisfactory to the Company and/or the applicable Designated Company to satisfy all Tax-Related Items. In this regard, I authorize the Company and/or the applicable Designated Company, or their respective agents, at their discretion, to satisfy any applicable withholding obligations with regard to all Tax-Related Items by one or a combination of the following: (a) withholding from my wages or Compensation paid to me by the Company and/or the applicable Designated Company; or (b) withholding from proceeds of the sale of the shares of Common Stock purchased under the Plan either through a voluntary sale or through a mandatory sale arranged by the Company (on my behalf pursuant to this authorization). Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable maximum withholding rates, in which case I will receive a refund of any over-withheld amount in cash and will have no entitlement to the Common Stock equivalent.
Finally, I agree to pay to the Company or the applicable Designated Company any amount of Tax-Related Items that the Company or the applicable Designated Company may be required to withhold as a result of my participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to purchase shares of Common Stock under the Plan on my behalf and/or refuse to issue or deliver the shares or the proceeds of the sale of shares if I fail to comply with my obligations in connection with the Tax-Related Items.
9.By electing to participate in the Plan, I acknowledge, understand and agree that:
(a)the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent provided for in the Plan;
(b)all decisions with respect to future grants under the Plan, if applicable, will be at the sole discretion of the Company;
(c)the grant of options under the Plan shall not create a right to employment or be interpreted as forming or amending an employment or service contract with the Company, or any Designated Company, and shall not interfere with the ability of the Company or any Designated Company, as applicable, to terminate my employment (if any);
(d)I am voluntarily participating in the Plan;
(e)the options granted under the Plan and the shares of Common Stock underlying such options, and the income and value of same, are not intended to replace any pension rights or compensation;
(f)the options granted under the Plan and the shares of Common Stock underlying such options, and the income and value of same, are not part of my normal or expected compensation for any purpose, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments;
(g)the future value of the shares of Common Stock offered under the Plan is unknown, indeterminable and cannot be predicted with certainty;
(h)the shares of Common Stock that I acquire under the Plan may increase or decrease in value, even below the Purchase Price;
(i)no claim or entitlement to compensation or damages shall arise from the forfeiture of options granted to me under the Plan as a result of the termination of my status as an Eligible Employee (for any reason whatsoever, and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where I am employed or the terms of my employment agreement, if any) and, in consideration of the grant of options under the Plan to which I am otherwise not entitled, I irrevocably agree never to institute a claim against the Company, or any Designated Company, waive my ability, if any, to bring such claim, and release the Company, and any Designated Company from any such claim that may arise; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, I
shall be deemed irrevocably to have agreed to not to pursue such claim and agree to execute any and all documents necessary to request dismissal or withdrawal of such claim; and
(j)in the event of the termination of my status as an Eligible Employee (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where I am employed or the terms of my employment agreement, if any), my right to participate in the Plan and any options granted to me under the Plan, if any, will terminate effective as of the date that I am no longer actively employed by the Company or one of its Designated Companies and, in any event, will not be extended by any notice period mandated under the employment laws in the jurisdiction in which I am employed or the terms of my employment agreement, if any (e.g., active employment would not include a period of “garden leave” or similar period pursuant to the employment laws in the jurisdiction in which I am employed or the terms of my employment agreement, if any); the Company shall have the exclusive discretion to determine when I am no longer actively employed for purposes of my participation in the Plan (including whether I may still be considered to be actively employed while on a leave of absence).
10.I understand that the Company and/or any Designated Company may collect, where permissible under applicable law certain personal information about me, including, but not limited to, my name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of Common Stock or directorships held in the Company, details of all options granted under the Plan or any other entitlement to shares of Common Stock awarded, canceled, exercised, vested, unvested or outstanding in my favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan. I understand that Company may transfer my Data to the United States, which is not considered by the European Commission to have data protection laws equivalent to the laws in my country. I understand that the Company will transfer my Data to its designated broker, or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. I understand that the recipients of the Data may be located in the United States or elsewhere, and that a recipient’s country of operation (e.g., the United States) may have different, including less stringent, data privacy laws that the European Commission or my jurisdiction does not consider to be equivalent to the protections in my country. I understand that I may request a list with the names and addresses of any potential recipients of the Data by contacting my local human resources representative. I authorize the Company, the Company’s designated broker and any other possible recipients which may assist the Company with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing my participation in the Plan. I understand that Data will be held only as long as is necessary to implement, administer and manage my participation in the Plan. I understand that that I may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing my local human resources representative. Further, I understand that I am providing the consents herein on a purely voluntary basis. If I do not consent, or if I later seek to revoke my consent, my employment status or career with the Company or any Designated
Company will not be adversely affected; the only adverse consequence of refusing or withdrawing my consent is that the Company would not be able to grant me options under the Plan or other equity awards, or administer or maintain such awards. Therefore, I understand that refusing or withdrawing my consent may affect my ability to participate in the Plan. For more information on the consequences of my refusal to consent or withdrawal of consent, I understand that I may contact my local human resources representative.
If I am an employee outside the U.S., I understand that in accordance with applicable law, I have the right to access, and to request a copy of, the Data held about me. I also understand that I have the right to discontinue the collection, processing, or use of my Data, or supplement, correct, or request deletion of my Data. To exercise my rights, I may contact my local human resources representative.
I hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of my personal data as described herein and any other Plan materials by and among, as applicable, the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing my participation in the Plan. I understand that my consent will be sought and obtained for any processing or transfer of my data for any purpose other than as described in the enrollment form and any other plan materials.
11.If I have received the Subscription Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control, subject to applicable laws.
12.The provisions of the Subscription Agreement and these appendices are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
13.Notwithstanding any provisions in this Subscription Agreement, I understand that if I am working or resident in a country other than the United States, my participation in the Plan shall also be subject to the additional terms and conditions set forth on Appendix A and any special terms and conditions for my country set forth on Appendix A. Moreover, if I relocate to one of the countries included in Appendix A, the special terms and conditions for such country will apply to me to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. Appendix A constitutes part of this Subscription Agreement and the provisions of this Subscription Agreement govern each Appendix (to the extent not superseded or supplemented by the terms and conditions set forth in the applicable Appendix).
14.I hereby agree to be bound by the terms of the Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan.
|
|
|
|
|
|
Employee’s Social
|
|
|
Security Number
|
|
(for U.S.-based employees):
|
|
|
Employee’s Address:
|
|
|
|
|
|
|
|
|
|
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT WILL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
|
|
|
|
|
|
|
|
|
|
|
|
Dated:
|
|
|
|
|
|
|
|
|
|
|
Signature of Employee
|
EXHIBIT B
MEDAVAIL HOLDINGS, INC.
2020 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
Any capitalized terms not specifically defined in this Notice of Withdrawal will have the meaning ascribed to them under the 2020 Employee Stock Purchase Plan (the “Plan”).
The undersigned Participant in the Offering Period of the MedAvail Holdings, Inc. 2020 Employee Stock Purchase Plan that began on ____________, ______ (the “Offering Date”) hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be terminated automatically. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned will be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement.
|
|
|
|
|
|
Name and Address of Participant:
|
|
|
|
|
|
|
|
|
|
|
|
Signature:
|
|
|
|
|
|
Date:
|
|
MEDAVAIL,INC.
STOCK OPTION PLAN
ADOPTED AS OF JUNE 10, 2012
AMENDED AS OF DECEMBER 19, 2013
STOCK OPTION PLAN
The purpose of this Plan is to advance the interests of the Company and its Subsidiaries (as defined herein) by: (i) providing Eligible Persons (as defined herein) with additional incentives; (ii) encouraging share ownership by Eligible Persons; (iii) increasing the proprietary interest of Eligible Persons in the success of the Company; (iv) encouraging Eligible Persons to remain with the Company and/or its Subsidiaries; and (v) attracting new directors, officers, and employees to the Company or its Subsidiaries.
ARTICLE 1
GENERAL PROVISIONS
Section 1.1Administration
(1)This Plan shall be administered by the Board.
(2)Subject to the terms and conditions set forth herein, the Board is authorized to provide for the granting, exercise and method of exercise of Stock Options (as defined herein), all on such terms (which may vary between Stock Options granted and Participants (as defined herein) from time to time) as it shall determine. In addition, the Board shall have the authority to: (i) construe and interpret this Plan and all agreements entered into hereunder; (ii) prescribe, amend and rescind administrative guidelines, rules and regulations relating to this Plan; and (iii) make all other determinations necessary or advisable for the administration of this Plan. All determinations and interpretations made by the Board shall be binding on all Participants and on their legal, personal representatives and beneficiaries.
(3)Notwithstanding the foregoing or any other provision contained herein, the Board shall have the right to delegate the administration and operation of this Plan, in whole or in part, to a committee of the Board and/or to any member of the Board (as defined herein).
(4)A Stock Option shall be evidenced by a stock option agreement or certificate (“Certificate”), signed on behalf of the Company, which Certificate shall be substantially in the form attached hereto as Schedule “A” and in such other form as the Board shall approve from time to time.
Section 1.2Definitions
For the purposes of this Plan, the following terms shall have the following meanings, unless otherwise defined elsewhere in this Plan:
(a)“Board” means the board of directors of the Company, and shall be deemed to include any committee or director to which the Board has fully or partially delegated the administration and operation of this Plan pursuant to Section 1.1;
(b)“Cause” (i) if the Participant has a written employment agreement with the Company or a Subsidiary in which “cause” is defined, “cause” as defined therein; or otherwise (ii) (A) the inability of the Participant to perform his or her duties due to a legal impediment such as an injunction, restraining order or other type of judicial judgment, decree or order entered against the Participant; (B) the failure of the Participant to follow the Company’s reasonable instructions with respect to the performance of his or her duties; (C) any material breach by the Participant of his or her obligations under any code of ethics, any other code of business conduct or any lawful policies or procedures of the Company; (D) excessive absenteeism, flagrant neglect of duties, serious misconduct, or conviction of crime or fraud; and (E) any other act or omission of the
Participant which would in law permit an employer to, without notice or payment in lieu of notice, terminate the employment of an employee;
(c)“Change in Control” means the occurrence of any of the following events:
(i)one person, or more than one person acting as a group (“Person”), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than 50% of the total voting power of the stock of the Company, except that any change in the ownership of the stock of the Company as a result of a private financing of the Company that is approved by the Board will not be considered a Change in Control; or
(ii)If the Company has a class of securities registered pursuant to Section 12 of the United States Securities Exchange Act of 1934, as amended, a change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this clause (ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or
(iii)A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions. For purposes of this subsection (iii), gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
For purposes of this Section 1.2(c), persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any proposed or final United States Treasury Regulations and United States Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time.
Further and for the avoidance of doubt, a transaction will not constitute a Change in Control if: (i) its sole purpose is to change the jurisdiction of the Company’s incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
(d)“Certificate” has the meaning given to that term in Section 1.1;
(e)“Code” has the meaning given to that term in Section 4.1;
(f) “Company” means MedAvail, Inc. or any successor thereof;
(g)“Date of Grant” means the date on which a particular Stock Option is granted by the Board as evidenced by a Stock Option Agreement;
(h)“Eligible Person” means, subject to all applicable laws and the other terms of this Plan:
(i)any director, officer, or employee of the Company or a Subsidiary; and
(ii)any Personal Holding Company;
(i)“Eligible U.S. Participants” has the meaning given to that term in Section 4.1;
(j)“Exercise Notice” means a notice of Stock Option exercise, substantially in the form attached hereto as Schedule “B”;
(k)“Exercise Period” means the period from the Vesting Date to the Expiry Date during which a particular Stock Option may be exercised;
(l)“Exercise Price” means, with respect to a Stock Option, the fair market value of a Share on the Date of Grant as determined by the Board using reasonable methods and assumptions;
(m)“Expiry Date” has the meaning given to that term in Section 2.5;
(n)“Governmental Entity” means any applicable: (i) multinational, federal, provincial, state, municipal, local or other governmental or public department, commission, board, bureau or agency; (ii) any subdivision or authority of any of the foregoing; or (iii) any quasi-governmental body exercising (with proper jurisdiction) any regulatory or taxing authority under or in respect of any of the above;
(o)“IPO” means an initial public offering of the Company resulting in the holding of equity of the Company or any Subsidiary by the public, or a transaction giving rise to a stock exchange listing or over-the-counter quotation of equity of any of the Company or its Subsidiaries, and such transaction may include an amalgamation, merger, plan of arrangement, reverse take-over bid, share exchange take-over bid or other transaction having similar result, in each case, as may be designated as an “IPO” by the Board at anytime;
(p)“Liquidity Event” means (i) an IPO; or (ii) a Change in Control;
(q)“Participant” means an Eligible Person to whom a Stock Option has been granted;
(r)“Personal Holding Company” means a personal holding corporation that is either wholly owned, or controlled by, the Participant, and the shares of which are held directly or indirectly by any of the Participant or the Participant’s spouse, minor children and/or minor grandchildren;
(s)“Plan” means this MedAvail, Inc. Stock Option Plan, as amended from time to time;
(t)“Shares” means the shares of common stock of the Company;
(u)“Stock Option” means an option to purchase Shares from treasury granted hereunder to a Participant;
(v)“Stock Option Agreement” means a stock option agreement substantially in the form attached hereto as Schedule “A”;
(w)“Subsidiary” means MedAvail Technologies Inc. and any other subsidiary of the Company designated by the Board from time to time for purposes of this Plan;
(x)“Termination Date” means the date on which a Participant ceases to be an Eligible Person as a result of a termination of employment, or board service with the Company or a Subsidiary for any reason, including death, retirement, resignation or Cause. For the purposes of this Plan, a Participant’s employment or board service with the Company or a Subsidiary shall be considered to have terminated effective on the last day of the Participant’s actual and active employment or board service with the Company or Subsidiary whether such day is selected by agreement with the individual, unilaterally by the Company or Subsidiary and whether with or without advance notice to the Participant. For the avoidance of doubt, no period of notice or pay in lieu of notice that is given or that ought to have been given under applicable law in respect of such termination of employment that follows or is in respect of a period after the Participant’s last day of actual and active employment shall be considered as extending the Participant’s period of employment for the purposes of determining his or her entitlement under this Plan;
(y)“Transfer” includes any sale, exchange, assignment, gift, bequest, disposition, mortgage, charge, pledge, encumbrance, grant of security interest or other arrangement by which possession, legal title, beneficial ownership or the risk of economic exposure passes from one person to another, or to the same person in a different capacity, whether or not voluntary and whether or not for value, and any registered security interest or other agreement in connection with, or to effect, any of the foregoing; and
(z)“Vesting Date” means the date or dates determined in accordance with Section 2.3 on and after which a particular Stock Option, or any part thereof, may be exercised, subject to amendment or acceleration from time to time in accordance with the terms hereof.
Section 1.3Interpretation
In this Plan, references to Sections and Schedules are references to sections and schedules to this Plan, unless expressly stated otherwise. Where the context so requires, words importing the singular number include the plural and vice versa, and words importing the masculine gender also include the feminine and neuter genders. The use of headings in this Plan is for convenience only and does not affect the interpretation of this Plan. In this Plan, “including” means “including, without limitation”, except as otherwise expressly provided.
Section 1.4Governing Law
This Plan is to be governed by and interpreted in accordance with the laws of Ontario.
Section 1.5Shares Reserved
(1)Subject to Section 1.5(3), the securities that may be acquired by Participants under this Plan shall consist of authorized but unissued Shares.
(2)The aggregate number of Shares issuable under this Plan shall not exceed fifteen percent (15%) of the total number of Shares issued and outstanding on a fully-diluted basis, from time to time. Any Shares subject to a Stock Option which for any reason is cancelled, terminated or forfeited without having been exercised shall again be available for grants under this Plan. Any Shares subject to a Stock Option which has been exercised by a Participant, shall again be available for grants under this Plan. Fractional shares will not be issued and will be treated as specified in Section 2.9(5).
(3)If there is a change in the outstanding Shares by reason of any stock dividend or split, recapitalization, amalgamation, consolidation, combination or exchange of shares, or other corporate change, the Board shall make appropriate substitution or adjustment in:
(a)the number or kind of Shares or other securities reserved for issuance pursuant to this Plan, and
(b)the number and kind of Shares or other securities subject to unexercised Stock Options theretofore granted and in the Exercise Price of such securities;
without any change in the total price applicable to the unexercised portion of the Stock Option, but with a corresponding adjustment in the price for each Share covered by the Stock Option; provided, however, that no substitution or adjustment shall obligate the Company to issue or sell fractional shares. If the Company is reorganized, amalgamated with another corporation or consolidated, the Board shall make such provisions for the protection of the rights of Participants as the Board in its discretion deems appropriate.
Section 1.6Proceeds from Exercise of Stock Options
The proceeds from any sale of Shares issued upon the exercise of Stock Options shall be added to the general funds of the Company and shall thereafter be used from time to time for such corporate purposes as the Company may determine.
ARTICLE 2
STOCK OPTION PLAN
Section 2.1Application
Grants of Stock Options to Eligible Persons shall be governed by this Article 2.
Section 2.2Grants
The Board may, from time to time in its discretion, grant Stock Options to any Eligible Person upon the terms, conditions and limitations set forth herein and such other terms, conditions, restrictions and limitations permitted by and not inconsistent with this Plan as the Board may determine. An Eligible Person may receive Stock Options on more than one occasion under this Plan and may receive separate Stock Options on any one occasion.
Section 2.3Vesting of Stock Options
Unless otherwise determined by the Board in its sole discretion at or any time following the date that a particular Stock Option is granted, and subject to Section 2.6 and to Article 3, Stock Options shall vest as to one forty-eighth (1/48th) of each grant at the end of each fully completed month following the applicable Date of Grant until such Stock Option is fully vested.
Section 2.4Exercise Price
The exercise price for the Shares underlying a Stock Option shall be the Exercise Price.
Section 2.5Expiry Date
Unless otherwise fixed by the Board at the time the particular Stock Option is granted, and subject to the terms of this Plan, including at Section 2.6 and Article 3 of this Plan, each Stock Option will expire on the date (the “Expiry Date”) which is ten (10) years after the Date of Grant. No Stock Option may be exercised beyond its expiry. On the expiry of a Stock Option on such date or any earlier date pursuant to the terms of this Plan, the Stock Option will be null, void and of no effect.
Section 2.6Early Expiry and Forfeiture
(1)Any Stock Option or part thereof not exercised within the Exercise Period shall terminate and become null, void and of no effect as of the day immediately following the Expiry Date determined under Section 2.5 hereof, or, except as otherwise determined by the Board, such earlier date as follows:
(a)Retirement – if a Participant ceases to be an Eligible Person as a result of his or her retirement from Board service or from the Company or a Subsidiary, in each case other than for Cause, each vested Stock Option held by such Participant will cease to be exercisable on the earlier of the original Expiry Date of the Stock Option and forty-five (45) days after the Termination Date and each unvested Stock Option held by the Participant will automatically terminate and become null, void and of no effect on the Termination Date;
(b)Termination for Cause – if the Board service or employment of a Participant with the Company or a Subsidiary is terminated for Cause, each vested and unvested Stock Option held by the Participant will automatically terminate and become null, void and of no effect on the Termination Date;
(c)Death – if a Participant dies, the legal representative of the Participant may exercise the Participant’s vested Stock Options for a period until the earlier of the original Expiry Date of the Stock Option and eighteen (18) months after the Termination Date, but only to the extent the Stock Options were by their terms vested and exercisable on the Termination Date. For greater certainty, all unvested Stock Options held by a Participant who dies shall terminate and become null, void and of no effect on the Termination Date.
(d)Termination Without Cause and Other – if a Participant ceases to be an Eligible Person for any reason whatsoever other than the circumstances contemplated in Section 2.6(1)(a), (b) or (c), then all unvested Stock Options held by such Participant shall continue to vest for the six (6) month period following the Termination Date , provided that each vested Stock Option held by the Participant will cease to be exercisable on the earlier of the original Expiry Date of the Stock Option and six (6) month and one (1) day after the Termination Date and each unvested Stock Option held by such Participant will automatically terminate and become null, void and of no effect on the date that is six (6) months and one (1) day after the Termination Date. Without limitation, and for greater certainty only, this provision will apply regardless of whether the Participant received compensation in respect of dismissal or was entitled to a period of notice of termination which would otherwise have permitted a greater portion of the Stock Option to vest with the Participant.
Section 2.7Stock Option Agreement
Each Stock Option shall be documented by a Stock Option Agreement signed by the Company and the Participant, in a form substantially similar to that attached at Schedule “A”.
Section 2.8Governmental Entity and Shareholder Approval
Where a Governmental Entity or shareholder approval is required for the grant or exercise of Stock Options, notwithstanding anything to the contrary contained herein, no such Stock Options may be exercised unless and until such approval has been obtained.
Section 2.9Exercise of Stock Options
(1)Subject to Section 2.9(2) and the other provisions of this Plan, including any vesting limitations imposed by the Board at the time of grant, Participants may exercise their Stock Options to acquire Shares by delivering to the Company an Exercise Notice, together with a bank draft or certified cheque in an amount equal to the aggregate Exercise Price of the Shares to be purchased pursuant to the exercise of Stock Options and, if required by the Company, the amount necessary to satisfy any applicable tax withholding or remittance obligations under applicable
law. Subject to the other provisions of this Plan, and any vesting limitations imposed by the Board at the time of grant, Stock Options may be exercised, in whole or in part, at any time or from time to time, by a Participant. Stock Options may only be exercised by the Participant or his or her legal representative.
(2)Notwithstanding Section 2.9(1) or any other provision of this Plan, Stock Options may not be exercised prior to a Liquidity Event, provided that the Board, in its sole discretion may permit Stock Options to be exercised prior to a Liquidity Event, on such terms as it sees fit, including if the Company has entered into a unanimous shareholder agreement and the Participant enters into such unanimous shareholder agreement, notwithstanding that the terms of such unanimous shareholder agreement may not be favourable to the Participant and which terms, without limitation, may: (i) impose restrictions on the Participant’s ability to transfer, encumber and vote their Shares; (ii) require the Participant to dispose of their Shares in certain circumstances and on certain terms that the Participant may not have the ability to negotiate; (iii) impose restrictions or obligations with respect to the transfer of the Participant’s Shares in certain circumstances and on certain terms that the Participant may not have the ability to negotiate, including in the context of certain Liquidity Events; (iv) impose certain restrictions or obligations with respect to the exercise of the voting rights of a Participant’s Shares; and (v) impose certain negative covenants on the Participant, including, non-competition and non-solicitation covenants.
(3)As soon as practicable following the receipt of the Exercise Notice, a bank draft or certified cheque in accordance with Section 2.9(1), the Company shall deliver to the Participant a certificate for the Shares so purchased.
(4)The issuance of Shares by the Company to a Participant pursuant to the exercise of any Stock Option is subject to compliance with all applicable laws, rules and regulations of all Governmental Entities applicable to the issuance and distribution of such Shares. The Participant agrees: (i) to comply with all such laws, rules, regulations and requirements; (ii) to furnish to the Company any information, report and/or undertakings required to comply with all such laws, rules, regulations and requirements; and (iii) to fully cooperate with the Company in complying with such laws, rules, regulations and requirements, including all tax withholding and remittance obligations.
(5)No fractional Shares or other security shall be issued upon the exercise of any Stock Option and, accordingly, if a Participant would become entitled to a fractional Share or other security, such Participant shall have the right to acquire only the next lowest whole number of Shares or other security and no payment or other adjustment shall be made with respect to the fractional interest so disregarded.
(6)The Company or a Subsidiary shall have the right to withhold at source from the Participant’s other earnings all applicable income taxes and other withholdings required by law on any benefit realized upon the exercise of any Stock Options. Where the Participant does not have any or sufficient earnings on which to withhold, the Company may, prior to delivering to the Participant a certificate of the Shares in accordance with Section 2.9(3), require the Participant to provide the Company with a bank draft or certified cheque in an amount equal to the amount to be withheld. The Company shall inform the Participant of the amount required to be withheld, if any, as soon as practicable following receipt of the Participant’s Exercise Notice.
Section 2.10Assignment of Stock Options
Stock Options (and any rights thereunder) are not assignable or Transferable, except upon death. Any purported assignment or Transfer of Stock Options in contravention of the foregoing shall not be
recognized by the Company and shall result in the immediate expiry and termination of any such Stock Options and any rights relating thereto.
ARTICLE 3
CHANGE IN CONTROL AND LIQUIDITY EVENT
Section 3.1Change in Control
(1)Subject to Section 3.1(4), but notwithstanding any other provision of this Plan, in the event of a Change in Control, the Board may, in its discretion, without the necessity or requirement for the agreement of any Participant: (i) accelerate, conditionally or otherwise, on such terms as it sees fit, the Vesting Date of any Stock Options; (ii) permit the conditional exercise of any Stock Options, on such terms as it sees fit; (iii) otherwise amend or modify the terms of any Stock Options, including for greater certainty permitting Participants to exercise any Stock Options to assist the Participants to participate in the Change in Control or to obtain the advantage of holding the underlying Shares during such Change in Control; (iv) terminate, immediately prior, on or following the successful completion of such Change in Control, on such terms as it sees fit, the Stock Options not exercised prior to the successful completion of such Change in Control, and (v) provide that Stock Options will be assumed, or substantially equivalent stock options will be substituted, by the acquiring or succeeding corporation (or an affiliate thereof) with appropriate adjustments as to the number and kind of shares and prices. The determination of the Board in respect of any such Change in Control shall for the purposes of this Plan be final, conclusive and binding. The Board will not be obligated to treat all Stock Options or all Stock Options held by a Participant similarly in the event of a Change in Control.
(2)Notwithstanding any other provision of this Plan, in the event that:
(a)a Change in Control is not completed within the time specified therein (as the same may be extended); or
(b)all of the Shares subject to a Stock Option that were tendered by a Participant in connection with the Change in Control are not taken up or paid for by the offeror in respect thereof,
then the Board may, in its discretion, without the necessity or requirement for the agreement of any Participant, permit the Shares received upon such exercise, or in the case of Subsection (b) above the Shares that are not taken up and paid for, to be returned by the Participant to the Company and reinstated as authorized but unissued Shares and, with respect to such returned Shares, the related Stock Options may be reinstated as if they had not been exercised and the terms for such Stock Options becoming vested will be reinstated pursuant to this Section 3.1. If any Shares are returned to the Company under this Section 3.1, the Company will immediately refund the Exercise Price to the Participants for such Shares.
(3)Subject to Section 3.1(1), (2) and (4), but notwithstanding any other provision of this Plan, in the event of an actual Liquidity Event, then the number of unvested Stock Options held by each Participant that would have vested during the twelve (12) month period commencing from the date of the Liquidity Event had the Liquidity Event not occurred, shall automatically vest on the date of the Liquidity Event.
(4)Notwithstanding any other provision of this Plan, if the successor corporation does not assume or substitute for a Stock Option (or portion thereof) in the event of a merger of the Company with or into another corporation or other entity or a Change in Control, the Participant will fully vest in and have the right to exercise all of his or her outstanding Stock Options, including Shares as to which such Stock Options would not otherwise be vested or exercisable, and, with respect to Stock Options with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at
100% of target levels and all other terms and conditions met. In addition, if a Stock Option is not assumed or substituted in the event of a merger or Change in Control, the Board will notify the Participant in writing or electronically that the Stock Option will be exercisable for a period of time determined by the Board in its sole discretion, and the Stock Option will terminate upon the expiration of such period.
For the purposes of this Section 3.1(4), Stock Option will be considered assumed if, following the merger or Change in Control, the Stock Option confers the right to purchase, for each Share subject to the Stock Option immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of common stock for each Share held on the effective date of the 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 merger or Change in Control is not solely common stock of the successor corporation or its parent, the Board may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of a Stock Option, for each Share subject to such Stock Option, to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by holders of Shares in the merger or Change in Control.
Notwithstanding anything in this Section 3.1(4) to the contrary, a Stock Option that vests, is earned or paid-out upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participant’s consent; provided, however, a modification to such performance goals only to reflect the successor corporation’s post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Stock Option assumption.
Notwithstanding anything in this Section 3.1(4) to the contrary, if a payment under a Stock Option Agreement is subject to Code Section 409A and if the change in control definition contained in the Stock Option Agreement does not comply with the definition of “change of control” for purposes of a distribution under Code Section 409A, then any payment of an amount that is otherwise accelerated under this Section will be delayed until the earliest time that such payment would be permissible under Code Section 409A without triggering any penalties applicable under Code Section 409A.
ARTICLE 4
SPECIAL RULES FOR U.S. ELIGIBLE PERSONS
Section 4.1Section 409A Compliance
(1)Notwithstanding any other provision of this Plan, the following special rules will apply to all Eligible Persons (“Eligible U.S. Participants”) who are subject to U.S. income tax with respect to Stock Options issued under this Plan to them:
(a)all Stock Options granted under this Plan to Eligible U.S. Participants are intended to be exempt from Section 409A of the United States Internal Revenue Code of 1986, as amended (the “Code”) and will be construed accordingly. However, the Company will not be liable to any Eligible U.S. Participant or beneficiary with respect to any adverse tax consequences arising under Section 409A or other provision of the Code; and
(b)the Exercise Price for all Stock Options granted to Eligible U.S. Participants shall in no event be less than the fair market value of the Shares on the Date of Grant.
ARTICLE 5
MISCELLANEOUS
Section 5.1Amendment, Suspension or Termination
(1)Subject to the provisions of Article 3, the Board may from time to time, suspend,terminate or discontinue this Plan at any time, or amend or revise the terms of this Plan or of any Stock Option granted under this Plan and any Certificate relating thereto, provided that no such suspension, termination, amendment or revision will be made:
(a)Governmental Entity having authority over the Company, this Plan or the Company’s shareholders; and
(b)in the case of an amendment or revision, if it materially adversely affects the rights of any Participant, without the consent of the Participant.
(2)If this Plan is terminated, the provisions of this Plan and any administrative guidelines or other rules adopted by the Board and in force at the time of such termination, shall continue in effect as long as any Stock Options under this Plan or any rights pursuant thereto remain outstanding. Notwithstanding such termination of this Plan, the Board may make any amendments to this Plan or to the terms of any outstanding Stock Options that it would be entitled to make if this Plan were still in effect.
Section 5.2Compliance with Legislation
(1)The Board may postpone or adjust the exercise of any Stock Option or the issue of any Shares pursuant to this Plan, as the Board, in its discretion, may deem necessary in order to permit the Company to effect or maintain qualification of this Plan, or the Shares issuable pursuant thereto, under the securities laws of any applicable jurisdiction, or to determine that the Shares and this Plan are exempt from any prospectus or equivalent requirements of any applicable securities laws.
(2)The Company shall not be obligated by any provision of this Plan, or any grant hereunder, to sell or issue Shares in violation of any applicable law. No Stock Option shall be granted, and no Shares issued hereunder, where such grant, issue or sale would require registration of this Plan, or the Shares issuable pursuant thereto, under the securities laws of any foreign jurisdiction, and any purported grant of any Stock Option or purported issue of Shares hereunder in violation of this provision shall be void.
(3)If Shares cannot be issued to a Participant upon the exercise of a Stock Option due to legal or regulatory restrictions, the obligation of the Company to issue such Shares shall terminate and any funds paid to the Company in connection with the exercise of such Stock Option will be returned to the applicable Participant as soon as practicable.
Section 5.3No Other Rights or Restrictions
(1)Nothing contained in this Plan nor in any Stock Option granted thereunder shall be deemed to give any Participant any interest or title in or to any Shares or any rights as a shareholder or any other legal or equitable right against the Company or any of its Subsidiaries whatsoever other than as set forth in this Plan and pursuant to the exercise of any Stock Option.
(2)Nothing contained herein shall prevent the Board from adopting other or additional share compensation arrangements or compensation arrangements, subject to any required approval.
(3)Nothing contained herein shall prevent the Board from declaring or paying stock dividends or varying or amending its share capital or corporate structure.
(4)The Plan does not give any Participant the right or obligation to or to continue to serve as a director, officer or employee, as the case may be, to or of the Company or any Subsidiary. The awarding of Stock Options to any Eligible Person is a matter to be determined solely in the discretion of the Board.
(5)The Plan shall not in any way fetter, limit, obligate, restrict or constrain the Board with regard to the allotment or issue of any Shares or any other securities in the capital of the Company other than as specifically provided for in this Plan. The grant of a Stock Option to, or the exercise of a Stock Option by, a Participant under this Plan does not create the right for such Participant to receive additional grants of Stock Options hereunder.
(6)The Company makes no representation or warranty as to the future market value of the Shares or with respect to any income tax matters affecting the Participant resulting from the grant or exercise of a Stock Option and/or transactions in the Shares. Neither the Company, nor any of its directors, officers, employees, shareholders or agents shall be liable for anything done or omitted to be done by such person or any other person with respect to the price, time, quantity or other conditions and circumstances of the issuance of Shares hereunder, with respect to any fluctuations in the market price of Shares or in any other manner related to this Plan.
Section 5.4Employment Agreements
Subject to Article 3 and Section 5.2, but notwithstanding Article 2 of this Agreement or anything else in this Plan, where an Eligible Person has entered into an employment agreement with the Company or a Subsidiary containing change of control, severance or other similar provisions applicable to options issued by the Company, the terms of this Plan and Stock Options granted to such person thereunder will be subject, as and to the extent applicable, to the terms of such employment agreement.
Section 5.5Severability
If any provision of this Plan or the Stock Option Agreement is ever held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining parts or provisions of this Plan or the Stock Option Agreement, which shall be construed, administered and enforced as if such illegal or invalid provision had never been included in this Plan or the Stock Option Agreement, as applicable.
Section 5.6Notice and Counterparts
Any notice required to be given by this Plan shall be in writing and shall be given by registered mail, postage prepaid, or delivered by courier or by facsimile transmission addressed, if to the Company, to the office of the Company at Unit#1, 6665 Millcreek Drive, Mississauga, Ontario L5N 5M4, Attention: General Counsel; or if to a Participant, to such Participant at his or her address as it appears on the books of the Company or in the event of the address of any such Participant not so appearing, then to the last known address of such Participant; or if to any other person, to the last known address of such person.
Section 5.7Time of the Essence
Time is of the essence in this Plan and the Stock Option Agreement.
Section 5.8Effective Date
This Plan shall become effective upon the approval of this Plan by the Board.
SCHEDULE “A”
STOCK OPTION AGREEMENT
This Stock Option Agreement is dated this . day of ., 20. between MedAvail, Inc. (“MedAvail”) and [Name] (the “Optionee”).
WHEREAS the Optionee has been granted certain options (“Stock Options”) to acquire shares of common stock of MedAvail (“Shares”) under the MedAvail Stock Option Plan (the “Plan”), a copy of which has been provided to the Optionee;
AND WHEREAS capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Plan;
NOW THEREFORE for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1.MedAvail confirms that the Optionee has been granted Stock Options under the Plan on the following basis, subject to, the terms and conditions of the Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DATE OF
GRANT
|
NUMBER
OF STOCK
OPTIONS
|
EXERCISE
PRICE (CDN $)
|
VESTING
SCHEDULE
|
EXPIRY DATE
|
n
|
n
|
n
|
n
|
n
|
2.Attached to this Agreement as Schedule “A” is a form of notice that the Optionee may use to exercise any of his or her Stock Options in accordance with Section 2.9 of the Plan at any time and from time to time prior to the Expiry Date of such Stock Options.
3.By signing this Stock Option Agreement, the Optionee acknowledges, represents, warrants and covenants:
(a)that he or she has read and understands the Plan and agrees to comply with the terms and conditions thereof and of this Stock Option Agreement;
(b)that, subject to Section 2.9(2) of the Plan, Stock Options may not be exercised prior to a Liquidity Event;
(c)that the issuance of Shares by the Company to the Optionee on the exercise of any Stock Option is subject to compliance with all applicable laws, rules and regulations of all Governmental Entities applicable to the issuance and distribution of such Shares. The Optionee agrees: (i) to comply with all such laws, rules, regulations and requirements; (ii) to furnish to the Company any information, report and/or undertakings required to comply with all such laws, rules, regulations and requirements; and (iii) to fully cooperate with the Company in complying with such laws, rules, regulations and requirements, including all tax withholding and remittance obligations.
4.In the event this Stock Option is assumed or substituted for in connection with a Change in Control as contemplated by Section 3.1(1) and (4) of the Plan, if Optionee ceases to be an Eligible Person as a result of being terminated without Cause during the twelve (12) month period following the consummation of a Change in Control, then any outstanding unvested Shares subject to this Stock Option as of the Termination Date shall automatically vest and become exercisable immediately prior to the Termination Date.
5.This Agreement shall be governed by the laws of Ontario. Time shall be of the essence in this Agreement. This Agreement may be executed in counterparts each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Stock Option Agreement. This Agreement shall enure to the benefit of and shall be binding upon the parties and their heirs, attorneys, guardians, estate trustees, executors, trustees and administrators and the successors of MedAvail.
IN WITNESS WHEREOF the parties hereto have executed this Agreement.
|
|
|
|
|
|
|
|
|
|
|
|
Name of Optionee
|
|
MEDAVAIL, INC.
|
|
|
Authorized Signing Officer
|
SCHEDULE “B”
ELECTION TO EXERCISE STOCK OPTIONS
TO: MEDAVAIL, INC. (“MEDAVAIL”)
The undersigned option holder hereby irrevocably elects to exercise stock options (“Stock Options”) granted by MedAvail to the undersigned as set out in a Stock Option Agreement dated •, 20• for the number of shares of common stock of MedAvail (“Shares”) as set forth below:
|
|
|
|
|
|
|
|
|
Number of Shares to be Acquired:
|
|
|
|
|
|
Stock Option Exercise Price (per Share):
|
|
$
|
|
|
|
Aggregate Purchase Price:
|
|
$
|
|
|
|
Amount enclosed that is payable on account of withholding of tax or other required deductions relating to the exercise of the Stock Options (contact MedAvail for details of such amount)(the “Applicable Withholdings and Deductions”):
|
|
$
|
|
|
|
□ Or check here if alternative arrangements have been made with MedAvail with respect to the payment of Applicable Withholdings and Deductions;
|
|
|
and hereby tenders a certified cheque or bank draft for such Aggregate Purchase Price, and, if applicable, Applicable Withholdings and Deductions, and directs such Shares to be registered and a certificate therefore to be issued in the name of
|
|
|
|
|
|
|
|
|
DATED this ____ day of ____.
|
|
|
|
|
|
|
Signature
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
MEDAVAIL, INC.
2018 EQUITY INCENTIVE PLAN
1.Purposes of the Plan. The purposes of this Plan are:
•to attract and retain the best available personnel for positions of substantial responsibility,
•to provide additional incentive to Employees, Directors and Consultants, and
•to promote the success of the Company’s business.
The Plan permits the grant of Incentive Stock Options and Nonstatutory Stock Options.
2.Definitions. As used herein, the following definitions will apply:
(a)“Administrator” means the Board or any of its Committees as will be administering the Plan, in accordance with Section 4 of the Plan.
(b)“Applicable Laws” means the legal and regulatory requirements relating to the administration of equity-based awards, including but not limited to, under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options are, or will be, granted under the Plan.
(c)“Board” means the Board of Directors of the Company.
(d)“Change in Control” means the occurrence of any of the following events:
(i)Change in Ownership of the Company. A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group (“Person”), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection, the acquisition of additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control; provided, further, that any change in the ownership of the stock of the Company as a result of a private financing of the Company that is approved by the Board also will not be considered a Change in Control. Further, if the stockholders of the Company immediately before such change in ownership continue to retain immediately after the change in ownership, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately prior to the change in ownership, direct or indirect beneficial ownership of fifty percent (50%) or more of the total voting power of the stock of the Company or of the ultimate parent entity of the Company, such event shall not be considered a Change in Control under this subsection (i). For this purpose, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities
which own the Company, as the case may be, either directly or through one or more subsidiary corporations or other business entities; or
(ii)Change in Effective Control of the Company. If the Company has a class of securities registered pursuant to Section 12 of the Exchange Act, a change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this subsection (ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or
(iii)Change in Ownership of a Substantial Portion of the Company’s Assets. A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection (iii), the following will not constitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person described in this subsection (iii)(B)(3). For purposes of this subsection (iii), gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
For purposes of this Section 2(d), persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time.
Further and for the avoidance of doubt, a transaction will not constitute a Change in Control if: (i) its sole purpose is to change the jurisdiction of the Company’s incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
(e)“Code” means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or regulation thereunder shall include such section or regulation, any valid regulation promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(f)“Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board, or by a duly authorized committee of the Board, in accordance with Section 4 hereof.
(g)“Common Stock” means the common stock of the Company.
(h)“Company” means MedAvail, Inc., a Delaware corporation, or any successor thereto.
(i)“Consultant” means any natural person, including an advisor, engaged by the Company or a Parent or Subsidiary to render bona fide services to such entity, provided the services (i) are not in connection with the offer or sale of securities in a capital-raising transaction, and (ii) do not directly promote or maintain a market for the Company’s securities, in each case, within the meaning of Form S-8 promulgated under the Securities Act, and provided further, that a Consultant will include only those persons to whom the issuance of Shares may be registered under Form S-8 promulgated under the Securities Act.
(j)“Director” means a member of the Board.
(k)“Disability” means total and permanent disability as defined in Code Section 22(e)(3), provided that in the case of Nonstatutory Stock Options, the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time.
(l)“Employee” means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.
(m)“Exchange Act” means the Securities Exchange Act of 1934, as amended.
(n)“Fair Market Value” means, as of any date, the value of Common Stock determined as follows:
(i)If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market of The Nasdaq Stock Market, its Fair Market Value will be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii)If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share will be the mean
between the high bid and low asked prices for the Common Stock on the day of determination (or, if no bids and asks were reported on that date, as applicable, on the last trading date such bids and asks were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or
(iii)In the absence of an established market for the Common Stock, the Fair Market Value will be determined in good faith by the Administrator.
(o)“Incentive Stock Option” means an Option that by its terms qualifies and is otherwise intended to qualify as an incentive stock option within the meaning of Code Section 422 and the regulations promulgated thereunder.
(p)“Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
(q)“Option” means a stock option granted pursuant to the Plan.
(r)“Option Agreement” means the written or electronic agreement setting forth the terms and provisions applicable to each Option granted under the Plan. The Option Agreement is subject to the terms and conditions of the Plan.
(s)“Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Code Section 424(e).
(t)“Participant” means the holder of an outstanding Option.
(u)“Plan” means this 2018 Equity Incentive Plan.
(v)“Securities Act” means the Securities Act of 1933, as amended.
(w)“Service Provider” means an Employee, Director or Consultant.
(x)“Share” means a share of the Common Stock, as adjusted in accordance with Section 10 of the Plan.
(y)“Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Code Section 424(f).
3.Stock Subject to the Plan.
(a)Stock Subject to the Plan. Subject to the provisions of Section 10 of the Plan, the maximum aggregate number of Shares that may be subject to Options and sold under the Plan is equal to (i) 2,272,530 Shares minus any Shares subject to stock options or similar awards granted under the MedAvail, Inc. Stock Option Plan (the “Existing Plan”) that, as of the date of stockholder approval of this Plan, remain outstanding plus (ii) any Shares subject to stock options or similar awards granted under the Existing Plan that, after the date of stockholder approval of this Plan, expire or otherwise terminate without having been exercised in full and Shares issued pursuant to awards granted under the Existing Plan that, after the date of stockholder approval of this Plan, are forfeited to or repurchased by the Company, with the maximum number of Shares to be reserved for issuance under the Plan pursuant to clauses (i)
and (ii) equal to 2,272,530 Shares. The Shares may be authorized but unissued, or reacquired Common Stock.
(b)Lapsed Options. If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto will become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan under any Option will not be returned to the Plan and will not become available for future distribution under the Plan. Shares used to pay the exercise price of an Option or to satisfy the tax withholding obligations related to an Option will become available for future grant or sale under the Plan. Notwithstanding the foregoing and, subject to adjustment as provided in Section 10, the maximum number of Shares that may be issued upon the exercise of Incentive Stock Options will equal the aggregate Share number stated in Section 3(a), plus, to the extent allowable under Code Section 422 and the Treasury Regulations promulgated thereunder, any Shares that become available for issuance under the Plan pursuant to Section 3(b).
(c)Share Reserve. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of the Plan.
4.Administration of the Plan.
(a)Procedure.
(i)Multiple Administrative Bodies. Different Committees with respect to different groups of Service Providers may administer the Plan.
(ii)Other Administration. Other than as provided above, the Plan will be administered by (A) the Board or (B) a Committee, which Committee will be constituted to satisfy Applicable Laws.
(b)Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator will have the authority, in its discretion:
(i)to determine the Fair Market Value;
(ii)to select the Service Providers to whom Options may be granted hereunder;
(iii)to determine the number of Shares to be covered by each Option granted hereunder;
(iv)to approve forms of Option Agreements for use under the Plan;
(v)to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration, and any restriction or limitation
regarding any Option or the Shares relating thereto, based in each case on such factors as the Administrator will determine;
(vi)to construe and interpret the terms of the Plan and Options granted pursuant to the Plan;
(vii)to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws or for qualifying for favorable tax treatment under applicable foreign laws;
(viii)to modify or amend each Option (subject to Section 15(c) of the Plan), including but not limited to the discretionary authority to extend the post-termination exercisability period of Options; provided, however, that in no case will an Option be extended beyond its original maximum term;
(ix)to allow Participants to satisfy withholding tax obligations in a manner prescribed in Section 11;
(x)to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option previously granted by the Administrator;
(xi)to allow a Participant to defer the receipt of the delivery of Shares that otherwise would be due to such Participant under an Option; and
(xii)to make all other determinations deemed necessary or advisable for administering the Plan.
(c)Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations will be final and binding on all Participants and any other holders of Options and will be given the maximum deference permitted by Applicable Laws.
5.Eligibility. Nonstatutory Stock Options may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.
6.Stock Options.
(a)Grant of Options. Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to time, may grant Options in such amounts as the Administrator, in its sole discretion, will determine.
(b)Option Agreement. Each Option will be evidenced by an Option Agreement that will specify the exercise price, the term of the Option, the number of Shares subject to the Option, the exercise restrictions, if any, applicable to the Option, and such other terms and conditions as the Administrator, in its sole discretion, will determine.
(c)Limitations. Each Option will be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. Notwithstanding such designation, however, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant
during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds one hundred thousand dollars ($100,000), such Options will be treated as Nonstatutory Stock Options. For purposes of this Section 6(c), Incentive Stock Options will be taken into account in the order in which they were granted, the Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted, and calculation will be performed in accordance with Code Section 422 and Treasury Regulations promulgated thereunder.
(d)Term of Option. The term of each Option will be stated in the Option Agreement; provided, however, that the term will be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option will be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement.
(e)Option Exercise Price and Consideration.
(i)Exercise Price. The per Share exercise price for the Shares to be issued pursuant to the exercise of an Option will be determined by the Administrator, but will be no less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant. In addition, in the case of an Incentive Stock Option granted to an Employee who owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price will be no less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant. Notwithstanding the foregoing provisions of this Section 6(e)(i), Options may be granted with a per Share exercise price of less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner consistent with, Code Section 424(a).
(ii)Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator will fix the period within which the Option may be exercised and will determine any conditions that must be satisfied before the Option may be exercised.
(iii)Form of Consideration. The Administrator will determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator will determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (1) cash; (2) check; (3) promissory note, to the extent permitted by Applicable Laws, (4) other Shares, provided that such Shares have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option will be exercised and provided further that accepting such Shares will not result in any adverse accounting consequences to the Company, as the Administrator determines in its sole discretion; (5) consideration received by the Company under cashless exercise program (whether through a broker or otherwise) implemented by the Company in connection with the Plan; (6) by net exercise, (7) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws, or (8) any combination of the foregoing methods of payment. In making its
determination as to the type of consideration to accept, the Administrator will consider if acceptance of such consideration may be reasonably expected to benefit the Company.
(f)Exercise of Option.
(i)Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder will be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. An Option may not be exercised for a fraction of a Share.
An Option will be deemed exercised when the Company receives: (i) notice of exercise (in such form as the Administrator may specify from time to time) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised (together with applicable tax withholding). Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 10 of the Plan.
Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(ii)Termination of Relationship as a Service Provider. If a Participant ceases to be a Service Provider, other than upon the Participant’s termination as the result of the Participant’s death or Disability, the Participant may exercise his or her Option within thirty (30) days of termination, or such longer period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) to the extent that the Option is vested on the date of termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified by the Administrator, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(iii)Disability of Participant. If a Participant ceases to be a Service Provider as a result of the Participant’s Disability, the Participant may exercise his or her Option within six (6) months of termination, or such longer period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) to the extent the Option is vested on the date of termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not
vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
(iv)Death of Participant. If a Participant dies while a Service Provider, the Option may be exercised within six (6) months following the Participant’s death, or within such longer period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) to the extent that the Option is vested on the date of death, by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to the Participant’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option is transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. Unless otherwise provided by the Administrator, if at the time of death Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.
7.Compliance With Code Section 409A. Options will be designed and operated in such a manner that they are either exempt from the application of, or comply with, the requirements of Code Section 409A such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Code Section 409A, except as otherwise determined in the sole discretion of the Administrator. The Plan and each Option Agreement under the Plan is intended to meet the requirements of Code Section 409A and will be construed and interpreted in accordance with such intent, except as otherwise determined in the sole discretion of the Administrator. To the extent that an Option or payment, or the settlement or deferral thereof, is subject to Code Section 409A, the Option will be granted, paid, settled or deferred in a manner that will meet the requirements of Code Section 409A, such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Code Section 409A. In no event will the Company have any obligation under the terms of this Plan to reimburse a Participant for any taxes or other costs that may be imposed on Participant as a result of Section 409A.
8.Leaves of Absence/Transfer Between Locations. Unless the Administrator provides otherwise, vesting of Options granted hereunder will be suspended during any unpaid leave of absence. A Participant will not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary. For purposes of Incentive Stock Options, no such leave may exceed three (3) months, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then six (6) months following the first (1st) day of such leave, any Incentive Stock Option held by the Participant will cease to be treated as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option.
9.Limited Transferability of Options.
(a)Unless determined otherwise by the Administrator, Options may not be sold, pledged, assigned, hypothecated, or otherwise transferred in any manner other than by will or by the laws of descent and distribution, and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Option transferable, such Option may only be transferred (i) by will, (ii) by the laws of descent and distribution, or (iii) as permitted by Rule 701 of the Securities Act.
(b)Further, until the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, or after the Administrator determines that it is, will, or may no longer be relying upon the exemption from registration under the Exchange Act as set forth in Rule 12h-1(f) promulgated under the Exchange Act (the “Rule 12h-1(f) Exemption”), an Option, or prior to exercise, the Shares subject to the Option, may not be pledged, hypothecated or otherwise transferred or disposed of, in any manner, including by entering into any short position, any “put equivalent position” or any “call equivalent position” (as defined in Rule 16a-1(h) and Rule 16a-1(b) of the Exchange Act, respectively), other than to (i) persons who are “family members” (as defined in Rule 701(c)(3) of the Securities Act) through gifts or domestic relations orders, or (ii) to an executor or guardian of the Participant upon the death or disability of the Participant, in each case, to the extent required for continued reliance on the Rule 12h-1(f) Exemption. Notwithstanding the foregoing sentence, the Administrator, in its sole discretion, may determine to permit transfers to the Company or in connection with a Change in Control or other acquisition transactions involving the Company to the extent permitted by Rule 12h-1(f) or, if the Company is not relying on the Rule 12h-1(f) Exemption, to the extent permitted by the Plan.
10.Adjustments; Dissolution or Liquidation; Merger or Change in Control.
(a)Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, will adjust the number and class of shares of stock that may be delivered under the Plan and/or the number, class, and price of shares of stock covered by each outstanding Option; provided, however, that the Administrator will make such adjustments to an Option required by Section 25102(o) of the California Corporations Code to the extent the Company is relying upon the exemption afforded thereby with respect to the Option.
(b)Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator will notify each Participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action.
(c)Merger or Change in Control. In the event of a merger of the Company with or into another corporation or other entity or a Change in Control, each outstanding Option will be treated as the Administrator determines (subject to the provisions of the following paragraph) without a Participant’s consent, including, without limitation, that (i) Options will be assumed, or substantially equivalent awards will be substituted, by the acquiring or succeeding corporation (or an affiliate thereof) with appropriate adjustments as to the number and kind of shares and prices; (ii) upon written notice to a Participant, that the Participant’s Options will terminate upon or immediately prior to the consummation of such merger or Change in Control; (iii) outstanding Options will vest and become exercisable, in whole or in part prior to or upon consummation of such merger or Change in Control, and, to the extent the Administrator determines, terminate upon or immediately prior to the effectiveness of such merger or Change in Control; (iv) (A) the termination of an Option in exchange for an amount of cash and/or property, if any, equal to the amount that would have been attained upon the exercise of such Option or realization of the Participant’s rights as of the date of the occurrence of the transaction (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the Administrator determines in good faith that no amount would have been attained upon the exercise of such Option or realization of the Participant’s rights, then such Option may be terminated by the Company without payment), or (B) the replacement of such Option with other rights or property selected by the Administrator in its sole discretion; or (v) any combination of the foregoing. In taking any of the actions permitted under this subsection 10(c), the Administrator will not be obligated to treat all Options or all Options held by a Participant similarly.
In the event that the successor corporation does not assume or substitute for the Option (or portion thereof), the Participant will fully vest in and have the right to exercise all of his or her outstanding Options, including Shares as to which such Options would not otherwise be vested or exercisable and, with respect to Options with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met, in all cases, unless specifically provided otherwise under the applicable Option Agreement or other written agreement between the Participant and the Company or any of its Subsidiaries or Parents, as applicable. In addition, if an Option is not assumed or substituted in the event of a merger or Change in Control, the Administrator will notify the Participant in writing or electronically that the Option will be exercisable for a period of time determined by the Administrator in its sole discretion, and the Option will terminate upon the expiration of such period.
For the purposes of this subsection 10(c), an Option will be considered assumed if, following the merger or Change in Control, the Option confers the right to purchase, for each Share subject to the Option immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the 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 merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise of an Option, for each Share subject to such Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or Change in Control.
Notwithstanding anything in this Section 10(c) to the contrary, and unless otherwise provided in an Option Agreement, an Option that vests upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participant’s consent; provided, however, a modification to such performance goals only to reflect the successor corporation’s post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Option assumption.
Notwithstanding anything in this Section 10(c) to the contrary, if a payment under an Option Agreement is subject to Code Section 409A and if the change in control definition contained in the Option Agreement does not comply with the definition of “change of control” for purposes of a distribution under Code Section 409A, then any payment of an amount that is otherwise accelerated under this Section will be delayed until the earliest time that such payment would be permissible under Code Section 409A without triggering any penalties applicable under Code Section 409A.
11.Tax Withholding.
(a)Withholding Requirements. Prior to the delivery of any Shares pursuant to an Option (or exercise thereof), the Company will have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local, foreign or other taxes (including the Participant’s FICA obligation) required to be withheld with respect to such Option (or exercise thereof).
(b)Withholding Arrangements. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part by such methods as the Administrator shall determine, including, without limitation, (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable Shares having a fair market value equal to the minimum statutory amount required to be withheld or such greater amount as the Administrator may determine if such amount would not have adverse accounting consequences, as the Administrator determines in its sole discretion, (iii) delivering to the Company already-owned Shares having a fair market value equal to the statutory amount required to be withheld or such greater amount as the Administrator may determine, in each case, provided the delivery of such Shares will not result in any adverse accounting consequences, as the Administrator determines in its sole discretion, (iv) selling a sufficient number of Shares otherwise deliverable to the Participant through such means as the Administrator may determine in its sole discretion (whether through a broker or otherwise) equal to the amount required to be withheld, or (v) any combination of the foregoing methods of payment. The amount of the withholding requirement will be deemed to include any amount which the Administrator agrees may be withheld at the time the election is made, not to exceed the amount determined by using the maximum federal, state or local marginal income tax rates applicable to the Participant with respect to the Option on the date that the amount of tax to
be withheld is to be determined. The fair market value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required to be withheld.
12.No Effect on Employment or Service. Neither the Plan nor any Option will confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider with the Company or its Subsidiaries or Parents, as applicable, nor will they interfere in any way with the Participant’s right or the right of the Company and its Subsidiaries or Parents, as applicable to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws.
13.Date of Grant. The date of grant of an Option will be, for all purposes, the date on which the Administrator makes the determination granting such Option, or such other later date as is determined by the Administrator. Notice of the determination will be provided to each Participant within a reasonable time after the date of such grant.
14.Term of Plan. Subject to Section 18 of the Plan, the Plan will become effective upon its adoption by the Board. Unless sooner terminated under Section 15, it will continue in effect for a term of ten (10) years from the later of (a) the effective date of the Plan, or (b) the earlier of the most recent Board or stockholder approval of an increase in the number of Shares reserved for issuance under the Plan.
15.Amendment and Termination of the Plan.
(a)Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.
(b)Stockholder Approval. The Company will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.
(c)Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan will not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination.
16.Conditions Upon Issuance of Shares.
(a)Legal Compliance. Shares will not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company with respect to such compliance.
(b)Investment Representations. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.
17.Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction or to complete or comply with the requirements of any registration or other qualification of the Shares under any state, federal or foreign law or under the rules and regulations of the Securities and Exchange Commission, the stock exchange on which Shares of the same class are then listed, or any other governmental or regulatory body, which authority, registration, qualification or rule compliance is deemed by the Company’s counsel to be necessary or advisable for the issuance and sale of any Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority, registration, qualification or rule compliance will not have been obtained.
18.Stockholder Approval. The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted by the Board. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
19.Information to Participants. If and as required (i) pursuant to Rule 701 of the Securities Act, if the Company is relying on the exemption from registration provided pursuant to Rule 701 of the Securities Act with respect to the applicable Option, and/or (ii) pursuant to Rule 12h-1(f) of the Exchange Act, to the extent the Company is relying on the Rule 12h-1(f) Exemption, then during the period of reliance on the applicable exemption and in each case of (i) and (ii) until such time as the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall provide to each Participant the information described in paragraphs (e)(3), (4), and (5) of Rule 701 under the Securities Act not less frequently than every six (6) months with the financial statements being not more than 180 days old and with such information provided either by physical or electronic delivery to the Participants or by written notice to the Participants of the availability of the information on an Internet site that may be password-protected and of any password needed to access the information. The Company may request that Participants agree to keep the information to be provided pursuant to this section confidential. If a Participant does not agree to keep the information to be provided pursuant to this section confidential, then the Company will not be required to provide the information unless otherwise required pursuant to Rule 12h-1(f)(1) under the Exchange Act (if the Company is relying on the Rule 12h-1(f) Exemption) or Rule 701 of the Securities Act (if the Company is relying on the exemption pursuant to Rule 701 of the Securities Act).
20.Forfeiture Events. The Administrator may specify in an Option Agreement that the Participant's rights, payments, and benefits with respect to an Option will be subject to the reduction, cancellation, forfeiture, or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Option. Notwithstanding any provisions to the contrary under this Plan, an Option shall be subject to the Company's clawback policy as may be established and/or amended from time to time (the “Clawback Policy”). The Administrator may require a Participant to forfeit, return or reimburse the Company all or a portion of the Option and any amounts paid thereunder pursuant to the terms of the Clawback Policy or as necessary or appropriate to comply with Applicable Laws.
MEDAVAIL, INC.
2018 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the 2018 Equity Incentive Plan (the “Plan”) shall have the same defined meanings in this Stock Option Agreement (the “Option Agreement”).
I.NOTICE OF STOCK OPTION GRANT
Name:
Address:
The undersigned Participant has been granted an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of Grant:
|
|
|
|
|
|
|
|
|
Vesting Commencement Date:
|
|
|
|
|
|
|
|
|
Exercise Price per Share:
|
$
|
|
|
|
|
|
|
|
|
Total Number of Shares Granted:
|
|
|
|
|
|
|
|
|
|
|
|
Total Exercise Price :
|
$
|
|
|
|
|
|
|
|
|
Type of Option:
|
|
Incentive Stock Option
|
|
|
|
|
|
|
|
|
|
Nonstatutory Stock Option
|
|
|
|
|
|
|
|
Term/Expiration Date:
|
|
|
Vesting Schedule:
This Option shall be exercisable, in whole or in part, according to the following vesting schedule:
[Insert vesting schedule, e.g.: One forty-eighth (1/48th) of the Shares subject to the Option shall vest each month after the Vesting Commencement Date on the same day of the month as the Vesting Commencement Date (and if there is no corresponding day, on the last day of the month), subject to Participant continuing to be a Service Provider through each such date.]
If a Liquidity Event occurs before Participant ceases to be a Service Provider, then the number of Shares subject to the Option that would have vested during the twelve (12)-month period commencing from the date of the Liquidity Event had the Liquidity Event not occurred
shall automatically vest on the date of the Liquidity Event, and the vesting schedule above shall be adjusted by reducing the number of Shares scheduled to vest on each remaining vesting date on a pro-rata basis, with the aggregate number of reduced Shares equal to the number of accelerated Shares.
For purposes of this Agreement, a “Liquidity Event” means a Change in Control or an IPO (as defined below).
For purposes of this Agreement, an “IPO” means an initial public offering of the Company resulting in the holding of equity of the Company or any Subsidiary by the public, or a transaction giving rise to a stock exchange listing or over-the-counter quotation of equity of any of the Company or its Subsidiaries, and such transaction may include an amalgamation, merger, plan of arrangement, reverse take-over bid, share exchange take-over bid or other transaction having similar result, in each case, as may be designated as an “IPO” by the Board at anytime.
Termination Period:
This Option shall be exercisable for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participant’s death or Disability, in which case this Option shall be exercisable for twelve (12) months after Participant ceases to be a Service Provider. Notwithstanding the foregoing sentence, in no event may this Option be exercised after the Term/Expiration Date as provided above and this Option may be subject to earlier termination as provided in Section 10 of the Plan.
II.AGREEMENT
1.Grant of Option. The Administrator of the Company hereby grants to the Participant named in the Notice of Stock Option Grant in Part I of this Option Agreement (“Participant”), an option (the “Option”) to purchase the number of Shares set forth in the Notice of Stock Option Grant, at the exercise price per Share set forth in the Notice of Stock Option Grant (the “Exercise Price”), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15 of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Stock Option Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option (“NSO”). Further, if for any reason this Option (or portion thereof) shall not qualify as an ISO, then, to the extent of such nonqualification, such Option (or portion thereof) shall be regarded as a NSO granted under the Plan. In no event shall the Administrator, the Company or any Parent or Subsidiary or any of their respective employees or directors have any liability to Participant (or any other person) due to the failure of the Option to qualify for any reason as an ISO.
2.Exercise of Option.
(a)Right to Exercise. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant and with the applicable provisions of the Plan and this Option Agreement.
(b)Method of Exercise. This Option shall be exercisable by delivery of an exercise notice in the form attached as Exhibit A (the “Exercise Notice”) or in a manner and pursuant to such procedures as the Administrator may determine, which shall state the election to exercise the Option, the number of Shares with respect to which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares, together with any applicable tax withholding. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price, together with any applicable tax withholding.
No Shares shall be issued pursuant to the exercise of an Option unless such issuance and such exercise comply with Applicable Laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Participant on the date on which the Option is exercised with respect to such Shares.
(c)Agreement to be Bound by Shareholder Agreements. As a condition to the exercise of any portion of the Option, Participant shall be required to execute and deliver to the Company any documents necessary for Participant to become a party to and be bound by the terms of any voting, investors’ rights, right of first refusal and co-sale, and other agreements by and among the Company and its stockholders, as they may be amended from time to time (the “Shareholder Agreements”).
3.Participant’s Representations. In the event the Shares have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), at the time this Option is exercised, Participant shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B.
4.Method of Payment. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Participant:
(a)cash;
(b)check;
(c)consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(d)surrender of other Shares which (i) shall be valued at its Fair Market Value on the date of exercise, and (ii) must be owned free and clear of any liens, claims, encumbrances or security interests, if accepting such Shares, in the sole discretion of the Administrator, shall not result in any adverse accounting consequences to the Company.
5.Restrictions on Exercise. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any Applicable Law.
6.Non-Transferability of Option.
(a)This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Participant only by Participant. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of Participant.
(b)Further, until the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, or after the Administrator determines that it is, will, or may no longer be relying upon the exemption from registration of Options under the Exchange Act as set forth in Rule 12h-1(f) promulgated under the Exchange Act (the “Reliance End Date”), Participant shall not transfer this Option or, prior to exercise, the Shares subject to this Option, in any manner other than (i) to persons who are “family members” (as defined in Rule 701(c)(3) of the Securities Act) through gifts or domestic relations orders, or (ii) to an executor or guardian of Participant upon the death or disability of Participant. Until the Reliance End Date, the Options and, prior to exercise, the Shares subject to this Option, may not be pledged, hypothecated or otherwise transferred or disposed of, including by entering into any short position, any “put equivalent position” or any “call equivalent position” (as defined in Rule 16a-1(h) and Rule 16a-1(b) of the Exchange Act, respectively), other than as permitted in clauses (i) and (ii) of this paragraph.
7.Term of Option. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement.
8.Tax Obligations.
(a)Tax Withholding. Participant agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining Participant) for the satisfaction of all Federal, state, local and foreign income and employment tax withholding requirements applicable to the Option exercise. Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver the Shares if such withholding amounts are not delivered at the time of exercise.
(b)Notice of Disqualifying Disposition of ISO Shares. If the Option granted to Participant herein is an ISO, and if Participant sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after the Date of Grant, or (ii) the date one (1) year after the date of exercise, Participant shall immediately notify the Company in writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the compensation income recognized by Participant.
(c)Code Section 409A. Under Code Section 409A, an Option that vests after December 31, 2004 (or that vested on or prior to such date but which was materially modified
after October 3, 2004) that was granted with a per Share exercise price that is determined by the Internal Revenue Service (the “IRS”) to be less than the Fair Market Value of a Share on the date of grant (a “discount option”) may be considered “deferred compensation.” An Option that is a “discount option” may result in (i) income recognition by Participant prior to the exercise of the Option, (ii) an additional twenty percent (20%) federal income tax, and (iii) potential penalty and interest charges. The “discount option” may also result in additional state income, penalty and interest tax to the Participant. Participant acknowledges that the Company cannot and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals or exceeds the Fair Market Value of a Share on the date of grant in a later examination. Participant agrees that if the IRS determines that the Option was granted with a per Share exercise price that was less than the Fair Market Value of a Share on the date of grant, Participant shall be solely responsible for Participant’s costs related to such a determination.
9.Entire Agreement; Governing Law. The Plan and the Shareholder Agreements are incorporated herein by reference. The Plan, the Shareholder Agreements, and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the Company and Participant. This Option Agreement is governed by the internal substantive laws but not the choice of law rules of Ontario.
10.No Guarantee of Continued Service. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS OPTION AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
Participant acknowledges receipt of a copy of the Plan and the Shareholder Agreements and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Participant has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Participant further agrees to notify the Company upon any change in the residence address indicated below.
|
|
|
|
|
|
|
|
|
PARTICIPANT
|
|
MEDAVAIL, INC.
|
|
|
|
|
|
|
Signature
|
|
By
|
|
|
|
|
|
|
Print Name
|
|
Print Name
|
|
|
|
|
|
|
|
|
Title
|
|
|
|
Residence Address
|
|
|
EXHIBIT A
2018 EQUITY INCENTIVE PLAN
EXERCISE NOTICE
MedAvail, Inc.
Unit#1
6665 Millcreek Drive
Mississauga, Ontario L5N 5M4
Attention: General Counsel
1.Exercise of Option. Effective as of today, ________________, ____, the undersigned (“Participant”) hereby elects to exercise Participant’s option (the “Option”) to purchase ________________ shares of the Common Stock (the “Shares”) of MedAvail, Inc. (the “Company”) under and pursuant to the 2018 Equity Incentive Plan (the “Plan”) and the Stock Option Agreement dated ______________, _____ (the “Option Agreement”).
2.Delivery of Payment. Participant herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option Agreement, and any and all withholding taxes due in connection with the exercise of the Option.
3.Representations of Participant. Participant acknowledges that Participant has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.
4.Rights as Stockholder. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Common Stock subject to the Option, notwithstanding the exercise of the Option. The Shares shall be issued to Participant as soon as practicable after the Option is exercised in accordance with the Option Agreement. No adjustment shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section 10 of the Plan.
5.Agreement to be Bound by Shareholder Agreements. As a condition to the exercise of the Option, Participant agrees to execute and deliver to the Company any documents necessary for Participant to become a party to and be bound by the terms of any Shareholder Agreements (as defined in the Option Agreement).
6.Tax Consultation. Participant understands that Participant may suffer adverse tax consequences as a result of Participant’s purchase or disposition of the Shares. Participant represents that Participant has consulted with any tax consultants Participant deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company for any tax advice.
7.Restrictive Legends and Stop-Transfer Orders.
(a)Legends. Participant understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN AN AGREEMENT BY AND AMONG THE ISSUER AND ITS STOCKHOLDERS (INCLUDING THE ORIGINAL HOLDER OF THESE SHARES) OR THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER FOR A PERIOD OF TIME FOLLOWING THE EFFECTIVE DATE OF THE UNDERWRITTEN PUBLIC OFFERING OF THE COMPANY’S SECURITIES SET FORTH IN AN AGREEMENT BY AND AMONG THE ISSUER AND ITS STOCKHOLDERS (INCLUDING THE ORIGINAL HOLDER OF THESE SHARES) AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF BY THE HOLDER PRIOR TO THE EXPIRATION OF SUCH PERIOD WITHOUT THE CONSENT OF THE COMPANY OR THE MANAGING UNDERWRITER.
(b)Stop-Transfer Notices. Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c)Refusal to Transfer. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Exercise Notice or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
8.Successors and Assigns. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Notice shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns.
9.Interpretation. Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Participant or by the Company forthwith to the Administrator, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on all parties.
10.Governing Law; Severability. This Exercise Notice is governed by the internal substantive laws, but not the choice of law rules, of Ontario. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Exercise Notice shall continue in full force and effect.
11.Entire Agreement. The Plan, the Option Agreement, and the Shareholder Agreements are incorporated herein by reference. This Exercise Notice, the Plan, the Option Agreement, the Shareholder Agreements, and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the Company and Participant.
|
|
|
|
|
|
|
|
|
Submitted by:
|
|
Accepted by:
|
|
|
|
PARTICIPANT
|
|
MEDAVAIL, INC.
|
|
|
|
|
|
|
Signature
|
|
By
|
|
|
|
Print Name
|
|
Print Name
|
|
|
|
|
|
Title
|
|
|
|
Address:
|
|
Address:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Received
|
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
|
|
|
|
|
|
|
|
|
PARTICIPANT
|
:
|
|
|
|
|
COMPANY
|
:
|
MEDAVAIL, INC.
|
|
|
|
SECURITY
|
:
|
COMMON STOCK
|
|
|
|
AMOUNT
|
:
|
|
|
|
|
DATE
|
:
|
|
In connection with the purchase of the above-listed Securities, the undersigned Participant represents to the Company the following:
(a)Participant is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Participant is acquiring these Securities for investment for Participant’s own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).
(b)Participant acknowledges and understands that the Securities constitute “restricted securities” under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Participant’s investment intent as expressed herein. In this connection, Participant understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Participant’s representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one (1) year or any other fixed period in the future. Participant further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Participant further acknowledges and understands that the Company is under no obligation to register the Securities. Participant understands that the certificate evidencing the Securities shall be imprinted with any legend required under applicable state securities laws.
(c)Participant is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to Participant, the exercise shall be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of the applicable conditions specified by Rule 144, including in the case of affiliates (1) the availability of certain public information about the Company, (2) the amount of Securities being sold during any three (3) month period not exceeding specified limitations, (3) the resale being made in an unsolicited “broker’s transaction”, transactions directly with a “market maker” or “riskless principal transactions” (as those terms are defined under the Securities Exchange Act of 1934) and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which may require (i) the availability of current public information about the Company; (ii) the resale to occur more than a specified period after the purchase and full payment (within the meaning of Rule 144) for the Securities; and (iii) in the case of the sale of Securities by an affiliate, the satisfaction of the conditions set forth in sections (2), (3) and (4) of the paragraph immediately above.
(d)Participant further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption shall be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 shall have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Participant understands that no assurances can be given that any such other registration exemption shall be available in such event.
|
|
|
PARTICIPANT
|
|
|
Signature
|
|
|
Print Name
|
|
|
Date
|
MEDAVAIL HOLDINGS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this “Agreement”) is dated as of [●] and is between MedAvail Holdings, Inc., a Delaware corporation (the “Company”), and [●] (“Indemnitee”).
RECITALS
WHEREAS, Indemnitee’s service to the Company substantially benefits the Company.
WHEREAS, 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 to and activities on behalf of the Company.
WHEREAS, 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.
WHEREAS, 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.
WHEREAS, this Agreement shall supersede any prior indemnification agreement between the Company and the Indemnitee, which is hereby terminated.
WHEREAS, 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.
WHEREAS, in light of the considerations referred to in the preceding recitals, it is the Company’s intention and desire that the provisions of this Agreement be construed liberally, subject to their express terms, to maximize the protections to be provided to Indemnitee hereunder.
NOW, THEREFORE, in consideration of Indemnitee’s agreement to serve as a director or officer of the Company after the date hereof, the parties hereto 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) is or 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 or its ultimate parent, as applicable) more than 50% of the combined voting power of the voting securities of the surviving entity or its ultimate parent, as applicable, 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 or its ultimate parent, as applicable;
(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.
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 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 13(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.
(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, and whether formal or informal, 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, penalties, excise taxes 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.
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. To the extent permitted by applicable law, if Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, in defense of one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with (a) each successfully resolved claim, issue or matter, and (b) any claim, issue or matter related to any such successfully resolved claim, issue or matter. 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.Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
6.Indemnification for Expenses of a Witness or in Response to a Subpoena. 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 or receives a subpoena 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.
7.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, penalties, excise taxes 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 7(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.
8.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 and except as provided for in Section 16;
(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;
(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 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;
(d)initiated by Indemnitee and not by way of defense, 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, provided, however, that this Section 7(d) shall not apply to affirmative defenses asserted by Indemnitee in an action brought against Indemnitee, (iii) otherwise authorized in Section 13(d) or (iv) otherwise required by applicable law; or
(e)if prohibited by applicable law (as such law exists at the time payment would otherwise be required pursuant to this Agreement).
9.Advances of Expenses.
(a)The Company shall advance the Expenses incurred by Indemnitee in connection with any Proceeding prior to its final resolution, and such advancement shall be made on a current basis and as soon as reasonably practicable, but in any event no later than 45 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, interest free and made without regard to Indemnitee’s ability to repay such advances or ultimate entitlement to indemnification under the other provisions of this Agreement. No other form of undertaking shall be required. Indemnitee hereby undertakes to repay any advance to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company.
10.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 or delay 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, except to the extent that such failure or delay materially prejudices the Company.
(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, 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. Upon request of Indemnitee, Company shall also promptly provide to Indemnitee: (i) copies of all of the Company’s potentially applicable directors’ and officers’ liability insurance policies, (ii) copies of such notices delivered to the applicable insurers, and (iii) copies of all subsequent communications and correspondence between the Company and such insurers regarding the Proceeding.
(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. After 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, (iv) the Company shall not have retained, or shall not continue to retain, such counsel to defend such Proceeding, or (v) a Change of Control shall have occurred. The Company shall have the right to conduct such defense as it sees fit in its reasonable discretion. 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, and the Company shall give Indemnitee, 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.
(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.
11.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. Any delay in providing the request will not relieve the Company from its obligations under this Agreement, except to the extent such delay is prejudicial.
(b)Upon written request by Indemnitee for indemnification pursuant to Section 11(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 ten days after such determination. Indemnitee and the Company 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) 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.
(c)In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 11(b), the Independent Counsel shall be selected as provided in this Section 11(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 11(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 a court of competent jurisdiction 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 11(b) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 13(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). The Company shall pay the reasonable fees and expenses of any Independent Counsel.
12.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.
(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 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)Indemnitee shall be deemed to have acted in good faith if Indemnitee’s actions are based on the records or books of account of the Company or any other Enterprise, including financial statements, or on information supplied to Indemnitee by the directors, officers, agents or employees of the Company or any other Enterprise in the course of their duties, or on the advice of legal counsel for the Company or any other Enterprise or on information or records given or reports made to the Company or any other Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Company or any other Enterprise. The provisions of this Section 12(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. In addition, 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. Whether or not the foregoing provisions of this Section 12(c) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof.
13.Remedies of Indemnitee.
(a)Subject to Section 13(e), in the event that (i) a determination is made pursuant to Section 11 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 9 or 13(d) of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 11 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 ten days after a determination has been made that Indemnitee is entitled to indemnification or (B) with respect to indemnification pursuant to Section 4 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 a court of competent jurisdiction of his or her entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration with respect to his or her entitlement to such indemnification or advancement of Expenses, to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 13(a); provided, however, that the foregoing time limitation shall not apply in respect of a proceeding brought by Indemnitee to enforce his or her rights under Section 4 of this Agreement. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration 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 11 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 13 shall be conducted in all respects as a de novo trial, or arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 13, 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.
(c)The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 13 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. If a determination shall have been made pursuant to Section 11 of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 13, 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, unless the court (or arbitrator) finds that each material argument or defense advanced by Indemnitee in such action or arbitration was either frivolous or not made in good faith. Further, if requested by Indemnitee, the Company shall (on a current basis and as soon as reasonably practicable, but in any event no later than 45 days, after receipt by the Company of a written request therefor) advance such Expenses to Indemnitee, subject to the provisions of Section 8, subject to Indemnitee’s agreement to repay the sums advanced if the court (or arbitrator) finds that each material argument or defense advanced by Indemnitee in such action or arbitration was either frivolous or not made in good faith.
(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.
14.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.
15.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.
16.Primary Responsibility. The Company acknowledges that to the extent Indemnitee is serving as a director on the Company’s board of directors at the request or direction of a venture capital fund or other entity and/or certain of its affiliates (collectively, the “Secondary Indemnitors”), Indemnitee may have certain rights to indemnification and advancement of expenses provided by such Secondary Indemnitors. 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. 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 16. 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. The Secondary Indemnitors are express third-party beneficiaries of the terms of this Section 16.
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, and except as provided for in Section 16, 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), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. 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.
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) one year after the final termination of any Proceeding, including any appeal, then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 13 of this Agreement relating thereto.
21.Successors and Assigns. 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 personal or legal representatives, heirs, executors, administrators, distributees, legatees and other successors. 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.
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, or otherwise delivered by hand, messenger or courier service addressed:
(a)if to Indemnitee, to Indemnitee’s 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 Chief Executive Officer or Chief Financial Officer of the Company at 6665 Millcreek Dr #1, Mississauga, ON L5N 5M4, Canada, or at such other current address as the Company shall have furnished to Indemnitee, with a copy (which shall
not constitute notice) to Philip Oettinger at Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, CA 94304-1050.
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.
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. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 13(a) of this Agreement, or except as mutually agreed by the parties in writing, 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, The Corporation Trust Company, Wilmington, Delaware 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.Monetary Damages Insufficient/Specific Enforcement. The Company and Indemnitee agree that a monetary remedy for breach of this Agreement may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm (having agreed that actual and irreparable harm will result in not forcing the Company to specifically perform its obligations pursuant to this Agreement) and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which he may be entitled. The Company and Indemnitee further agree that Indemnitee shall be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertaking in connection therewith. The Company acknowledges that in the absence of a waiver, a bond or undertaking may be required of Indemnitee by the Delaware Court of Chancery, and the Company hereby waives any such requirement of a bond or undertaking.
29.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.
30.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)
The parties are signing this Indemnification Agreement as of the date stated in the introductory sentence.
|
|
|
|
|
|
|
MEDAVAIL HOLDINGS, INC.
|
|
|
|
|
|
(Signature)
|
|
|
|
(Print Name)
|
|
|
|
(Title)
|
|
|
|
INDEMNITEE
|
|
|
|
|
|
(Signature)
|
|
|
|
(Print Name)
|
|
|
|
(Street address)
|
|
|
|
(City, State and ZIP)
|
[Signature page to MedAvail Holdings, Inc. – Indemnification Agreement]
Subsidiaries of MedAvail Holdings, Inc.
|
|
|
|
|
|
|
|
|
Entity Name
|
|
State or Jurisdiction of Incorporation
|
MedAvail, Inc.
|
|
State of Delaware
|
MedAvail Technologies Inc.
|
|
Ontario Canada
|
MedAvail Technologies (US) Inc.
|
|
State of Delaware
|
MedAvail Pharmacy Inc. (d/b/a SpotRx Pharmacy)
|
|
State of Arizona
|
Exhibit 99.1
FINANCIAL STATEMENTS
Report of Independent Auditors
To the Board of Directors of MedAvail, Inc.
We have audited the accompanying consolidated financial statements of MedAvail, Inc. and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive loss, changes in shareholders’ deficit and cash flows for the years then ended.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MedAvail, Inc. and its subsidiaries as of December 31, 2019 and 2018, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
|
|
|
|
PricewaterhouseCoopers LLP
|
PwC Centre, 354 Davis Road, Suite 600, Oakville, Ontario, Canada L6J 0C5
|
T: +1 905 815 6300; F: +1 905 815 6499
|
|
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
|
Emphasis of matter
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency and cash outflows from operating activities, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans
regarding these matters are also described in note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
As discussed in note 5 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019. Our opinion is not modified with respect to this matter.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Oakville, Ontario, Canada
September 2, 2020
MEDAVAIL, INC.
Consolidated Balance Sheets
(US Dollars in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
8,791
|
|
|
$
|
3,767
|
|
Restricted cash
|
58
|
|
|
44
|
|
Accounts receivable (net of allowance for doubtful accounts)
|
416
|
|
|
131
|
|
Inventories (note 9)
|
4,594
|
|
|
6,022
|
|
Prepaid expenses and other assets
|
229
|
|
|
188
|
|
Total current assets
|
14,088
|
|
|
10,152
|
|
Property, plant and equipment (note 10)
|
2,703
|
|
|
1,397
|
|
Right-of-use assets (note 5 and 12)
|
1,050
|
|
|
—
|
|
Other assets
|
92
|
|
|
89
|
|
Goodwill and other intangible assets (note 11)
|
70
|
|
|
1,146
|
|
Total assets
|
$
|
18,003
|
|
|
$
|
12,784
|
|
Liabilities, Temporary Equity and Shareholders’ Deficit
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable and accrued liabilities (note 8)
|
$
|
2,345
|
|
|
$
|
2,463
|
|
Contract liability (note 4)
|
4,804
|
|
|
5,000
|
|
Current portion of lease obligations (note 5 and 12)
|
526
|
|
|
—
|
|
Total current liabilities
|
7,675
|
|
|
7,463
|
|
Long-term debt (note 13)
|
12,476
|
|
|
11,742
|
|
Long-term portion of lease obligations (note 5 and 12)
|
565
|
|
|
—
|
|
Other liabilities
|
448
|
|
|
528
|
|
Total liabilities
|
21,164
|
|
|
19,733
|
|
Temporary equity: (note 17)
|
|
|
|
Redeemable preferred shares ($0.001 par value, 14,539,330 shares authorized, 10,500,440 and 7,479,862 shares issued and outstanding at December 31, 2019 and 2018, respectively)
|
93,484
|
|
|
68,533
|
|
Stockholders' deficit: (note 17)
|
|
|
|
Common shares ($0.001 par value, 24,000,000 shares authorized, 1,193,698 and 1,175,982 shares issued and outstanding at December 31, 2019 and 2018, respectively)
|
8
|
|
|
8
|
|
Warrants
|
698
|
|
|
191
|
|
Additional paid-in-capital
|
30,829
|
|
|
30,947
|
|
Accumulated other comprehensive loss
|
(6,950)
|
|
|
(6,931)
|
|
Accumulated deficit
|
(121,230)
|
|
|
(99,697)
|
|
Total shareholders’ deficit
|
(96,645)
|
|
|
(75,482)
|
|
Total liabilities, temporary equity and shareholders’ deficit
|
$
|
18,003
|
|
|
$
|
12,784
|
|
The accompanying notes, including Note 1. Going Concern and Note 16. Commitments and Contingencies, are an integral part of these financial statements.
MEDAVAIL, INC.
Consolidated Statement of Operations
(US Dollars in thousands, except share and per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
Sales:
|
|
|
|
Pharmacy and hardware sales (note 4)
|
$
|
3,385
|
|
|
$
|
649
|
|
Service sales (note 4)
|
386
|
|
|
4,016
|
|
Total sales
|
3,771
|
|
|
4,665
|
|
Cost of sales:
|
|
|
|
Pharmacy and hardware cost of sales
|
2,674
|
|
|
1,905
|
|
Service cost of sales
|
149
|
|
|
172
|
|
Total cost of sales
|
2,823
|
|
|
2,077
|
|
Gross profit
|
948
|
|
|
2,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (note 14)
|
15,420
|
|
|
11,983
|
|
Selling, general and administrative expenses
|
5,881
|
|
|
5,581
|
|
Share-based compensation
|
354
|
|
|
1,362
|
|
Goodwill write-off
|
137
|
|
|
—
|
|
Operating loss
|
(20,844)
|
|
|
(16,338)
|
|
Interest expense - net
|
689
|
|
|
667
|
|
Loss before income taxes
|
(21,533)
|
|
|
(17,005)
|
|
Income tax (note 15)
|
—
|
|
|
—
|
|
Net loss
|
$
|
(21,533)
|
|
|
$
|
(17,005)
|
|
Net loss per share - basic and diluted (note 6)
|
$
|
(16.85)
|
|
|
$
|
(12.78)
|
|
Weighted average shares outstanding - basic and diluted
|
1,278,107
|
|
1,330,907
|
The accompanying notes, including Note 1. Going Concern and Note 16. Commitments and Contingencies, are an integral part of these financial statements.
MEDAVAIL, INC.
Consolidated Statement of Comprehensive Loss
(US Dollars in thousands, except per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
Net loss
|
$
|
(21,533)
|
|
|
$
|
(17,005)
|
|
Other comprehensive loss:
|
|
|
|
Foreign currency translation adjustment
|
(19)
|
|
|
(6)
|
|
Total comprehensive loss
|
$
|
(21,552)
|
|
|
$
|
(17,011)
|
|
The accompanying notes, including Note 1. Going Concern and Note 16. Commitments and Contingencies, are an integral part of these financial statements.
MEDAVAIL, INC.
Consolidated Statements of Shareholders' Deficit
(US Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
Preferred Shares
|
Warrants
|
|
Additional Paid-in-Capital
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive Loss
|
|
Total Equity and Temporary Equity
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Balance at December 31, 2017
|
1,501,490
|
|
|
$
|
10
|
|
|
3,337,625
|
|
|
$
|
33,074
|
|
|
$
|
—
|
|
|
$
|
51,517
|
|
|
$
|
(82,692)
|
|
|
$
|
(6,925)
|
|
|
$
|
(5,016)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,005)
|
|
|
—
|
|
|
(17,005)
|
|
Common shares issued (note 17)
|
33,554
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Preferred shares issued (note 17)
|
—
|
|
|
—
|
|
|
1,628,642
|
|
|
13,716
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,716
|
|
Exchange of common shares for preferred shares
|
(359,062)
|
|
|
(2)
|
|
|
2,513,595
|
|
|
21,743
|
|
|
—
|
|
|
(21,741)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,362
|
|
|
—
|
|
|
—
|
|
|
1,362
|
|
Warrants issued (note 17)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
191
|
|
|
(191)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cumulative translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6)
|
|
|
(6)
|
|
Balance at December 31, 2018
|
1,175,982
|
|
|
$
|
8
|
|
|
7,479,862
|
|
|
$
|
68,533
|
|
|
$
|
191
|
|
|
$
|
30,947
|
|
|
$
|
(99,697)
|
|
|
$
|
(6,931)
|
|
|
$
|
(6,949)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,533)
|
|
|
—
|
|
|
(21,533)
|
|
Common shares issued (note 17)
|
17,716
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
35
|
|
Preferred shares issued (note 17)
|
—
|
|
|
—
|
|
|
3,020,578
|
|
|
24,951
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24,951
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
354
|
|
|
—
|
|
|
—
|
|
|
354
|
|
Warrants issued (note 17)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
507
|
|
|
(507)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cumulative translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19)
|
|
|
(19)
|
|
Balance at December 31, 2019
|
1,193,698
|
|
|
$
|
8
|
|
|
10,500,440
|
|
|
$
|
93,484
|
|
|
$
|
698
|
|
|
$
|
30,829
|
|
|
$
|
(121,230)
|
|
|
$
|
(6,950)
|
|
|
$
|
(3,161)
|
|
The accompanying notes, including Note 1. Going Concern and Note 16. Commitments and Contingencies, are an integral part of these financial statements.
MEDAVAIL, INC.
Consolidated Statement of Cash Flows
(US Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
Cash flows from operating activities:
|
|
|
|
Net loss
|
$
|
(21,533)
|
|
|
$
|
(17,005)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
Depreciation of property, plant, and equipment
|
701
|
|
|
621
|
|
Amortization of intangible assets
|
941
|
|
|
1,092
|
|
Interest accretion on debt
|
734
|
|
|
667
|
|
Goodwill write-off
|
137
|
|
|
—
|
|
Impairment of lease asset
|
41
|
|
|
—
|
|
Unrealized foreign currency (loss)
|
(19)
|
|
|
(6)
|
|
Stock compensation expense, net
|
354
|
|
|
1,362
|
|
Changes in operating assets and liabilities:
|
|
|
|
(Increase) in accounts receivable
|
(285)
|
|
|
(10)
|
|
(Increase) in inventory
|
(149)
|
|
|
(593)
|
|
(Increase) decrease in prepaid expenses and other assets
|
(41)
|
|
|
30
|
|
(Decrease) increase in accounts payable
|
(148)
|
|
|
764
|
|
(Decrease) increase in accrued expenses and other liabilities
|
(83)
|
|
|
177
|
|
(Decrease) increase in contract liability
|
(196)
|
|
|
959
|
|
Net cash used in operating activities
|
(19,546)
|
|
|
(11,942)
|
|
Cash flows from investing activities:
|
|
|
|
Purchase of property, plant and equipment
|
(399)
|
|
|
(592)
|
|
Purchase of intangible assets
|
—
|
|
|
(448)
|
|
Purchase of other assets
|
(3)
|
|
|
—
|
|
Net cash used in investing activities
|
(402)
|
|
|
(1,040)
|
|
Net cash flows from financing activities:
|
|
|
|
Issuance of preferred shares
|
24,951
|
|
|
13,716
|
|
Issuance of common shares upon exercise of options
|
35
|
|
|
—
|
|
Net cash provided by financing activities
|
24,986
|
|
|
13,716
|
|
Net increase in cash, cash equivalents, and restricted cash
|
5,038
|
|
|
734
|
|
Cash, cash equivalents, and restricted cash at beginning of period
|
3,811
|
|
|
3,077
|
|
Cash, cash equivalents, and restricted cash at end of period
|
$
|
8,849
|
|
|
$
|
3,811
|
|
Supplemental noncash investing and financing activities:
|
|
|
|
Cash paid for operating leases
|
$
|
405
|
|
|
$
|
—
|
|
Operating lease assets obtained in exchange for operating lease liabilities
|
$
|
1,511
|
|
|
$
|
—
|
|
Purchases of property, plant and equipment in accounts payable
|
$
|
31
|
|
|
$
|
75
|
|
The accompanying notes, including Note 1. Going Concern and Note 16. Commitments and Contingencies, are an integral part of these financial statements.
NOTE 1 - GOING CONCERN
The consolidated financial statements for the year ended December 31, 2019 were prepared on the basis of a going concern which contemplates that MedAvail, Inc. ("MedAvail") will be able to realize assets and discharge liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should MedAvail be required to liquidate its assets. The ability of MedAvail to meet its total liabilities of $21.2 million at December 31, 2019, including $12.5 million of convertible debt due in 2021, and to continue as a going concern is dependent upon the availability of future funding, continued growth in orders, and MedAvail's ability to profitably meet its after-sale service commitments with its existing customers. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Relevant accounting standards require that MedAvail management make a determination as to whether or not substantial doubt exists as to our ability to continue as a going concern. If substantial doubt does exist management should determine if there are plans in place which alleviate that doubt. Management has determined that there is substantial doubt as to MedAvail's ability to continue as a going concern. Conditions and events leading to the substantial doubt include the risk that the Merger and Pre-Closing Private Placement financing are not completed, additional financing may not be able to be obtained and recurring operating losses. These conditions indicate that there is substantial doubt about the Company's ability to continue as a going concern within one year after the date of issuance of these consolidated financial statements. Management has identified and is executing plans to alleviate doubt.
NOTE 2 - NATURE OF OPERATIONS
MedAvail is a health-care technology company that has developed and commercialized an innovative self-service pharmacy, mobile application, kiosk and drive-thru solution. MedAvail's principal technology and product is the MedCenter, a pharmacist controlled, customer-interactive, prescription dispensing system akin to a “pharmacy in a box” or prescription-dispensing ATM. The MedCenter facilitates live pharmacist counselling via two-way audio-video communication with the ability to dispense prescription medicines under pharmacist control. MedAvail also operates SpotRx (the “Pharmacy”), a full-service retail pharmacy utilizing the MedAvail's automated pharmacy technology.
NOTE 3 - BASIS OF PRESENTATION
Basis of Presentation
The preparation of the consolidated financial statements and related disclosures are prepared in accordance with U.S. GAAP and require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Estimates are used in accounting for, among other things, revenue recognition, contract loss accruals, excess, slow-moving and obsolete inventories, product warranty accruals, loss accruals on service agreements, share-based compensation expense, allowance for doubtful accounts, depreciation and amortization, impairment of goodwill and in-process research and development intangible assets, impairment of long-lived assets and contingencies. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed to be necessary. Certain amounts in 2018 have been reclassified to conform to current year presentation.
Fiscal years ended December 31, 2019 and December 31, 2018, respectively, may be referred to as 2019 and 2018.
Amounts presented in these consolidated financial statements are in United States dollars unless otherwise indicated.
Our critical accounting policies are those that are both most important to our financial condition and results of operations and require the most difficult, subjective or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our accounting policies are set forth in Note 4. Critical Accounting Policies.
Principles of consolidation
The consolidated financial statements include the accounts of all entities controlled by MedAvail, which are referred to as subsidiaries. MedAvail Technologies Inc., MedAvail Technologies (US) Inc., MedAvail Pharmacy Inc. and On the Spot Rx. Inc. are all subsidiaries of MedAvail. MedAvail has no interests in variable interest entities of which MedAvail is the primary beneficiary. All intercompany balances and transactions have been eliminated. During 2019, MedAvail elected to close down its Canadian pharmacy operations, to focus on growth of the SpotRx Pharmacy business in the US.
NOTE 4 - CRITICAL ACCOUNTING POLICIES
Cash and Cash Equivalents
MedAvail classifies all highly liquid instruments with an original maturity of three months or less as cash equivalents. MedAvail cash and cash equivalents generally include funds held in checking and savings accounts at large American and Canadian financial institutions and denominated in U.S. Dollars and Canadian Dollars.
Restricted Cash
MedAvail considers cash and marketable securities to be restricted when withdrawal or general use is legally restricted. MedAvail maintains a balance with the bank that is the issuer of its purchasing cards used in Canada as a guarantee for those cards. Due to the nature of the deposit, the balance is classified as restricted cash. Restricted cash is included in the balance for cash presented in the statements of cash flows.
Accounts Receivable
Accounts receivable are primarily comprised of trade receivables presented net of allowance for doubtful accounts. MedAvail maintains an allowance for doubtful accounts based on its assessment of the collectability of amounts owed by customers. The allowance consists of known specific troubled accounts as well as an amount based on overall estimated potential uncollectible accounts receivable based on historical experience.
Foreign Currency Translation
The functional currency for all of our subsidiaries is the U.S. dollar. Gains and losses resulting from the remeasurement of foreign currency amounts to the functional currency are included in Operating expenses in the Statement of Comprehensive Loss. Gains and losses resulting from translating assets and liabilities from the functional currency to U.S. dollars are included in Foreign currency translation adjustment in the Statement of Comprehensive Loss.
Revenue Recognition
MedAvail derives its revenue primarily from retail pharmaceutical sales. MedAvail also earns revenue from the sale of MedPlatform Systems, which include MedCenter prescription dispensing kiosks, and the associated software,
hardware, and service components necessary for operation, along with sales of products dispensed by MedCenters, and retail pharmacy sales. Contracts with customers often include promises to transfer multiple products and services. In determining how revenue should be recognized, a five-step process is used, which requires judgment and estimates within the revenue recognition process. The primary judgments include identifying the performance obligations in the contract and determining whether the performance obligations are distinct. If any of these judgments were to change it could cause a material increase or decrease in the amount of revenue we report in a given period.
Under Accounting Standards Codification (“ASC”) Topic 606: Revenue from Contracts with Customers (“Topic 606”), the amount of revenue recognized for any goods or services reflects the consideration that MedAvail expects to be entitled to receive in exchange for those goods and services. To achieve this core principle, MedAvail applies the following five-step approach: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as a performance obligation is satisfied.
A contract is accounted for when there has been approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Performance obligations under a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract. In certain instances, MedAvail has concluded distinct goods or services should be accounted for as a single performance obligation that is a series of distinct goods or services that have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, MedAvail must apply judgment to determine whether the customer can benefit from the goods or services either on their own or together with other resources that are readily available to the customer (the goods or services are distinct) and if the promise to transfer the goods or services to the customer is separately identifiable from other promises in the contract (the goods or services are distinct in the context of the contract). If these criteria are not met, the promised services are accounted for as a single performance obligation. The transaction price is determined based on the consideration that MedAvail will be entitled to in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration, MedAvail estimates the amount of variable consideration that should be included in the transaction price, generally utilizing the expected value method. During 2019 and 2018, MedAvail had no contracts that included variable consideration. Determining the transaction price requires judgment. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis. Standalone selling price is determined by the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, MedAvail estimates the standalone selling price by taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. Performance obligations are satisfied either over time or at a point in time as discussed in the Pharmacy Technology Segment information below. In addition, MedAvail’s contracts with customers generally do not include significant financing components or non-cash consideration.
MedPlatform sales agreements generally contain an agreement to provide a MedCenter prescription dispensing kiosk, along with agreements to provide software, hardware and maintenance services which are necessary for the operation of the MedCenter, and can only be provided by MedAvail. Management has determined that contracts to provide MedPlatform Systems consist of one performance obligation, as all of these products and services are required in order to obtain a functioning MedCenter. ASC 606 allows a single performance obligation to be recognized over time if the customer simultaneously receives and consumes the provided benefits. As such, revenue is initially recognized when the MedCenter is installed and operational at the customer's location. Revenue continues
to be recognized going forward in the periods in which the hardware, software and maintenance services are provided to the customer.
MedAvail also earns revenue from Walgreens, a customer and investor, for a contract related to providing MedAvail's technology and services. For any amounts received prior to the fulfillment of the obligation, a contract liability is recorded. As of December 31, 2019 and 2018, the consolidated balance sheets included $4.8 million and $5.0 million, respectively, of contract liability.
The following table presents the disaggregation of MedAvail's revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
Service sales:
|
|
|
|
Software
|
$
|
208
|
|
|
$
|
457
|
|
Maintenance and support
|
93
|
|
|
125
|
|
Professional services
|
75
|
|
|
3,434
|
|
Installation
|
10
|
|
|
—
|
|
Total service sales
|
386
|
|
|
4,016
|
|
Pharmacy and hardware sales:
|
|
|
|
Retail pharmacy revenue
|
3,227
|
|
|
488
|
|
Rental
|
158
|
|
|
11
|
|
Hardware
|
—
|
|
|
150
|
|
Total pharmacy and hardware sales
|
3,385
|
|
|
649
|
|
Total revenue
|
$
|
3,771
|
|
|
$
|
4,665
|
|
Segments
Management, including the Chief Operating Decision Makers ("CODM"), have been identified as the Chief Executive Officer, Chief Financial Officer, Chief Commercial Officer and Chief Pharmacy Officer. These executives are responsible for executing a unified corporate strategy, allocating resources and assessing financial and operational performance. The executives are also responsible for the development and implementation of strategies and direction of the Company’s growth. Operating segments are the individual operations that the CODM reviews for purposes of assessing performance and making resource allocation decisions. The CODM currently receives the monthly management report. Included within this proxy statement/prospectus/information statement are discrete and sufficient financial information to allow the CODM to assess performance, including segment profit for the pharmacy technology and retail pharmacy services operating segments. The pharmacy technology and retail pharmacy services operating segments both engage in business activities from which they earn revenues and incur expenses. MedAvail periodically evaluates changes in the structure of its internal organization to determine whether its operating segments have changed when events or circumstances necessitate such an exercise. Events or circumstances triggering reevaluation of reportable segments may include reorganization, restructuring, acquisitions or spin-offs, and changes in the CODM.
The Company has the following two reportable segments:
Pharmacy Technology Segment
The pharmacy technology segment consists of sales of MedPlatform Systems to customers. These agreements include providing the MedCenter prescription dispensing kiosk, software, and maintenance services. Agreements can be for a predetermined period of time, or indefinite. This generally includes either an initial lump sum payment
upon installation of the MedCenter with monthly payments for software and services following, or monthly payments for the MedCenter along with monthly payments for software and maintenance services. Revenue is recognized for each portion of the single performance obligation when that portion has been completed and the customer is contractually obligated to provide consideration, and in the contractually agreed upon amount.
Retail Pharmacy Services Segment
Retail pharmacy services segment revenue consists of products sold directly to consumers at the point of sale. MedAvail recognizes retail pharmacy sales revenue, net of taxes and expected returns, at the time it sells merchandise or dispenses prescription drugs to the customer. MedAvail estimates revenue based on expected reimbursements from third-party payers (e.g., pharmacy benefit managers, insurance companies and governmental agencies) for dispensing prescription drugs. The estimates are based on all available information including historical experience and are updated to actual reimbursement amounts.
Inventory
Inventory for the pharmacy technology segment consists primarily of MedCenter kiosk finished goods. Inventories are stated at the lower of cost (first-in, first-out or average cost) or net realizable value.
Inventory for the retail pharmacy services segment consists of pharmaceuticals. Inventories for the retail pharmacy segment are stated at the lower of cost (first in, first out) or net realizable value.
An impairment for excess or inactive inventory is recorded based upon an analysis that considers current inventory levels, historical usage patterns, future sales expectations and salvage value.
Intangible Assets
Intangible assets consist of software, patents and know-how. Intangible assets acquired through asset acquisitions or business combinations are initially recognized at fair value based on an allocation of the purchase price. No development costs have been capitalized to date. The intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization of the intellectual property commenced in 2014 on delivery of the first proof of concept MedCenter. MedAvail evaluates the reasonableness of the estimated useful lives of these intangible assets on an annual basis. During the year ended December 31, 2019, MedAvail wrote-off the $137 thousand balance for goodwill related to its Canadian operations due to the discontinuance of those operations.
The estimated useful lives of intangible assets are as follows:
|
|
|
|
|
|
Software
|
2 years
|
Website and mobile application
|
2 years
|
Intellectual property
|
6 years
|
Goodwill
|
not amortized
|
Goodwill
MedAvail records goodwill for the difference between the fair value of other identifiable assets and the total purchase price of an acquisition. Goodwill is tested for impairment on an annual basis or more frequently if circumstances indicate potential impairment. In order to test for goodwill impairment, the fair value of the reporting unit is compared to its carrying value, including goodwill. If the fair value of the reporting unit is lower than its carrying amount, goodwill is written down for the amount by which the carrying amount exceeds the reporting unit's fair value. However, the loss recognized cannot exceed the carrying amount of goodwill. We typically use discounted cash flow models to determine the fair value of a reporting unit. The assumptions used in these models
are consistent with those MedAvail believes a market participant would use. MedAvail has the option to perform a qualitative assessment of goodwill rather than completing the impairment test. MedAvail must assess whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If it is concluded that this is the case, the testing discussed above must be performed. Otherwise, no further assessment is necessary. For 2019, MedAvail did not perform a goodwill impairment assessment because its entire goodwill balance was written off due to the closure of its Canadian pharmacy operation.
Impairment of Long Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. If events or changes in circumstances indicate that the carrying amount of the asset group may not be recoverable, MedAvail compares the carrying amount of an asset group to future undiscounted net cash flows, excluding interest costs, expected to be generated by the asset group and their ultimate disposition. If the sum of the undiscounted cash flows is less than the carrying value, the impairment to be recognized is measured by the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. For the year ended December 2019 and 2018, MedAvail did not recognize any impairments of long lived assets.
Property, plant and equipment
Property, plant and equipment are carried in the accounts at cost less accumulated depreciation. Gains and losses arising on the disposal of individual assets are recognized in income in the period of disposal. Costs, including financing charges and certain design, construction and installation costs related to assets that are under construction and are in the process of being readied for their intended use, are recorded as construction-in-progress and are not subject to depreciation.
Depreciation, which is recorded from the date on which each asset is placed into service, is generally provided for on a straight-line basis over the estimated useful lives of the property, plant and equipment as follows:
|
|
|
|
|
|
IT equipment
|
2 – 4 years
|
General plant and equipment
|
8 years
|
Vehicles
|
5 years
|
Office furniture and equipment
|
8 years
|
Leasehold improvements
|
lesser of useful life or term of lease
|
MedCenter equipment
|
5 – 10 years
|
Maintenance and repairs are charged to expense as incurred. Renewals and betterments that materially prolong the useful lives of the assets are capitalized. The cost and related accumulated depreciation of property retired or sold are removed from the accounts, and gains or losses are recognized in the consolidated statement of loss and comprehensive loss.
Leases
MedAvail leases certain machinery and equipment and office space.
MedAvail adopted ASU No. 2016-02, “Leases” (Topic 842) with a date of initial application of January 1, 2019. As a result, MedAvail updated its accounting policy for leases. MedAvail determines whether a contract or arrangement is, or contains, a lease at inception. Balances related to operating leases are included in Operating lease – right of use assets, Current portion of operating lease obligation, and Long-term portion of operating lease obligations in its consolidated balance sheet.
On January 1, 2019, upon adoption of ASC 842, MedAvail recorded right-of-use assets of $1.1 million, lease liability of $1.1 million and eliminated deferred rent of $49 thousand. The adoption of ASC 842 did not have a material impact on prior year comparative periods and as a result, a cumulative-effect adjustment was not required. MedAvail determined the lease liability using the Company’s estimated incremental borrowing rate of 6% to estimate the present value of the remaining lease payments.
Lease expense for operating leases recorded on the balance sheet is included in operating costs and expenses and is based on the future minimum lease payments recognized on a straight-line basis over the term of the lease plus any variable costs. Operating lease expenses, inclusive of short-term and variable expenses, recognized in the consolidated statement of income for the period ended December 31, 2019 was $689 thousand.
Leases for which MedAvail has the right to use assets and receive substantially all of the benefits and risks of ownership are reported as right-of-use (“ROU”) assets under property, plant, and equipment, and finance lease obligations under liabilities on the balance sheet. Finance lease obligation amounts reflect the present value of future lease payments, discounted at an appropriate interest rate, and are reduced by rental payments, net of imputed interest. Property, plant, and equipment under finance leases are depreciated based on the useful lives of the leased assets. MedAvail currently has no finance leases.
Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of MedAvail’s leases do not provide an implicit rate, MedAvail uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. MedAvail uses the implicit rate when readily determinable. The operating lease ROU asset includes any prepaid lease payments and additional direct costs and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that MedAvail will exercise that option.
MedAvail’s operating leases have remaining lease terms ranging from less than one year to four years.
Operating leases with an initial term of 12 months or less are considered short-term leases and are not recorded on the balance sheet. MedAvail recognizes lease expense for these short-term leases on a straight-line basis over the lease terms.
For operating leases with an initial term of 12 months or more, MedAvail records right-of-use assets and corresponding lease liabilities at lease inception. MedAvail accounts for lease components (e.g., fixed payments including rent, real estate taxes, and insurance costs) and non-lease components (e.g., common-area maintenance costs) as a single lease component. MedAvail uses its incremental borrowing rate (based on the information at the lease commencement date) to determine the corresponding lease liability. Leasing costs, including any rent holidays, leasehold incentives, and rent concessions are amortized on a straight-line basis over the lease term.
At December 31, 2019, MedAvail determined that two of its operating lease locations were no longer necessary and began to search for sublessees. As a result, MedAvail determined that the ROU Assets related to these two operating leases were impaired. MedAvail recorded a reserve against the ROU Assets in the amount of $41 thousand based upon estimates of future sublease dates and sublease rental rates. Once MedAvail subleases these locations the impairment will be reassessed.
Share-based compensation
MedAvail has a stock option plan whereby awards are granted to certain employees of MedAvail. The fair value of the stock options granted by MedAvail to employees of MedAvail is recognized as compensation expense on a straight-line basis over the applicable stock option vesting period. MedAvail measures the fair value of the options
using the Black-Scholes option pricing model as of the grant date/measurement date. Shares issued upon the exercise of options are new shares. MedAvail estimates forfeitures based on historical experience and expense related to awards is adjusted over the term of the awards to reflect their probability of vesting. All fully vested awards are fully expensed.
Warrants
MedAvail has issued warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards once issued. Certain obligations to issue warrants as compensation for services may be initially classified as liabilities before the warrants are issued. MedAvail measures the fair value of the awards using the Black-Scholes option pricing model as of the grant date/measurement date. Warrants issued are initially recorded at fair value as a reduction to contributed surplus or as an expense if the warrants are issued to pay for services.
Deferred financing costs
Financing costs incurred to issue debt are capitalized and amortized using the effective interest method until the individual financial liability matures and are included as a component of interest expense in the consolidated statement of loss and comprehensive loss. Financing costs incurred to issue equity are capitalized and netted against the respective class of shares they were incurred to issue.
NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Standards
Leases
In February 2016, the Financial Accounting Standards Board issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). Under ASU 2016-02 (and several subsequent accounting standards updates), lessees are required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for that asset’s lease term. The effective date of the new lease standard (ASC 842) was January 1, 2019, and MedAvail adopted the new standard on that date. MedAvail used the modified retrospective approach, which allowed it to make any necessary transition adjustments at January 1, 2019. MedAvail elected the optional transition method, which allows it to continue to use disclosures required by ASC 840, the prior standard, during 2019. As permitted by the transition method, MedAvail did not reassess existing leases. The most significant impact on MedAvail’s financial statements of adopting the new lease standard was the recognition of right-of-use (ROU) assets and lease liabilities for its operating leases. Upon adoption of the new standard, MedAvail recognized total ROU assets of $1.1 million and total lease liabilities of $1.1 million. MedAvail determined that no transition adjustment to equity was necessary related to implementation of the new lease standard, and adoption of the new standard did not impact its statements of income or cash flows. Because of the limited number of assets MedAvail leases, MedAvail did not need to make systems changes to comply with the new standard and continues to track leased assets outside of its accounting systems. MedAvail implemented additional process controls effective January 1, 2019 to ensure that it properly evaluates its contracts to determine whether they may contain leased assets. MedAvail assessed the impact of the new lease accounting standard on its financial statements to facilitate its adoption of the new standard on January 1, 2019. MedAvail has not noted (nor does MedAvail expect to see) material changes in financial ratios, leasing practices, or tax reporting; however, MedAvail will continue to address potential impacts to its business.
Adoption of the new guidance impacted the balance sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Impact of Implementing the New Standard (ASC 842)
|
|
January 1, 2019
|
|
As Reported
|
|
|
As Adopted
|
Right-of-use assets
|
$
|
—
|
|
|
$
|
1,089
|
|
|
$
|
1,089
|
|
Current portion of lease obligations
|
$
|
—
|
|
|
$
|
262
|
|
|
$
|
262
|
|
Long-term portion of lease obligations
|
$
|
—
|
|
|
$
|
875
|
|
|
$
|
875
|
|
See Note 4, Critical Accounting Policies, for our lease accounting policy and Note 12, Leases, for additional information related to our lease arrangements.
Revenue Recognition
Effective January 1, 2018, MedAvail adopted FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , and ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date, which deferred the effective date of ASU 2014-09 by one year. ASU 2014-09 supersedes the revenue recognition requirements in ASC 605, Revenue Recognition , and is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue, cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. MedAvail adopted ASU 2014-09, using the full retrospective approach on January 1, 2018. The adoption was only applied to contracts not yet completed. The adoption had no material impact on our results of operations, cash flows, or financial position. Revenue continues to be recognized for the MedPlatform System performance obligation over a period of time as each portion of the obligation is fulfilled. MedAvail does not expect to encounter situations where the performance obligation has been fulfilled but there is not an unconditional right to receive consideration, as such no contract asset or liability will be recognized. Additional information and disclosures required by this new standard are contained in Note 4, Critical Accounting Policies.
MedAvail elected to use the following practical expedients in the adoption of ASC 606.
•Incremental costs of obtaining a contract were not capitalized as they would be amortized in less than one year.
•Contracts that began and ended in the same period were not restated.
Adoption of ASC 606 impacted stockholders' deficit at January 1, 2018 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2018
|
|
After Adoption
|
|
Remove Effect of Adoption
|
|
Before Adoption
|
Stockholders' deficit
|
$
|
(82,692)
|
|
|
$
|
(1,812)
|
|
|
$
|
(84,504)
|
|
Adoption of ASC 606 impacted service sales for the year ended December 31, 2018 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
After Adoption
|
|
Remove Effect of Adoption
|
|
Before Adoption
|
Service sales
|
$
|
4,016
|
|
|
$
|
(274)
|
|
|
$
|
3,742
|
|
Adoption of the new guidance impacted the 2018 Consolidated Balance Sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
As Reported
|
|
Remove Effect of Adoption
|
|
Balances Without Adoption of Topic 606
|
Contract liability
|
$
|
5,000
|
|
|
$
|
847
|
|
|
$
|
5,847
|
|
Total current liabilities
|
$
|
7,463
|
|
|
$
|
847
|
|
|
$
|
8,310
|
|
Total liabilities
|
$
|
19,733
|
|
|
$
|
847
|
|
|
$
|
20,580
|
|
Total liabilities, temporary equity and stockholders' deficit
|
$
|
12,784
|
|
|
$
|
847
|
|
|
$
|
13,631
|
|
The following table presents details of the contract liability balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Revenue recognized in 2019
|
|
Additional liability recognized
|
|
December 31, 2019
|
Contract liability
|
$
|
5,000
|
|
|
$
|
(271)
|
|
|
$
|
75
|
|
|
$
|
4,804
|
|
The timing of recognition of revenue for the remaining performance obligations related to contract liability is dependent on direction from the customer, management is unable to determine when MedAvail will be asked to perform the remaining obligations.
Fair Value Measurement Disclosures
In August 2018, the FASB issued ASU 2018-13 related to fair value measurement disclosures. This ASU removes the requirement to disclose the amount of and reasons for transfers between Levels 1 and 2 of the fair value hierarchy, the policy for determining that a transfer has occurred, and valuation processes for Level 3 fair value measurements. Additionally, this ASU modifies the disclosures related to the measurement uncertainty for recurring Level 3 fair value measurements (by removing the requirement to disclose sensitivity to future changes) and the timing of liquidation of investee assets (by removing the timing requirement in certain instances). The guidance also requires new disclosures for Level 3 financial assets and liabilities, including the amount and location of unrealized gains and losses recognized in other comprehensive income/(loss) and additional information related to significant unobservable inputs used in determining Level 3 fair value measurements. This ASU will be effective beginning in the first quarter of our fiscal year 2020. Early adoption of the guidance in whole is permitted. Alternatively, companies may early adopt removed or modified disclosures and delay adoption of the additional disclosures until their effective date. Certain of the amendments in this ASU must be applied prospectively upon adoption, while other amendments must be applied retrospectively upon adoption. There was no material impact to our financial statement disclosures as a result of adopting the provisions related to removing disclosures.
Recently Issued Accounting Standards Not Yet Adopted
Disclosure Requirements for Certain Employer-Sponsored Benefit Plans
In August 2018, the FASB issued ASU 2018-14 related to the disclosure requirements for employers that sponsor defined benefit pension and other postretirement benefit plans. The guidance requires sponsors of these plans to provide additional disclosures, including weighted-average interest rates used in MedAvail’s cash balance plans and a narrative description of reasons for any significant gains or losses impacting the benefit obligation for the period. Additionally, this guidance eliminates certain previous disclosure requirements. This ASU will be effective beginning in the first quarter of our fiscal year 2020. This guidance must be applied on a retrospective basis to all periods presented. MedAvail sponsors a 401k retirement plans for its employees with no company match, but does not currently offer defined benefit pension or other postretirement plans. MedAvail does not expect this guidance to have an effect on its disclosures.
Implementation Costs Incurred in Hosted Cloud Computing Service Arrangements
In August 2018, the FASB issued ASU 2018-15 related to accounting for implementation costs incurred in hosted cloud computing service arrangements. Under the new guidance, implementation costs incurred in a hosting arrangement that is a service contract should be expensed or capitalized based on the nature of the costs and the project stage during which such costs are incurred. If the implementation costs qualify for capitalization, they must be amortized over the term of the hosting arrangement and assessed for impairment. Companies must disclose the nature of any hosted cloud computing service arrangements. This ASU also provides guidance for balance sheet and income statement presentation of capitalized implementation costs and statement of cash flows presentation for the related payments. This ASU will be effective beginning in the first quarter of our fiscal year 2020. This guidance may be adopted either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We will prospectively adopt this guidance and do not expect that it will have a significant impact on our financial statements and related disclosures.
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12 to simplify the accounting in ASC 740, Income Taxes. This guidance removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. This ASU will be effective beginning in the first quarter of our fiscal year 2021. Early adoption is permitted. Certain amendments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption. We are currently evaluating the impact this ASU will have on our financial statements and related disclosures as well as the timing of adoption.
NOTE 6 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares plus the effect of dilutive potential common shares outstanding during the period. A total of 93,818 warrants were included in the weighted average shares outstanding as of their issuance date of May 9, 2018 due to their exercise price. During the year ended December 31, 2019 and 2018, there was no potential dilution due to MedAvail's net loss position. The following table sets forth the computation of basic and diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
Net loss - basic and diluted
|
$(21,533)
|
|
$(17,005)
|
Weighted average shares - basic and diluted
|
1,278,107
|
|
1,330,907
|
Net loss per share - basic and diluted
|
$(16.85)
|
|
$(12.78)
|
For the years ended December 31, 2019 and 2018, there were a weighted average of 1.6 million and 714 thousand option awards outstanding that were not included in the diluted shares calculation because their inclusion would have been antidilutive and/or because there was a net loss for the period.
NOTE 7 - FAIR VALUE MEASUREMENTS
As of December 31, 2019 and 2018, our assets and liabilities that were accounted for at fair value were cash and cash equivalents and restricted cash.
Fair value measurements are categorized in one of the following three levels based on the lowest level input that is significant to the fair value measurement in its entirety:
Level 1- Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2- Observable inputs other than quoted prices in active markets for identical assets or liabilities include:
a.quoted prices for similar assets or liabilities in active markets;
b.quoted prices for identical or similar assets or liabilities in inactive markets;
c.inputs other than quoted prices that are observable for the asset or liability;
d.inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3- Inputs to the valuation methodology are unobservable (i.e., supported by little or no market activity) and significant to the fair value measure.
Assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy
|
|
December 31, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
8,791
|
|
|
$
|
8,791
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
58
|
|
|
58
|
|
|
—
|
|
|
—
|
|
Total assets
|
8,849
|
|
|
8,849
|
|
|
—
|
|
|
—
|
|
Liabilities to issue warrant
|
$
|
448
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy
|
|
December 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
3,767
|
|
|
$
|
3,767
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
44
|
|
|
44
|
|
|
—
|
|
|
—
|
|
Total assets
|
3,811
|
|
|
3,811
|
|
|
—
|
|
|
—
|
|
Liabilities to issue warrant
|
$478
|
|
$—
|
|
$—
|
|
$478
|
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The following table presents details of accounts payable and accrued liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Accounts payable and accrued liabilities:
|
|
|
|
Payroll
|
$
|
1,432
|
|
|
$
|
1,103
|
|
Trade AP
|
647
|
|
|
734
|
|
Accrued liabilities
|
266
|
|
|
626
|
|
Total accounts payable and accrued liabilities
|
$
|
2,345
|
|
|
$
|
2,463
|
|
NOTE 9 - INVENTORY
The following table presents detail of inventory balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Inventory:
|
|
|
|
Raw materials
|
$
|
344
|
|
|
$
|
512
|
|
Work-in-progress
|
—
|
|
|
540
|
|
Finished goods
|
3,739
|
|
|
4,755
|
|
Pharmacy
|
511
|
|
|
215
|
|
Total inventory
|
$
|
4,594
|
|
|
$
|
6,022
|
|
During 2019, MedAvail wrote-off approximately $220 thousand in raw materials inventory due to items deemed scrap at a contract manufacturer.
As of December 31, 2019, MedAvail had no work-in-process as it had no MedCenters under construction.
During the year ended December 31, 2019, $2.6 million of inventory was recognized as pharmacy and hardware cost of sales on the consolidated statement of operations.
NOTE 10 - PROPERTY, PLANT AND EQUIPMENT
MedAvail's principal technology product offering is the MedCenter, an interactive prescription dispensing kiosk unit that, when used in combination with MedAvail's proprietary software, connects customers live with a pharmacist. MedCenter equipment includes all of the necessary hardware and components that are required to be installed at the kiosk site in order to provide a functional MedCenter kiosk.
The following tables present property, plant and equipment balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Cost
|
|
Accumulated Depreciation
|
|
Net
|
Property, plant and equipment:
|
|
|
|
|
|
MedCenter equipment
|
$
|
3,303
|
|
|
$
|
1,139
|
|
|
$
|
2,164
|
|
Leasehold improvements
|
666
|
|
|
444
|
|
|
222
|
|
IT equipment
|
2,151
|
|
|
1,975
|
|
|
176
|
|
Office furniture and equipment
|
282
|
|
|
203
|
|
|
79
|
|
Vehicles
|
54
|
|
|
18
|
|
|
36
|
|
General plant and equipment
|
310
|
|
|
284
|
|
|
26
|
|
Total property, plant and equipment
|
$
|
6,766
|
|
|
$
|
4,063
|
|
|
$
|
2,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Cost
|
|
Accumulated Depreciation
|
|
Net
|
Property, plant and equipment:
|
|
|
|
|
|
MedCenter equipment
|
$
|
1,923
|
|
|
$
|
985
|
|
|
$
|
938
|
|
Leasehold improvements
|
391
|
|
|
297
|
|
|
94
|
|
IT equipment
|
2,040
|
|
|
1,854
|
|
|
186
|
|
Office furniture and equipment
|
283
|
|
|
170
|
|
|
113
|
|
Vehicles
|
28
|
|
|
10
|
|
|
18
|
|
General plant and equipment
|
298
|
|
|
250
|
|
|
48
|
|
Total property, plant and equipment
|
$
|
4,963
|
|
|
$
|
3,566
|
|
|
$
|
1,397
|
|
During the year ended December 31, 2019, there was a transfer of $1.6 million from inventory to property, plant and equipment.
MedAvail recognized $701 thousand of depreciation for the year ended December 31, 2019, $51 thousand of which was depreciation in cost of sales.
NOTE 11 - INTANGIBLE ASSETS
The following tables present intangible asset balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
Additions/Disposals or Write-Offs
|
|
Balance at December 31, 2019
|
Gross intangible assets:
|
|
|
|
|
|
Intellectual property
|
$
|
3,857
|
|
|
$
|
—
|
|
|
$
|
3,857
|
|
Website and mobile application
|
583
|
|
—
|
|
|
583
|
|
Software
|
1,582
|
|
—
|
|
|
1,582
|
|
Goodwill
|
137
|
|
—
|
|
|
137
|
|
Total intangible assets
|
6,159
|
|
|
—
|
|
|
6,159
|
|
Accumulated Amortization:
|
|
|
|
|
|
Intellectual property
|
(3,214)
|
|
|
(643)
|
|
|
(3,857)
|
|
Website and mobile application
|
(297)
|
|
|
(216)
|
|
|
(513)
|
|
Software
|
(1,502)
|
|
|
(80)
|
|
|
(1,582)
|
|
Goodwill write-off
|
—
|
|
|
(137)
|
|
|
(137)
|
|
Total accumulated amortization
|
(5,013)
|
|
|
(1,076)
|
|
|
(6,089)
|
|
Total net book value
|
$
|
1,146
|
|
|
$
|
(1,076)
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
Additions/Disposals or Write-Offs
|
|
Balance at December 31, 2018
|
Gross intangible assets:
|
|
|
|
|
|
Intellectual property
|
$
|
3,857
|
|
|
$
|
—
|
|
|
$
|
3,857
|
|
Website and mobile application
|
293
|
|
|
290
|
|
|
583
|
|
Software
|
1,424
|
|
|
158
|
|
|
1,582
|
|
Goodwill
|
137
|
|
|
—
|
|
|
137
|
|
Total intangible assets
|
5,711
|
|
|
448
|
|
|
6,159
|
|
Accumulated Amortization:
|
|
|
|
|
|
Intellectual property
|
(2,571)
|
|
|
(643)
|
|
|
(3,214)
|
|
Website and mobile application
|
(76)
|
|
|
(221)
|
|
|
(297)
|
|
Software
|
(1,273)
|
|
|
(229)
|
|
|
(1,502)
|
|
Total intangible assets
|
(3,920)
|
|
|
(1,093)
|
|
|
(5,013)
|
|
Net book value
|
$
|
1,791
|
|
|
$
|
(645)
|
|
|
$
|
1,146
|
|
Amortization of intangible assets going forward is as follows:
|
|
|
|
|
|
|
December 31, 2019
|
2020
|
$
|
70
|
|
2021
|
—
|
|
2022
|
—
|
|
2023
|
—
|
|
2024
|
—
|
|
Thereafter
|
—
|
|
Total amortization
|
$
|
70
|
|
NOTE 12 - LEASES
As discussed in Note 5, on January 1, 2019, MedAvail adopted new guidance (ASU 2016-02, and subsequent accounting standards updates) for the accounting and reporting of leases.
MedAvail maintains operating leases primarily for manufacturing facilities, research and development facilities, corporate offices, and certain equipment. Pursuant to the transition guidance in ASC 842, MedAvail elected a package of practical expedients which allowed it to not reassess whether its current contracts contain leases, and to retain historical lease classifications for its current leases.
MedAvail analyzes new contracts to determine whether they include leased assets; such leases are referred to as embedded leases. When evaluating contracts for embedded leases, MedAvail exercises judgment to determine if there is an explicitly or implicitly identified asset in the contract and if MedAvail controls the use of that asset.
MedAvail’s embedded leases, which are primarily associated with contract manufacturing organizations, are not material.
Lease terms include options to extend or terminate leases when it is reasonably certain that MedAvail will exercise those options. Real estate leases for facilities have an average remaining lease term of 2 – 3 years, which include options to extend the leases for up to two years where applicable.
Under ASC 842 transition guidance, MedAvail elected the hindsight practical expedient to determine the lease term for existing leases, which allowed it to consider available information prior to the effective date of the new guidance as to the actual or likely exercise of options to extend or terminate the lease.
MedAvail’s accounting policy deems leases with an initial term of 12 months or less short-term leases; MedAvail currently has no short-term leases, but such leases would not be recorded on its balance sheet. MedAvail recognizes lease expense for short-term lease payments on a straight-line basis over the term of the lease.
Operating lease right-of-use (“ROU”) assets and lease liabilities are recognized based on the present value of lease payments over the lease term. Because most of MedAvail’s leases do not include an implicit discount rate, MedAvail uses its incremental borrowing rate to calculate the present value of lease payments. As a practical expedient, MedAvail made an accounting policy election not to separate lease components (e.g. payments for rent, real estate taxes and insurance costs) from non-lease components (e.g. common-area maintenance costs). As a result, MedAvail includes both lease and non-lease components to calculate the right-of-use asset and related lease liability (if the non-lease components are fixed).
Certain of the MedAvail’s lease agreements contain variable lease payments that are adjusted periodically for inflation or to adjust estimated amounts for actual operating expenses; these variable amounts are not material.
When sublease income is generated for certain properties, MedAvail records our liability separately from those expected inflows. MedAvail’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Operating lease expense was $689 thousand and $487 thousand for the years ended December 31, 2019 and 2018, respectively. Supplemental balance sheet information related to operating leases is as follows:
Balance sheet amounts and maturities of operating leases liabilities are as follows:
|
|
|
|
|
|
|
December 31,
|
|
2019
|
Assets
|
$
|
1,050
|
|
Liabilities:
|
|
Current
|
526
|
|
Long-term
|
565
|
|
Total liabilities
|
$
|
1,091
|
|
Weighted-average remaining lease term (years)
|
2.3
|
Weighted-average discount rate
|
6%
|
Maturities of operating leases liabilities are as follows:
|
|
|
|
|
|
|
December 31, 2019
|
2020
|
$
|
671
|
|
2021
|
478
|
|
2022
|
131
|
|
2023
|
44
|
|
2024
|
—
|
|
Thereafter
|
—
|
|
Total lease payments
|
1,324
|
|
Less: present value discount
|
233
|
|
Total leases
|
$
|
1,091
|
|
|
|
|
|
|
|
|
December 31, 2018
|
2019
|
$
|
489
|
|
2020
|
471
|
|
2021
|
479
|
|
2022
|
388
|
|
2023
|
330
|
|
Thereafter
|
—
|
|
Total lease payments
|
$
|
2,157
|
|
At December 31, 2019, MedAvail determined that two of its operating lease locations were no longer necessary and began to search for sublessees. As a result, MedAvail determined that the ROU Assets related to these two operating leases were impaired. MedAvail recorded a reserve against the ROU Assets in the amount of $41 thousand based upon estimates of future sublease dates and sublease rental rates. Once MedAvail subleases these locations the impairment will be reassessed.
NOTE 13 - LONG-TERM DEBT
The following table presents long-term debt balances at December 31, 2019 and December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Long-term debt:
|
|
|
|
Convertible promissory note
|
$
|
12,476
|
|
|
$
|
11,742
|
|
Less: current portion
|
—
|
|
|
—
|
|
Total long-term debt
|
$
|
12,476
|
|
|
$
|
11,742
|
|
On March 23, 2016, MedAvail and a significant customer and investor entered into a subordinated secured convertible promissory five-year note agreement for $10.0 million. This note is convertible into common shares at the option holder’s request. Additionally, upon a change of control event as defined in the note agreement or upon an Initial Public Offering (“IPO”) as defined under the agreement, the option holder may request conversion of the note into Series D preferred stock at $91.02 per share. Interest of 6% is accumulated and repayable on the maturity date at MedAvail’s option. Unpaid interest is added to the outstanding principal.
Interest expense incurred for the year ended December 31, 2019 and 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
Long-term debt - including accretion
|
$
|
734
|
|
|
$
|
667
|
|
Other interest income
|
(45)
|
|
|
—
|
|
Total interest expense, net
|
$
|
689
|
|
|
$
|
667
|
|
NOTE 14 - OPERATING EXPENSES
Operating expenses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
Operating expenses:
|
|
|
|
Wages and salaries
|
$
|
13,192
|
|
|
$
|
9,482
|
|
Pharmacy operations
|
383
|
|
|
240
|
|
Depreciation of property, plant and equipment
|
650
|
|
|
621
|
|
Research and development
|
287
|
|
|
346
|
|
Amortization of intangible assets
|
941
|
|
|
1,092
|
|
Foreign exchange (gain) loss
|
(33)
|
|
|
202
|
|
Total operating expenses
|
$
|
15,420
|
|
|
$
|
11,983
|
|
NOTE 15 - INCOME TAXES
The provision for income taxes in the consolidated statement of loss and comprehensive loss represents an effective rate different from the US statutory tax rate for the following reasons:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
Loss before income taxes
|
$
|
(21,533)
|
|
|
$
|
(17,005)
|
|
Income tax recovery at statutory rate (21%)
|
(4,522)
|
|
|
(3,571)
|
|
Increase resulting from:
|
|
|
|
Effect of foreign tax rate
|
(669)
|
|
|
(664)
|
|
Unrecognized deferred tax asset
|
4,667
|
|
|
2,989
|
|
Permanent and other differences
|
524
|
|
|
1,246
|
|
Provision for income taxes
|
$
|
—
|
|
|
$
|
—
|
|
The effects of temporary differences that give rise to future income tax assets and future income tax liabilities have been determined as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
Future income tax assets:
|
|
|
|
Non-capital losses
|
$
|
24,618
|
|
|
$
|
21,684
|
|
Undepreciated capital cost (UCC)
|
1,168
|
|
|
1,410
|
|
Other intangible items
|
23
|
|
|
7
|
|
Total future income tax assets
|
25,809
|
|
|
23,101
|
|
Future income tax liabilities:
|
|
|
|
Unrecognized deferred tax asset
|
(25,809)
|
|
|
(23,101)
|
|
Net future income tax asset
|
$
|
—
|
|
|
$
|
—
|
|
MedAvail has approximately $2.2 million of non-capital losses in Canada that can be used to reduce taxable income in future years. These losses will begin to expire in the year 2032. In the United States, MedAvail has approximately $22.3 million of net operating losses that can also be used to reduce taxable income in future years. These losses will begin to expire in the year 2032.
NOTE 16 - COMMITMENTS AND CONTINGENCIES
Legal
There are no known legal claims pending as at the date of the consolidated financial statements.
Purchase Commitments
As of December 31, 2019, MedAvail did not have any minimum purchase commitments that were material to its consolidated financial statements.
Defined Benefit Plans
MedAvail has a 401k plan available to employees, but during 2019 and 2018, had no commitment to make contributions to that plan and had no liability recorded related to the plan.
Vendor Concentration Risk
One of MedAvail’s suppliers accounted for 24% of its purchases in 2019, and a disruption of the relationship could have a significant impact on MedAvail.
NOTE 17 - REDEEMABLE PREFERRED STOCK, DEFICIT AND SHARE-BASED COMPENSATION EXPENSE
Temporary Equity
All MedAvail preferred stock is redeemable at the option of the holder, but not mandatorily redeemable, therefore it is classified as mezzanine equity and recognized at the fair value as of the date of issuance (the proceeds on the date of issuance).
The following table presents changes in preferred shares outstanding for the years ended December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Shares
|
|
Shares
|
|
Amount
|
Balance at December 31, 2017
|
3,337,625
|
|
|
$
|
33,074
|
|
Issued
|
1,628,642
|
|
|
13,716
|
|
Exchange of common shares for preferred shares
|
2,513,595
|
|
|
21,743
|
|
Balance at December 31, 2018
|
7,479,862
|
|
|
68,533
|
|
Issued
|
3,020,578
|
|
|
24,951
|
|
Balance at December 31, 2019
|
10,500,440
|
|
|
$
|
93,484
|
|
MedAvail has 14,539,330 authorized preferred shares, with a normal or par value of $0.001 per share. Pursuant to the terms of the Series E financing agreement, if a shareholder elected to participate in the financing, they were granted a number of conversion shares that were exchanged into the number of shares of such series of preferred stock equal to the number of shares held by such shareholder immediately prior to the common share conversion. Additionally, Series C, Series D and Series E preferred shares are subject to a full-ratchet anti-dilution adjustment until the earlier of the three-year anniversary of the initial Series E issuance date or the first equity financing at a price greater than the Series E original purchase price, with aggregate gross proceeds of greater than $10.0 million. The final closing of the first tranche of the Series E financing round occurred in June 2018, with additional tranches occurring in March, July and December 2019.
The following table presents the amount of preferred shares outstanding by series:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2019
|
|
2018
|
Preferred shares outstanding:
|
|
|
|
Series A
|
1,175,544
|
|
|
1,175,544
|
|
Series B
|
2,222,886
|
|
|
2,222,886
|
|
Series C
|
1,634,249
|
|
|
1,634,249
|
|
Series D
|
502,630
|
|
|
502,630
|
|
Series E
|
4,965,131
|
|
|
1,944,553
|
|
Total preferred shares outstanding
|
10,500,440
|
|
|
7,479,862
|
|
Voting
The holders of the Preferred Stock are entitled to vote, together with the holders of common stock, on certain matters, exclusive of certain protective provisions under the Amended and Restated Certificate of Incorporation (the “Protective Provisions”), submitted to stockholders for a vote. Each preferred stockholder is entitled to the number of votes equal to the number of shares of common stock into which each preferred share is convertible at the time of such vote.
The holders of the Preferred Stock will vote, as a single class on an as converted to common stock basis, separately from the holders of common stock and subject to a 60% affirmative vote, on certain Protective Provisions, including but not limited to: enter into any liquidation event, merger, consolidation or form of reorganization; modify the rights and privileges of the Preferred Stock so as to adversely affect the Preferred Stock; declare or pay any dividend; redeem, repurchase or otherwise acquire shares of common stock; amend the Certificate of Incorporation or By-Laws of the Company; increase the number of authorized shares of Preferred Stock or common stock; and revise the number of members of the of Board of Directors.
Dividends
The holders of Preferred Stock are entitled to receive dividends, when and if declared by the Board of Directors and out of funds legally available. If a dividend is paid on the common shares, preferred shareholders shall be paid the same per-share dividend amount on an as-if-converted to common basis. As of December 31, 2019, MedAvail has not declared or paid any dividends.
The annual dividend rate by series is as follows:
|
|
|
|
|
|
|
|
|
Series A
|
$
|
0.410000
|
|
CAD
|
Series B
|
$
|
0.567800
|
|
CAD
|
Series C
|
$
|
1.355696
|
|
CAD
|
Series D
|
$
|
1.423480
|
|
CAD
|
Series E
|
$
|
0.880000
|
|
CAD
|
Liquidation
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the holders of the Preferred Stock, shall receive a certain amount per share plus all declared but unpaid dividends, payable in preference and priority to any payments made to the holders of the common stock. Holders of preferred shares shall be paid in accordance with the following liquidation preference with each series having the right to be paid before the others. Series E, Series D, Series C, Series B, Series A.
The amount received per share is as follows:
|
|
|
|
|
|
|
|
|
Series A
|
$
|
5.1252
|
|
CAD
|
Series B
|
$
|
7.0970
|
|
CAD
|
Series C
|
$
|
16.9462
|
|
CAD
|
Series D
|
$
|
17.7935
|
|
CAD
|
Series E
|
$
|
11.0000
|
|
CAD
|
If preferred shareholders would have received a greater payment had their shares been converted to common shares prior to the liquidation, they will instead receive that greater amount. All remaining assets will be paid to holders of common shares pro rata based on the number of shares held.
Conversion
Each share of Preferred Stock is convertible at the option of the holders at any time after the date of issuance into a number of shares of common stock as determined by dividing the conversion rate for that series of preferred shares by the conversion price in effect at the time of conversion, adjustable for certain dilutive events. All preferred shares automatically convert into common shares (i) on the closing of an IPO that generates at least $30.0 million CAD (net of underwriting discount and commissions) in proceeds to MedAvail; or (ii) on the election to do so by holders of at least two-thirds of the then outstanding preferred shares, voting on an as-if-converted to common basis. Common stock issued upon conversion are new shares.
Conversion rates are as follows:
|
|
|
|
|
|
|
|
|
Series A
|
$
|
5.1252
|
|
CAD
|
Series B
|
$
|
7.0970
|
|
CAD
|
Series C
|
$
|
11.0000
|
|
CAD
|
Series D
|
$
|
11.0000
|
|
CAD
|
Series E
|
$
|
11.0000
|
|
CAD
|
Redemption
On or after December 19, 2025, on the request of holders of at least 60% of the then outstanding preferred shares, on an as-converted basis, MedAvail shall redeem all preferred shares at the original issue price per share plus all accrued and declared but unpaid dividends. Payment shall be in three equal annual installments. The redemption will be effected in accordance with the liquidation preferences.
Common shares
MedAvail has 24,000,000 authorized common shares, with a nominal or par value of $0.001 per share. In connection with the initial closing of the Series E preferred share financing that occurred on December 20, 2017, each series of MedAvail’s outstanding preferred shares was converted into common shares. MedAvail then effected a 7 to 1 reverse stock split on the common shares.
Additionally, if a shareholder held common shares immediately prior to the conversion, then, for each share of Series E Preferred Stock purchased in the financing, the shareholder could exchange one share of common for two shares of common (i.e., a net gain of one additional common share). All references in the consolidated financial statements to the number of shares outstanding and stock option data of MedAvail’s common stock have been restated to reflect the effect of the reverse stock split for all periods presented.
Liquidation Rights
In the event of any liquidation or dissolution of the Company, the holders of common stock are entitled to the remaining assets of the Company legally available for distribution after the payment of the full liquidation preference for all series of outstanding redeemable convertible preferred stock.
Dividend and Voting Rights
The holders of common stock are entitled to receive dividends if and when declared by the Company, but not until all dividends on redeemable convertible preferred stock have been either (i) paid or (ii) declared and the Company has set aside funds to pay those dividends declared. Holders of common stock have the right to one vote per share.
Share-based compensation
2018 Plan
In September 2018, MedAvail adopted the 2018 MedAvail Equity Incentive Plan (the “2018 Plan”), which provides for the granting of stock options to service providers of MedAvail, Inc. As part of the adoption of the 2018 Plan, MedAvail provided the option for all eligible service providers to exchange their options held under the 2012 MedAvail Stock Option Plan (the “2012 Plan”), as of the exchange date for new options under the 2018 Plan, at an exchange ratio of 1:5. All vesting schedules were maintained on exchange.
A total of 53 eligible service providers participated in the exchange, which resulted in the exchange of 239,181 options under the 2012 Plan for 1,269,180 options under the 2018 Plan. The exchange resulted in $1.0 million of one-time incremental compensation cost for 2018.
2012 Plan
The 2012 MedAvail Stock Option Plan was modified on the date the 2018 Plan was adopted to no longer permit granting of options under the plan. As at December 31, 2019, there are 19,800 options that remained outstanding under this plan. Options granted under the 2012 Plan that were not exchanged to options under the 2018 Plan will remain subject to the terms of the 2012 Plan.
The maximum number of shares of MedAvail to be granted under the 2018 plan is 1,972,530. In accordance with the plan, the exercise price of each option is based on the fair value of MedAvail’s common shares on the date of the grant. An option’s term is determined at the discretion of the Board of Directors, not to exceed ten years. Unless otherwise stated, the consolidated financial statements reflect 1/48 of the option vesting each month over a four-year vesting period.
During 2019, MedAvail granted 376,500 new options to service providers of MedAvail at an exercise price of CA$2.15. The value of these options was established as the fair value of the common shares of MedAvail pursuant to a S.409A valuation performed by Timan, LLC at the request of the Board of Directors. The estimated fair value of the options was determined by the Black-Scholes valuation model.
The key input assumptions that were utilized in the valuation of the stock options granted in the period presented are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Low
|
|
Weighted Average
|
|
High
|
|
Total
|
Awards Granted
|
|
|
|
|
|
|
376,500
|
|
Weighted Average Fair Value of Awards
|
|
|
$1.01 CAD
|
|
|
|
|
Unvested Forfeiture Rate
|
6.00
|
%
|
|
6.00
|
%
|
|
6.00
|
%
|
|
|
Grant Price
|
$2.15 CAD
|
|
$2.15 CAD
|
|
$2.15 CAD
|
|
|
Market Price
|
$2.15 CAD
|
|
$2.15 CAD
|
|
$2.15 CAD
|
|
|
Volatility
|
60
|
%
|
|
60
|
%
|
|
60
|
%
|
|
|
Risk Free Rate
|
1.50
|
%
|
|
1.50
|
%
|
|
1.50
|
%
|
|
|
Dividend Yield
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
|
Expected Life
|
4.00
|
|
4.00
|
|
4.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Low
|
|
Weighted Average
|
|
High
|
|
Total
|
Awards Granted
|
|
|
|
|
|
|
1,639,165
|
|
Weighted Average Fair Value of Awards
|
|
|
$0.98 CAD
|
|
|
|
|
Unvested Forfeiture Rate
|
—
|
%
|
|
3.27
|
%
|
|
6.00
|
%
|
|
|
Grant Price
|
$2.63 CAD
|
|
$2.63 CAD
|
|
$2.63 CAD
|
|
|
Market Price
|
$2.63 CAD
|
|
$2.63 CAD
|
|
$2.63 CAD
|
|
|
Volatility
|
60
|
%
|
|
60
|
%
|
|
60
|
%
|
|
|
Risk Free Rate
|
1.30
|
%
|
|
2.45
|
%
|
|
2.84
|
%
|
|
|
Dividend Yield
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
|
Expected Life
|
1.87
|
|
3.12
|
|
4.60
|
|
|
The following table present MedAvail's outstanding awards activity during the year ended December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Awards
|
|
Weighted Average Exercise Price
|
|
Weighted Average Share Price on Date of Exercise
|
|
Weighted Average Fair Value
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Aggregate Intrinsic Value
|
Outstanding, beginning of period
|
1,651,817
|
|
|
$
|
2.72
|
|
CAD
|
|
|
CAD
|
|
$
|
1.04
|
|
CAD
|
|
|
|
$
|
—
|
|
CAD
|
Granted
|
376,500
|
|
|
$
|
2.15
|
|
CAD
|
|
|
CAD
|
|
$
|
1.01
|
|
CAD
|
|
|
|
$
|
180,720
|
|
CAD
|
Exercised/Released
|
(17,715)
|
|
|
$
|
2.63
|
|
CAD
|
|
$
|
2.63
|
|
CAD
|
|
$
|
1.08
|
|
CAD
|
|
|
|
$
|
—
|
|
CAD
|
Cancelled/Forfeited
|
(77,271)
|
|
|
$
|
2.78
|
|
CAD
|
|
|
CAD
|
|
$
|
1.16
|
|
CAD
|
|
|
|
$
|
—
|
|
CAD
|
Outstanding, end of period
|
1,933,331
|
|
|
$
|
2.61
|
|
CAD
|
|
|
CAD
|
|
$
|
1.03
|
|
CAD
|
|
6.1
|
|
|
$
|
—
|
|
CAD
|
Vested and exercisable, end of the period
|
1,332,218
|
|
|
$
|
2.73
|
|
CAD
|
|
|
CAD
|
|
$
|
1.00
|
|
CAD
|
|
4.7
|
|
|
$
|
—
|
|
CAD
|
Vested and unvested exercisable, end of the period
|
1,332,218
|
|
|
$
|
2.73
|
|
CAD
|
|
|
CAD
|
|
$
|
1.00
|
|
CAD
|
|
4.7
|
|
|
$
|
—
|
|
CAD
|
Vested and expected to vest, end of the period
|
1,878,590
|
|
|
$
|
2.62
|
|
CAD
|
|
|
CAD
|
|
$
|
1.03
|
|
CAD
|
|
6.0
|
|
|
$
|
—
|
|
CAD
|
The following table present MedAvail's unvested awards activity during the year ended December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Awards
|
|
Weighted Average Exercise Price
|
|
Weighted Average Grant Date Fair Value
|
|
Weighted Average Remaining Amortization Period (Years)
|
Unvested outstanding, beginning of period
|
456,251
|
|
|
$
|
2.64
|
|
CAD
|
|
$
|
1.22
|
|
CAD
|
|
|
Granted
|
376,500
|
|
|
$
|
2.15
|
|
CAD
|
|
$
|
1.01
|
|
CAD
|
|
|
Cancelled/Forfeited
|
(32,462)
|
|
|
$
|
2.77
|
|
CAD
|
|
$
|
1.27
|
|
CAD
|
|
|
Vested, outstanding shares
|
(199,176)
|
|
|
$
|
2.58
|
|
CAD
|
|
$
|
1.18
|
|
CAD
|
|
|
Unvested outstanding, end of period
|
601,113
|
|
|
$
|
2.35
|
|
CAD
|
|
$
|
1.09
|
|
CAD
|
|
3.0
|
|
The following table present MedAvail's outstanding awards activity during the year ended December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Awards
|
|
Weighted Average Exercise Price
|
|
Weighted Average Fair Value
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Aggregate Intrinsic Value
|
Outstanding, beginning of period
|
285,512
|
|
|
$
|
19.70
|
|
CAD
|
|
$
|
1.70
|
|
CAD
|
|
|
|
$
|
—
|
|
CAD
|
Granted
|
1,639,165
|
|
|
$
|
2.63
|
|
CAD
|
|
$
|
0.98
|
|
CAD
|
|
|
|
$
|
—
|
|
CAD
|
Cancelled/Forfeited
|
(272,860)
|
|
|
$
|
19.94
|
|
CAD
|
|
$
|
1.34
|
|
CAD
|
|
|
|
$
|
—
|
|
CAD
|
Outstanding, end of period
|
1,651,817
|
|
|
$
|
2.72
|
|
CAD
|
|
$
|
1.04
|
|
CAD
|
|
6.2
|
|
|
$
|
—
|
|
CAD
|
Vested and exercisable, end of the period
|
1,195,566
|
|
|
$
|
2.75
|
|
CAD
|
|
$
|
0.98
|
|
CAD
|
|
5.2
|
|
|
$
|
—
|
|
CAD
|
Vested and unvested exercisable, end of the period
|
1,195,566
|
|
|
$
|
2.75
|
|
CAD
|
|
$
|
0.98
|
|
CAD
|
|
5.2
|
|
|
$
|
—
|
|
CAD
|
Vested and expected to vest, end of the period
|
1,603,265
|
|
|
$
|
2.72
|
|
CAD
|
|
$
|
1.04
|
|
CAD
|
|
6.2
|
|
|
$
|
—
|
|
CAD
|
The following table presents MedAvail's unvested awards activity during the year ended December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Awards
|
|
Weighted Average Exercise Price
|
|
Weighted Average Grant Date Fair Value
|
|
Weighted Average Remaining Amortization Period (Years)
|
Unvested Outstanding, beginning of period
|
67,912
|
|
|
$
|
30.41
|
|
CAD
|
|
$
|
3.43
|
|
CAD
|
|
|
Granted
|
1,639,165
|
|
|
$
|
2.63
|
|
CAD
|
|
$
|
0.98
|
|
CAD
|
|
|
Cancelled/Forfeited
|
(54,331)
|
|
|
$
|
27.05
|
|
CAD
|
|
$
|
3.47
|
|
CAD
|
|
|
Vested, outstanding shares
|
(1,196,495)
|
|
|
$
|
3.09
|
|
CAD
|
|
$
|
0.92
|
|
CAD
|
|
|
Unvested Outstanding, end of period
|
456,251
|
|
|
$
|
2.64
|
|
CAD
|
|
$
|
1.22
|
|
CAD
|
|
3.2
|
|
The following table presents MedAvail's expense related to share-based compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
Share-based compensation
|
$
|
354
|
|
|
$
|
1,362
|
|
Expense remaining to be recognized for unvested awards as of December 31, 2019 was $451 thousand, which will be recognized on a weighted average basis over the next 3 years. The aggregate fair value of options vested during 2019 and 2018 was $182 thousand and $803 thousand, respectively. MedAvail has not recognized an income tax benefit in its income tax provision due to the full reserve against net operating losses and tax assets, see Note 15 for additional details.
Warrants
On March 4, 2019 MedAvail issued a warrant to purchase up to 228,816 common shares. The per share exercise price was set at $11.00 CAD. The warrant expires at the earlier of (i) June 1, 2025, (ii) acquisition, or (iii) initial public offering.
Additionally, during the year, MedAvail issued warrants in relation to participation the Series E financing round. At the end of the year, MedAvail had outstanding the following warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
Warrants
|
|
Exercise price
|
|
Term (years)
|
|
Warrants
|
|
Exercise price
|
|
Term (years)
|
Common
|
93,818
|
|
|
$0.01 CAD
|
|
|
|
93,818
|
|
|
$0.01 CAD
|
|
|
Common
|
228,816
|
|
|
$11.00 CAD
|
|
|
|
|
|
|
|
|
Common
|
206,518
|
|
|
$2.63 CAD
|
|
|
|
|
|
|
|
|
Common
|
95,524
|
|
|
$1.98 USD
|
|
|
|
|
|
|
|
|
Total
|
624,676
|
|
|
$5.29 CAD
|
|
9.283
|
|
93,818
|
|
|
$0.01 CAD
|
|
|
Additionally, MedAvail had agreements with a service provider that would require MedAvail to issue additional warrants if that service provider met its obligations and performance milestones under that agreement. MedAvail had recorded a liability of $385 thousand and $478 thousand as of December 31, 2019 and December 31, 2018, respectively, for the expense related to the expected issuance of the warrants in the future, and adjusted for the changes in fair value of the potential warrants at each reporting period.
NOTE 18 - SEGMENT REPORTING
Operating segments are the individual operations that the CODM reviews for purposes of assessing performance and making resource allocation decisions. The CODM currently receives the monthly management report. Included within this proxy statement/prospectus/information statement are discrete and sufficient financial information to allow the CODM to assess performance, including segment profit for the pharmacy technology and retail pharmacy services operating segments. The pharmacy technology and retail pharmacy services operating segments both engage in different business activities from which they earn revenues and incur expenses.
The Company has the following two reportable segments:
Pharmacy Technology Segment
The pharmacy technology segment consists of sales of MedPlatform Systems to customers. These agreements include providing the MedCenter prescription dispensing kiosk, software, and maintenance services. Agreements can be for a predetermined period of time, or indefinite. This generally includes either an initial lump sum payment upon installation of the MedCenter with monthly payments for software and services following, or monthly payments for the MedCenter along with monthly payments for software and maintenance services. Revenue is recognized for each portion of the single performance obligation when that portion has been completed and the customer is contractually obligated to provide consideration, and in the contractually agreed upon amount.
Retail Pharmacy Services Segment
Retail pharmacy services segment revenue consists of products sold directly to consumers at the point of sale. MedAvail recognizes retail pharmacy sales revenue, net of taxes and expected returns, at the time it sells merchandise or dispenses prescription drugs to the customer. MedAvail estimates revenue based on expected reimbursements from third-party payers (e.g., pharmacy benefit managers, insurance companies and governmental agencies) for dispensing prescription drugs. The estimates are based on all available information including historical experience and are updated to actual reimbursement amounts.
The following table presents revenue and costs of sales by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmacy Technology
|
|
Retail Pharmacy Services
|
|
Total
|
Year Ended December 31, 2019
|
|
|
|
|
|
Sales
|
$
|
544
|
|
|
$
|
3,227
|
|
|
$
|
3,771
|
|
Cost of sales
|
149
|
|
|
2,674
|
|
|
2,823
|
|
Gross profit
|
$
|
395
|
|
|
$
|
553
|
|
|
$
|
948
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
Sales
|
$
|
4,176
|
|
|
$
|
489
|
|
|
$
|
4,665
|
|
Cost of sales
|
1,641
|
|
|
436
|
|
|
2,077
|
|
Gross profit
|
$
|
2,535
|
|
|
$
|
53
|
|
|
$
|
2,588
|
|
For the year ended December 31, 2019 and 2018, MedAvail had one customer that accounted for 10% or more of segment revenues.
The following table presents assets and liabilities by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmacy Technology
|
|
Retail Pharmacy Services
|
|
Total
|
December 31, 2019
|
|
|
|
|
|
Assets
|
$
|
9,122
|
|
|
$
|
8,881
|
|
|
$
|
18,003
|
|
Liabilities
|
$
|
7,174
|
|
|
$
|
13,990
|
|
|
$
|
21,164
|
|
December 31, 2018
|
|
|
|
|
|
Assets
|
$
|
7,697
|
|
|
$
|
5,087
|
|
|
$
|
12,784
|
|
Liabilities
|
$
|
6,968
|
|
|
$
|
12,765
|
|
|
$
|
19,733
|
|
NOTE 19 - SUBSEQUENT EVENTS
Merger Agreement
On June 30, 2020, MYOS RENS Technology Inc., a Nevada corporation (“MYOS”), and MedAvail, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), by and among MYOS, MedAvail, and Matrix Merger Sub, Inc., a newly-created wholly-owned subsidiary of MYOS (“Merger Sub”), pursuant to which, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into MedAvail, with MedAvail being the surviving corporation and a wholly-owned subsidiary of MYOS (the “Merger”). The Boards of Directors of MYOS and MedAvail have both approved the Merger and have recommended approval of the Merger by their respective shareholders.
At the effective time of the Merger (the “Effective Time”): (a) each share of MedAvail’s common stock and each share of MedAvail’s preferred stock outstanding immediately prior to the Effective Time, excluding any dissenting shares, will be automatically converted solely into the right to receive a number of shares of MYOS common stock (“MYOS Common Stock”) calculated according to the exchange ratio described below; (b) each outstanding MedAvail stock option that has not been exercised prior to the Effective Time will be assumed by MYOS; and (c) each outstanding warrant to acquire MedAvail capital stock that has not been exercised prior to the Effective Time will be assumed by MYOS. Under the exchange ratio formula in the Merger Agreement, as of immediately after the Merger, the former MedAvail security holders are expected to own approximately 96.5% of the aggregate number of fully-diluted shares of MYOS Common Stock outstanding following the consummation of the Merger (the “Post-Closing Shares”), and the shareholders of MYOS immediately prior to the Merger are expected to own approximately 3.5% of the Post-Closing Shares, subject to the adjustments set forth in the Merger
Agreement. The exchange ratio will be fixed prior to the closing of the Merger to reflect MYOS’s and MedAvail’s respective capitalizations as of immediately prior to the Effective Time. The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.
Immediately following the Merger, the name of the post-merger combined company (the “Post-Merger Combined Company”) is expected to be changed from “MYOS RENS Technology Inc.” to “MedAvail Holdings, Inc.” The Merger Agreement provides that the Board of Directors of the Post-Merger Combined Company will consist of members who are currently directors of MedAvail. The executive officers of the Post-Merger Combined Company will be designated by MedAvail, with MedAvail’s Chief Executive Officer, Ed Kilroy, expected to be the Post-Merger Combined Company’s Chief Executive Officer and MedAvail’s Chief Financial Officer, Ryan Ferguson, expected to be the Post-Merger Combined Company’s Chief Financial Officer.
Note Offering
On May 26, 2020, MedAvail completed a convertible notes and warrants offering to certain of its existing investors whereby those investors purchased notes and warrants on a pro rata basis with their existing investments in MedAvail's preferred stock. Cash received for the notes and warrants was $7.6 million. The note accrues interest at a rate of 10%, payable at maturity or upon conversion with a maturity date of December 31, 2020. Additional financing under the agreement was received June through August 2020, totaling $581 thousand.
The notes will convert upon the first of one of the following:
•Pre-Closing (Private Placement) Financing - the outstanding principal and accrued interest on the Notes will automatically convert into such security(ies) as are issued and sold to the cash investors in such Pre-Closing (Private Placement) financing at a conversion price per share equal to the price per share at which such security(ies) are sold to the cash purchasers thereof in such Pre-Closing (Private Placement) financing.
•Underwritten IPO - the Notes will automatically convert into shares of common stock at a conversion price per share equal to the price per share at which such security(ies) are offered to the public in such IPO.
•Change in Control Event - the outstanding principal and accrued interest on the Notes will automatically convert into the right to receive: (x) cash in an amount equal to (i) two multiplied by (ii) the amount of such outstanding principal and accrued interest on the Notes, upon consummation of the Change in Control Event; or (y) the transaction consideration received by the Company’s Series E Preferred stockholders as-if the Notes had been converted into Series E Preferred Stock at a conversion price per share equal to US$8.27.
•Qualified Financing - If the Company consummates the issuance and sale of a new series of Preferred Stock in connection with a bona fide equity financing, with aggregate cash proceeds to the Company of at least $15.0 million (but excluding the conversion of the Notes), then the outstanding principal and accrued interest on the Notes will automatically convert into such security(ies) as are issued and sold to the cash investors in such financing at a conversion price per share equal to the price per share at which such security(ies) are sold to the cash purchasers thereof.
•Non-Qualified Financing - If the Company consummates the issuance and sale of a new series of Preferred Stock in connection with a bona fide equity financing, with aggregate cash proceeds to the Company of less than $15.0 million (but excluding the conversion of the Notes), then, at the election of the Requisite Holders, the outstanding principal and accrued interest on the Notes will convert into such security(ies) as
are issued and sold to the cash investors in such financing at a conversion price per share equal to the price per share at which such security(ies) are sold to the cash purchasers thereof.
•Maturity Date - the outstanding principal and accrued interest on the Notes will automatically convert into shares of the Company’s Series E Preferred Stock at a conversion price per share equal to US$8.27.
Concurrently with its Note investment, each holder of a Note received a warrant to purchase a number of shares of Common Stock equal to 10% of the original principal amount of such holder’s Note divided by US$8.27. There were 91,551 warrants issued under this offering under the initial round, with an exercise price of $1.98 and an expiration date of May 26, 2030. There were an additional 2,183 warrants issued under this offering after the initial round, with an exercise price of $1.98 and an expiration date in June 2030.
PPP Loan
On May 14, 2020, MedAvail entered into a Promissory Note with HSBC Bank, which provides for a loan in the amount of $341 thousand (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The Promissory Note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses, including certain payroll costs, group health care benefits and other permitted expenses as described in the CARES Act. MedAvail intends to use the entire PPP Loan amount for qualifying expenses and to apply for forgiveness of the loan in accordance with the terms of the CARES Act. Management has determined that it is likely that MedAvail will meet the qualifications necessary for forgiveness.
Series E Stock issue
During February 2020, MedAvail issued 102,777 Series E Preferred Shares to certain existing investors who purchased these shares. Additionally, these parties received a total of 10,278 warrants to purchase MedAvail common shares.
Customer Agreement
During September 2020, MedAvail and its significant customer agreed that MedAvail had no further obligation to the customer and therefore would have no additional deliverables related to the $4.8 million of contract liability balance maintained as of June 30, 2020. MedAvail anticipates reversing the contract liability and recognizing $4.8 million of contract revenue during the three months ended September 30, 2020.
S-4 Filing
On September 2, 2020, in connection with the Merger transaction, MYOS filed a registration form S-4.
MedAvail and MYOS RENS Technology Announce Closing of Business Combination
MedAvail, Inc. Set to Trade on NASDAQ Under Ticker Symbol “MDVL”
MISSISSAUGA, Ontario and CEDAR KNOLLS, N.J. – November 18, 2020 – MedAvail, Inc. (“MedAvail”), a leading technology-enabled pharmacy organization that embeds pharmacy services directly into clinics and other points of care through its proprietary technology, announced the completion of its previously announced business combination with MYOS RENS Technology, Inc. (NASDAQ: MYOS), an advanced nutrition company and the owner of Fortetropin®, a proprietary bioactive composition that helps build lean muscle. The combined company will focus on the MedAvail business and its shares will trade on the Nasdaq Capital Market under the new trading symbol "MDVL." The current MYOS RENS muscle health business will be spun off as a private unaffiliated company.
MedAvail will be led by its current experienced executive team with Ed Kilroy as CEO.
“We are excited to partner with our private placement investors as we continue to execute on MedAvail’s growth plan as a public company,” said Mr. Kilroy. “We believe MedAvail is uniquely positioned in the healthcare value chain. Our experience to date has demonstrated that by embedding pharmacy at these points of care we can positively impact medication adherence and deliver superior customer satisfaction. Our presence in each clinic drives our customer acquisition, allowing us to build a substantial pharmacy business in each clinic we deploy. We also provide our customers free home courier delivery. Currently we are deployed in Arizona and California with plans to open new care settings in Michigan, Florida, Illinois and Texas in the future.
MedAvail currently deploys its proprietary MedCenter solution through two distinct commercialization channels: its SpotRx full-service retail pharmacy platform in the United States, which has over 40 clinics deployed across Arizona and California, and its technologies channel which sells its MedCenter kiosk and licenses its software to large retailers and health systems.
Cowen served as financial and capital markets advisor to MedAvail, and Lake Street Capital Markets acted as a placement agent on the private offering. Wilson Sonsini Goodrich & Rosati, PC served as legal counsel to MedAvail. H.C. Wainwright & Co. served as financial advisor to MYOS RENS, and Hiller, PC and Ellenoff Grossman & Schole LLP served as legal counsel to MYOS RENS.
About MedAvail
MedAvail is a technology-enabled pharmacy organization, providing turnkey in-clinic pharmacy services through its proprietary robotic dispensing platform, the MedAvail MedCenter, and home delivery operations, to Medicare clinics. MedAvail helps patients to optimize drug adherence, resulting in better health outcomes. Learn more at www.medavail.com.
About MYOS RENS Technology
MYOS RENS Technology Inc., "The Muscle Company®", is a Cedar Knolls, NJ-based advanced nutrition company that develops and markets products that improve muscle health and performance. MYOS is the owner of Fortetropin®, a fertilized egg yolk-based product manufactured via a proprietary process to retain and optimize its biological activity. Fortetropin has been clinically shown to increase muscle size, lean body mass and reduce muscle atrophy. MYOS believes Fortetropin has the potential to redefine existing standards of physical health and wellness and produces muscle health support products featuring Fortetropin under the names of Yolked®, Physician Muscle Health Formula®, MYOS Canine Muscle Formula®, (Regular & Vet Strength) and Qurr®. For more information, please visit www.myosrens.com.
Forward Looking Statements
Certain statements included in this press release that are not historical facts are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by words such as "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "should," "would," "plan," "predict," "potential," "seem," "seek," "future," "outlook," and similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, statements regarding the company's expected uses of proceeds from the business combination; potential future revenue and expansion plans; and market opportunity. These statements are based on various assumptions, whether or not identified in this press release, and on the current expectations of MedAvail's management and are not predictions of actual performance. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements, including but not limited to general economic, financial, legal, political and business conditions and changes in domestic and foreign markets; the potential effects of COVID-19; the outcome of judicial proceedings to which MedAvail is, or may become a party; changes in competitive conditions prevailing in the healthcare sector; the availability of capital; and the other risks discussed under the heading "Risk Factors" in a Registration Statement on Form S-4 (“Form S-4”), which was declared effective by the SEC on October 15, 2020, and other documents MedAvail files with the SEC in the future. If any of these risks materialize or our assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. These forward-looking statements speak only as of the date hereof and MedAvail specifically disclaims any obligation to update these forward-looking statements.
Contacts:
Investor Relations
Caroline Paul
Gilmartin Group
ir@medavail.com
SOURCE MedAvail Inc.
MEDAVAIL MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of MedAvail’s financial condition and results of operations together with the section entitled “Selected Historical and Unaudited Pro Forma Condensed Combined Financial Data — Selected Historical Consolidated Financial Data of MedAvail” and MedAvail’s consolidated financial statements and related notes included elsewhere in this proxy statement/prospectus/information statement. This discussion and other parts of this proxy statement/prospectus/information statement contain forward-looking statements that involve risks and uncertainties, such as its plans, objectives, expectations, intentions and beliefs. MedAvail’s actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors Related to MedAvail” included elsewhere in this proxy statement/prospectus/information statement.
Overview
Business Overview
MedAvail is a telehealth-enabled pharmacy-technology company that is transforming full-service pharmacy. Through its full-stack pharmacy technology platform, and personal one-on-one service, MedAvail brings pharmacy-dispensing capability to the point of care, resulting in lower costs, higher patient satisfaction, improved medication adherence and better health outcomes.
MedAvail offers a unique, pharmacy technology solution which is anchored around its core technology called the MedAvail MedCenter™ (“The MedCenter”). The MedCenter enables on-site pharmacy in medical clinics, retail store locations, employer sites with and without onsite clinics, and any other location where onsite prescription dispensing is desired. The MedCenter establishes a live audio-visual connection to a live pharmacist enabling prescription drug dispensing to occur directly to a patient while still providing real-time supervision by a pharmacist. Although its technology platform has broad application, MedAvail is currently focused on serving high-value Medicare members in the United States of America (“U.S.”). MedAvail was originally incorporated in 2012, under the name DashRx, Inc.
MedAvail currently deploys its MedCenter solution through two distinct commercialization channels. First, MedAvail owns and operates a full retail pharmacy business in the U.S., under the name SpotRx. The SpotRx™ Pharmacy business is structured as a hub-and-spoke model where a central pharmacy supports and operates various MedCenter kiosks embedded in medical clinics, usually in close proximity to the central pharmacy. Its second commercialization channel is a direct ‘sell-to’ model, whereby MedAvail sells its MedCenter Platform technology directly to large healthcare providers and retailers for use within their own pharmacy operations.
The MedCenter kiosk works in tandem with our Remote Dispensing System®, which consists of customer-facing software for remote ordering of medications for pick-up at a MedCenter or free, next day home delivery. Supporting its MedCenter kiosks and Remote Dispensing System are MedAvail’s back-end MedPlatform® Enterprise Software, which controls dispensing and MedCenter monitoring and its supporting Pharmacy Management System software, which allows connection to MedAvail’s supporting team of pharmacists and kiosk administrators.
MedCenter kiosks come in two models: the M4 MedCenter and the M5 MedCenter. The M4 MedCenter kiosk is designed to fit in waiting rooms, hallways, and lobbies. The M5 MedCenter is a larger kiosk designed as a full
pharmacy replacement with the ability to serve 3-4 customers simultaneously, it can also to be configured for drive through dispensing, similar to a bank’s ATM drive through lanes.
Traditional retail pharmacies are built around a physical store front. In order to dispense medication, these stores must have a pharmacist onsite for all hours of operation. Most pharmacies have reduced hours of operation based on customer purchasing patterns in order to contain labor cost, which results in further reduced consumer access. Furthermore, retail pharmacy wait times are typically 30 to 60 minutes or more, causing substantial delays for the consumer. During the COVID-19 pandemic, most people are looking to minimize the amount of physical contact that can lead to further disease contraction, especially for those most vulnerable, such as the elderly or those with compromised immune systems. Consequently, some patients are foregoing filling their prescribed medications, leading to declining health, increased healthcare costs and increased morbidity.
On June 30, 2020, MYOS RENS Technology Inc., a Nevada corporation (“MYOS”), and MedAvail, entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), by and among MYOS, MedAvail, and Matrix Merger Sub, Inc., a newly-created wholly-owned subsidiary of MYOS (“Merger Sub”), pursuant to which, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into MedAvail, with MedAvail being the surviving corporation and a wholly-owned subsidiary of MYOS (the “Merger”). The Boards of Directors of MYOS and MedAvail have both approved the Merger and have recommended approval of the Merger by their respective shareholders.
At the effective time of the Merger (the “Effective Time”): (a) each share of MedAvail’s common stock and each share of MedAvail’s preferred stock outstanding immediately prior to the Effective Time, excluding any dissenting shares, will be automatically converted solely into the right to receive a number of shares of MYOS common stock (“MYOS Common Stock”) calculated according to the exchange ratio described below; (b) each outstanding MedAvail stock option that has not been exercised prior to the Effective Time will be assumed by MYOS subject to the exchange ratio; and (c) each outstanding warrant to acquire MedAvail capital stock that has not been exercised prior to the Effective Time will be assumed by MYOS subject to the exchange ratio. Under the exchange ratio formula in the Merger Agreement, as of immediately after the Merger, the former MedAvail security holders are expected to own approximately 96.5% of the aggregate number of fully-diluted shares of MYOS Common Stock outstanding following the consummation of the Merger (the “Post-Closing Shares”), and the shareholders of MYOS immediately prior to the Merger are expected to own approximately 3.5% of the Post-Closing Shares, subject to the adjustments set forth in the Merger Agreement. The exchange ratio will be fixed prior to the closing of the Merger to reflect MYOS’s and MedAvail’s respective capitalizations as of immediately prior to the Effective Time. The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.
Immediately following the Merger, the name of the Post-Merger Public Company is expected to be changed from “MYOS RENS Technology Inc.” to “MedAvail Holdings, Inc.” The Merger Agreement provides that the board of directors of the Post-Merger Public Company will consist of members who are currently directors of MedAvail. The executive officers of the Post-Merger Public Company will be designated by MedAvail, with MedAvail’s Chief Executive Officer, Ed Kilroy, expected to be the Post-Merger Public Company’s Chief Executive Officer and MedAvail’s Chief Financial Officer, Ryan Ferguson, expected to be the Post-Merger Public Company’s Chief Financial Officer.
Outlook
Medicare insurance plans and healthcare providers are increasingly operating under an ‘at-risk’ model, with reimbursement based on health outcomes and not based on a traditional fee-for-service model. The at-risk model is
driving Medicare to focus on providing an increasing number of services to their members which can positively impact the health outcomes of these members. Such services include:
•Free rides from patient’s home to doctor visits
•Gymnasium memberships
•In-home visits
•Onsite vision and dental
•Onsite pharmacy services
It is well documented that medication adherence has a leading impact on health outcomes. As a result, our strategy is to embed a pharmacy into clinics via our MedCenter technology. An onsite presence can allow us to:
•Provide first-fill and refill dispensing onsite for patients
•Acquire new patients as customers
•Integrate ourselves into the clinic processes and become part of the onsite care team
•Offer free next day courier delivery of medication to Medicare patients
•Share real-time data with health care providers regarding patients that may be at risk of being non-adherent and therefore at-risk of lower health outcomes.
•The Medicare market in the US is extremely large, is growing, and has the highest value patients in the industry. MedAvail’s addressable market size for its current initial target markets – six US States (AZ, CA, FL, IL, TX, and MI) exceeds $16 billion and is forecast to continue to grow. MedAvail added Texas and Michigan to its target state markets in 2020 based on demand from Medicare providers as well as due to changing pharmacy regulations with the states.
MedAvail’s strategy for the Medicare market is as follows:
•Identify, screen and contract with the Medicare clinic chains to deploy MedCenters onsite.
•Deploy MedCenters and onsite Customer Account Managers (CAMs).
•Acquire and retain high value Medicare patients as customers.
•Deploy a high touch customer service model with patients via our onsite presence, free home delivery, refill reminders and follow up calls while achieving high patient satisfaction.
•Ramp to target revenues of approximately $1 million per year at each clinic within 12 months of deployment.
•Generate greater medication adherence metrics, which may drive higher reimbursement rates to clinics from insurers and improve health outcomes for patients.
MedAvail’s primary business model is to generate revenue on the sale of medication to high value Medicare patients. Currently, MedAvail operates in Arizona, California and is targeting to open in Michigan by 4Q 2020. MedAvail has 16 MedCenters deployed in Medicare-focused sites in Arizona and plans to deploy approximately 60-70 MedCenters by YE 2020 within Arizona, California and Michigan.
Components of Operating Results
MedAvail’s fiscal year ends on December 31, and its fiscal quarters end on the last day of each third calendar month. The years ended December 31, 2019 and December 31, 2018 are referred to as 2019 and 2018 throughout the document where referencing MedAvail.
MedAvail has never been profitable and has incurred operating losses in each year since inception. MedAvail’s net losses were $17.0 million, $21.5 million and $12.0 million for the years ended December 31, 2018 and 2019 and for the six months ended June 30, 2020, respectively. As of June 30, 2020, MedAvail had an accumulated deficit of $133.3 million. Substantially all of MedAvail’s operating losses resulted from expenses incurred in connection with its research and development programs and from general and administrative costs associated with its operations.
MedAvail expects to incur significant additional expenses and operating losses for at least the next two years as it initiates and continues the technology development, deployment of its MedCenter technology and adds personnel necessary to operate as a public company with a rapidly growing retail pharmacy operations in the United States. In addition, operating as a publicly traded company would involve the hiring of additional financial and other personnel, upgrading its financial information systems and incurring costs associated with operating as a public company. MedAvail expects that its operating losses will lessen and turn positive as MedAvail executes its growth strategies within each of its operating segments. If MedAvail management determines to accelerate deployment into new states, operating losses could increase in the near-term, as the company grows and scales its operations in the new states and MedAvail would expect operating performance to turn positive once each state reaches sufficient scale in sales volume.
As of June 30, 2020, MedAvail had cash of $7.3 million. MedAvail will continue to require additional capital to continue its technology development and commercialization activities and build out of its pharmacy operations to serve its growing customer base. Accordingly, MedAvail is pursuing a sale of additional equity through the Private Placement funding, where MedAvail expects to raise approximately $84,000,000, with closing expected to take place a few days prior to the Merger closing. Although MedAvail believes the proceeds from the Private Placement represents sufficient funding to execute its current growth plan, due to market risks (as outlined in the “Risk Factors section of this S-4 registration statement), MedAvail may need to raise additional capital to continue to fund its operations. The amount and timing of its future funding requirements will depend on many factors, including the pace and results of its growth strategy. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on its financial condition and its ability to develop its product candidates.
MedAvail has two reportable segments: Pharmacy Technology and Retail Pharmacy Services. These reportable segments are generally defined by how MedAvail executes its go-to-market strategy to sell products and services.
Overview of Pharmacy Technology Segment
MedAvail Technologies develops and commercializes the MedCenter for direct sale or lease to third-party customers, including some of the world’s largest healthcare providers and systems, as well as large retail chains that provide full retail-pharmacy services based on its technology.
Overview of Retail Pharmacy Services Segment
The second operating segment operates as SpotRx (the “Pharmacy”), a full-service retail pharmacy utilizing MedAvail’s automated pharmacy technology, primarily servicing Medicare patients in the United States.
Revenue – Pharmacy Technology and Retail Pharmacy Services
Pharmacy Technology Revenue
Pharmacy technology revenue refers to revenue derived from either the sales of the MedCenter to customers that intend to operate the MedCenter as a part of their retail offering or where the MedCenter is leased as part of a service offering where MedAvail retains ownership of the hardware. In both instances, MedAvail provides operating software for the MedCenter, ongoing maintenance, and in some cases, supplies such as packaging materials. Timing of revenue for each component varies based on the terms of the agreement with the customer, but is generally recognized as follows:
Hardware revenue from the sale of manufactured products is recognized when the price is fixed or determinable, collectability is reasonably assured and on shipment to (or receipt by) customers, (depending on contractual terms) and acceptance by customers.
Revenue from software development projects is recognized as project develop milestones are met. Revenue from term (recurring license charge) license software is recognized on a subscription basis over the period the client is entitled to use the license.
Revenue from maintenance, unspecified upgrades on a when-and-if-available basis and technical support is recognized on a straight-line basis over the period such items are delivered. In multiple-element revenue arrangements that include software that is more than incidental to the products or services as a whole (software multiple-element arrangements), software and software-related elements are accounted for in accordance with the following criteria. Software-related elements include software products and services, as well as any non-software deliverable for which a software deliverable is essential to its functionality.
A software multiple-element arrangement is separated into more than one unit of accounting if all of the following criteria are met:
1.the functionality of the delivered element(s) is not dependent on the undelivered element(s);
2.there is objective evidence of fair value of the undelivered element(s); evidence of fair value is based on the price charged when the deliverable is sold separately by the Company on a regular basis and not as part of the multiple-element arrangement; and
3.delivery of the delivered element(s) represents the culmination of the earnings process for that element(s).
If any one of these criteria is not met, the arrangement is accounted for as one unit of accounting, which would result in revenue being recognized on a straight-line basis or being deferred until the earlier of when such criteria are met or when the last undelivered element is delivered.
Retail Pharmacy Services Revenue
Retail pharmacy services revenue is revenue derived from sales of prescription medications and over-the-counter products to consumers. Medications are sold and delivered by various methods including dispensing product directly from the MedCenter, customer pick up at MedAvail’s SpotRx pharmacy locations or home delivery of medications to consumer residences. Retail pharmacy services revenue is recognized at the time that the product has been provided to the customer, no other significant obligations of MedAvail exist, and collectability is reasonably assured.
Cost of Sales – Pharmacy Technology and Retail Pharmacy Services
Pharmacy Technology Cost of Sales
Cost of sales for the Pharmacy Technology segment consists primarily of costs incurred to manufacture, ship and install MedCenters at third-party customer locations that use our MedCenters to enable their pharmacy operations and services. Cost of Sales are accrued and then recognized, in accordance with US GAAP, when contractual terms are met, and delivery and payment are complete.
Retail Pharmacy Services Cost of Sales
Cost of sales for MedAvail’s Retail Pharmacy Services segment consists primarily of costs to procure and deliver prescription medications and other over-the-counter health products to customers via dispensing through SpotRx MedCenters, pickup at one of its pharmacy locations or courier-delivery directly to the consumer’s home. Cost of Sales for Pharmacy Services are recognized at the point of sale, when price is fixed, and product is dispensed.
Operating Expenses
Operating expenses are primarily derived from personnel and operating costs related to technology development, sales and marketing, and general and administrative activities, described as follows:
Wages and salaries consist of compensation costs incurred for all employees and contractors including bonuses, health plans, severance, and contractor costs.
Pharmacy operations costs consist of costs incurred to operate retail pharmacies including pharmacy labor costs, rent and utilities, and pharmacy license fees.
Depreciation of property, plant and equipment includes depreciation on MedCenters, IT equipment, leasehold improvements, general plant and equipment, office furniture and equipment and vehicles.
Research and development expenses represent costs incurred to develop and innovate on MedAvail’s MedCenter platform technology, including development work on hardware, software and supporting information technology infrastructure.
MedAvail recognizes hardware development costs as they are incurred. When hardware is constructed for use by customers, in-production costs are capitalized after technological feasibility is achieved and expensed before technological feasibility is achieved. Costs of hardware completed but not yet placed in service are capitalized as equipment (a long-lived asset) on the balance sheet. Costs of hardware completed and placed in service with customers are capitalized as equipment and depreciated (expensed) over the estimated useful life of the equipment.
When hardware is constructed for sale to customers, in production costs are capitalized as raw materials, work in process, or finished goods inventory on the balance sheet. Costs of hardware completed and available for sale are capitalized as finished goods inventory on the balance sheet. Costs of hardware sold to customers are expensed as costs of goods sold.
Software development costs are accrued and expensed based on ASC 985, which is designed for software costs that MedAvail intends to sell or lease (in conjunction with related hardware). Any software development costs that are incurred prior to the point where the project has demonstrated technological feasibility are expensed as they are incurred. Once technological feasibility has been established, most development costs are capitalized. Once development is complete and the software is made available for release to customers, capitalization no longer is
appropriate because any remaining costs are considered ongoing maintenance and support. These are expensed as they are incurred. The definition of “technological feasibility”, per ASC 985, is “the technological feasibility of a computer software product is established when the entity has completed all planning, designing, coding, and testing activities that are necessary to establish that the product can be produced to meet its design specifications including functions, features, and technical performance requirements.” Software development costs are subject to these rules regardless of whether the costs were generated internally (employee time) or externally (vendor fees).
Amortization of intangible assets consists of amortization of intellectual property, website and mobile applications and software.
Selling, general and administrative expenses
Selling, general and administrative expenses consist of marketing and advertising costs, personnel costs, facility expenses and expenses for outside professional services, including legal, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation. Facility expenses consist of rent and other related costs. General and administrative costs also include depreciation expense and other supplies. MedAvail expects to incur additional expenses as a result of becoming a public company following completion of the Merger, including expenses related to compliance with the rules and regulations of the SEC and Nasdaq, additional insurance, investor relations and other administrative expenses and professional services.
Merger expenses
Merger expenses primarily consist of professional service fees associated with the preparation for the Merger transaction, including legal, audit and other compliance related services.
Share-based compensation
MedAvail has a stock option plan whereby awards are granted to certain employees of MedAvail. The fair value of the stock options granted by MedAvail to employees of MedAvail is recognized as compensation expense on a straight-line basis over the applicable stock option vesting period. MedAvail measures the fair value of the options using the Black-Scholes option pricing model as of the grant date/measurement date. Shares issued upon the exercise of options are new shares. MedAvail estimates forfeitures based on historical experience and expense related to awards is adjusted over the term of the awards to reflect their probability of vesting. All fully vested awards are fully expensed.
Interest Expense
Interest expense consists of accrued interest on outstanding debt and is payable upon the maturity date. For more detail on outstanding debt and associated maturities, see Note 13 to the MedAvail Annual Financial Statements presented elsewhere in this proxy statement/ prospectus/ information statement.
Results of Operations
The following table summarizes our statement of operations data for the three months ended June 30, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2020 vs. 2019
|
|
2020
|
|
2019
|
|
Amount Change
|
|
% Change
|
Sales:
|
(in thousands)
|
Pharmacy technology
|
$
|
598
|
|
$
|
161
|
|
$
|
437
|
|
|
271
|
%
|
% of total sales
|
25
|
%
|
|
20
|
%
|
|
|
|
|
Retail pharmacy services
|
1,816
|
|
655
|
|
1,161
|
|
|
177
|
%
|
% of total sales
|
75%
|
|
80%
|
|
|
|
|
Total sales
|
2,414
|
|
816
|
|
1,598
|
|
|
196
|
%
|
Cost of sales:
|
|
|
|
|
|
|
|
Pharmacy technology
|
186
|
|
20
|
|
166
|
|
830
|
%
|
% of total sales
|
8
|
%
|
|
2
|
%
|
|
|
|
|
Retail pharmacy services
|
1,679
|
|
522
|
|
1,157
|
|
|
222
|
%
|
% of total sales
|
70
|
%
|
|
64
|
%
|
|
|
|
|
Total cost of sales
|
1,865
|
|
542
|
|
1,323
|
|
|
244
|
%
|
Gross profit
|
549
|
|
274
|
|
275
|
|
|
100
|
%
|
% of total sales
|
23
|
%
|
|
34
|
%
|
|
|
|
|
Operating expenses
|
4,181
|
|
3,496
|
|
685
|
|
20
|
%
|
% of total sales
|
173
|
%
|
|
428
|
%
|
|
|
|
|
Selling, general and administrative expenses
|
1,162
|
|
1,481
|
|
(319)
|
|
(22)
|
%
|
% of total sales
|
48
|
%
|
|
181
|
%
|
|
|
|
|
Merger expenses
|
1,283
|
|
—
|
|
1,283
|
|
—
|
%
|
% of total sales
|
53
|
%
|
|
—
|
%
|
|
|
|
|
Share-based compensation
|
86
|
|
90
|
|
(4)
|
|
(4)
|
%
|
% of total sales
|
4
|
%
|
|
11
|
%
|
|
|
|
|
Operating loss
|
(6,163)
|
|
(4,793)
|
|
(1,370)
|
|
29
|
%
|
% of total sales
|
(255)
|
%
|
|
(587)
|
%
|
|
|
|
|
Interest expense - net
|
270
|
|
191
|
|
79
|
|
41
|
%
|
% of total sales
|
11
|
%
|
|
23
|
%
|
|
|
|
|
Net loss
|
$
|
(6,433)
|
|
$
|
(4,984)
|
|
$
|
(1,449)
|
|
29
|
%
|
% of total sales
|
(266)
|
%
|
|
(611)
|
%
|
|
|
|
|
Revenue
During the three months ended June 30, 2020, pharmacy technology sales increased $437 thousand to $598 thousand, or 271%, when compared to the same period in 2019. The increase was due to seven MedCenters sold to a third-party customer in the second quarter of 2020 and an increase in rental revenue associated with growth in the number of companies evaluating our MedCenter technology through pilot deployments. This increase was partially offset by a reduction in revenue recognized for software integration services completed in 2019, of approximately $94 thousand.
During the three months ended June 30, 2020, retail pharmacy services sales increased $1.2 million to $1.8 million, or 177%, when compared to the same period in 2019. The increase was due to volume growth in
prescription sales at existing sites launched in 2019 and the new sales volume from the additional 19 site launches in 2020, net of adjustments related to Direct and Indirect Remuneration and services fees.
Costs of Sales
During the three months ended June 30, 2020, pharmacy technology cost of sales increased $166 thousand to $186 thousand compared to the same period in 2019. The increase was due primarily to costs from seven MedCenters sold in the second quarter of 2020 and an increase in depreciation associated with growth in the number of pilot deployments with companies evaluating our MedCenter technology. The average unit cost of the seven MedCenters sold was significantly lower than the cost of a newly manufactured MedCenter, as these units were buy-back units from a prior customer.
During the three months ended June 30, 2020, retail pharmacy services cost of sales increased $1.2 million to $1.7 million compared to the same period in 2019. The increase was due primarily to costs associated with volume growth in prescription sales. Additionally, cost of pharmacy sales in the quarter increased due to higher inventory write downs associated with obsolescence. Lastly, in response to the spread of COVID-19, most of the clinic locations MedAvail operates in were temporarily closed to prevent the transmission of COVID-19. Consequently, the mix of medications that were delivered via courier to patents’ homes increased, resulting in higher delivery costs when compared the second quarter of 2019.
Other expenses
During the three months ended June 30, 2020, operating expenses increased $685 thousand to $4.2 million compared to the same period in 2019. The increase was primarily due to an increase in wages and salaries as MedAvail hired additional personnel necessary to support growth in Arizona and the launch of operations in California.
During the three months ended June 30, 2020, selling, general and administrative expenses decreased $319 thousand to $1.2 million compared to the same period in 2019. This was primarily due to a decrease in marketing expenses in 2020, as MedAvail completed various marketing program tests in 2019 and closed down pharmacy operations in Canada.
During the three months ended June 30, 2020, merger expenses increased $1.3 million to $1.3 million compared to the same period in 2019. The increase was primarily due to professional services expenses incurred in 2020 related to the Merger transaction and anticipated listing on the Nasdaq Capital Market exchange.
During the three months ended June 30, 2020, share-based compensation decreased $4 thousand to $86 thousand compared to the same period in 2019. This was due to fewer options granted to employees.
During the three months ended June 30, 2020, interest expense increased $79 thousand to $270 thousand compared to the same period in 2019. The increase was due to additional short-term debt being issued in the quarter. On May 26, 2020, MedAvail completed a convertible notes and warrants offering to certain of its existing investors whereby those investors purchased notes and warrants on a pro rata basis with their existing investments in MedAvail's preferred stock. Cash received for the notes and warrants in the initial closing was $7.8 million. The note accrues interest at a rate of 10%, payable at maturity or upon conversion with a maturity date of December 31, 2020.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2020 vs. 2019
|
|
2020
|
|
2019
|
|
Amount Change
|
|
% Change
|
Operating expenses:
|
(in thousands)
|
Wages and salaries
|
$
|
3,870
|
|
|
$
|
2,880
|
|
|
$
|
990
|
|
|
34
|
%
|
Pharmacy operations
|
50
|
|
|
106
|
|
|
(56)
|
|
|
(53)
|
%
|
Depreciation of property, plant and equipment
|
206
|
|
|
161
|
|
|
45
|
|
|
28
|
%
|
Research and development
|
35
|
|
|
72
|
|
|
(37)
|
|
|
—
|
%
|
Amortization of intangible assets
|
20
|
|
|
268
|
|
|
(248)
|
|
|
(93)
|
%
|
Foreign exchange loss
|
—
|
|
|
9
|
|
|
(9)
|
|
|
(100)
|
%
|
Total operating expenses
|
$
|
4,181
|
|
|
$
|
3,496
|
|
|
$
|
685
|
|
|
20
|
%
|
During the three months ended June 30, 2020, wages and salaries expenses increased $1.0 million to $3.9 million compared to the same period in 2019. The increase was primarily a result of hiring additional employees in the last two quarters of 2019 and the first half of 2020, necessary to support growth in Arizona and the launch of operations in California.
During the three months ended June 30, 2020, pharmacy operations expenses decreased $56 thousand to $50 thousand compared to the same period in 2019. The decrease was primarily due to the closure of MedAvail’s pharmacy operations (dba On-the-Spot pharmacy) in the broader Toronto Canada area.
During the three months ended June 30, 2020, depreciation of property, plant, and expenses increased $45 thousand to $206 thousand compared to the same period in 2019. The increase was a result of capitalizing additional property, plant and equipment related to the build out of our SpotRx pharmacy footprint in California in the first half of 2020.
During the three months ended June 30, 2020, research and development expenses decreased $37 thousand to $35 thousand compared to the same period in 2019. The decrease was due to decreased activity related to MedCenter and software development.
During the three months ended June 30, 2020, amortization of intangible assets decreased $248 thousand to $20 thousand compared to the same period in 2019. This was due to intangible assets being fully amortized during 2019.
During the three months ended June 30, 2020, foreign exchange loss decreased $9 thousand to $— thousand compared to the same period in 2019. This was due to a more favorable CAD to USD exchange rate in 2020.
The following table summarizes our statement of operations data for the six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2020 vs. 2019
|
|
2020
|
|
2019
|
|
Amount Change
|
|
% Change
|
Sales:
|
(in thousands)
|
Pharmacy technology
|
$
|
712
|
|
$
|
331
|
|
$
|
381
|
|
|
115
|
%
|
% of total sales
|
18
|
%
|
|
24
|
%
|
|
|
|
|
Retail pharmacy services
|
3,193
|
|
1,053
|
|
2,140
|
|
|
203
|
%
|
% of total sales
|
82
|
%
|
|
76
|
%
|
|
|
|
|
Total sales
|
3,905
|
|
1,384
|
|
2,521
|
|
|
182
|
%
|
Cost of sales:
|
|
|
|
|
|
|
|
Pharmacy technology
|
280
|
|
39
|
|
241
|
|
|
618
|
%
|
% of total sales
|
7
|
%
|
|
3
|
%
|
|
|
|
|
Retail pharmacy services
|
3,017
|
|
860
|
|
2,157
|
|
|
251
|
%
|
% of total sales
|
77
|
%
|
|
62
|
%
|
|
|
|
|
Total cost of sales
|
3,297
|
|
899
|
|
2,398
|
|
|
267
|
%
|
Gross profit
|
608
|
|
485
|
|
123
|
|
|
25
|
%
|
% of total sales
|
16
|
%
|
|
35
|
%
|
|
|
|
|
Operating expenses
|
8,159
|
|
6,964
|
|
1,195
|
|
17
|
%
|
% of total sales
|
209
|
%
|
|
503
|
%
|
|
|
|
|
Selling, general and administrative expenses
|
2,599
|
|
2,912
|
|
(313)
|
|
(11)
|
%
|
% of total sales
|
67
|
%
|
|
210
|
%
|
|
|
|
|
Merger expenses
|
1,283
|
|
—
|
|
1,283
|
|
—
|
%
|
% of total sales
|
33
|
%
|
|
—
|
%
|
|
|
|
|
Share-based compensation
|
170
|
|
193
|
|
(23)
|
|
(12)
|
%
|
% of total sales
|
4
|
%
|
|
14
|
%
|
|
|
|
|
Operating loss
|
(11,603)
|
|
(9,584)
|
|
(2,019)
|
|
21
|
%
|
% of total sales
|
(297)
|
%
|
|
(692)
|
%
|
|
|
|
|
Interest expense - net
|
441
|
|
359
|
|
82
|
|
23
|
%
|
% of total sales
|
11
|
%
|
|
26
|
%
|
|
|
|
|
Net loss
|
$
|
(12,044)
|
|
$
|
(9,943)
|
|
$
|
(2,101)
|
|
21
|
%
|
% of total sales
|
(308)
|
%
|
|
(718)
|
%
|
|
|
|
|
Revenue
During the six months ended June 30, 2020, pharmacy technology sales increased $381 thousand to $712 thousand, or 115%, when compared to the same period in 2019. The increase was due to seven MedCenters sold to a third-party customer in the second quarter of 2020 and an increase in rental revenue associated with growth in the number of companies evaluating our MedCenter technology through pilot deployments. This increase was partially offset by a reduction in revenue recognized for software integration services completed in 2019, of approximately $198 thousand.
During the six months ended June 30, 2020, retail pharmacy services sales increased $2.1 million to $3.2 million, or 203%, when compared to the same period in 2019. The increase was due to volume growth in prescription sales at existing sites and 19 new site launches in 2020.
Cost of Sales
During the six months ended June 30, 2020, pharmacy technology cost of sales increased $241 thousand to $280 thousand compared to the same period in 2019. The increase was due primarily to costs from seven MedCenters sold in the second quarter of 2020 and an increase in depreciation associated with growth in the number of pilot deployments with companies evaluating our MedCenter technology. The average unit cost of the seven MedCenters sold was significantly lower than the cost of a newly manufactured MedCenter, as these units were buy-back units from a prior customer.
During the six months ended June 30, 2020, retail pharmacy services cost of sales increased $2.2 million to $3.0 million compared to the same period in 2019. The increase was due to costs associated with volume growth in prescription sales at existing sites and 19 new site launches in 2020. Additionally, in response to the spread of COVID-19, most of the clinic locations MedAvail operates in were temporarily closed to prevent the transmission of COVID-19. Consequently, the mix of medications that were delivered via courier to patents’ homes increased significantly, resulting in higher delivery costs when compared the first six months of 2019. Lastly, cost of pharmacy sales in the first half of 2020 increased due to higher inventory write downs associated with obsolescence.
Other expenses
During the six months ended June 30, 2020, operating expenses increased $1.2 million to $8.2 million compared to the same period in 2019. The increase was primarily due to an increase in wages and salaries as MedAvail hired additional personnel, necessary to support growth in Arizona and the launch of operations in California.
During the six months ended June 30, 2020, selling, general and administrative expenses decreased $313 thousand to $2.6 million compared to the same period in 2019. This was primarily due to a decrease in marketing costs in 2020, as MedAvail completed various marketing program tests in 2019 and closed pharmacy operations in Canada, resulting in lower spend in 2020.
During the six months ended June 30, 2020, merger expenses were $1.3 million, primarily due to professional services expenses incurred in relation to the merger transaction and anticipated listing on the Nasdaq Capital Market exchange.
During the six months ended June 30, 2020, share-based compensation decreased $23 thousand to $170 thousand compared to the same period in 2019. This was due to fewer options granted to employees.
During the six months ended June 30, 2020, interest expense increased $82 thousand to $441 thousand compared to the same period in 2019. The increase was due to additional short-term debt being incurred in 2020. On May 26, 2020, MedAvail completed a convertible notes and warrants offering to certain of its existing investors whereby those investors purchased notes and warrants on a pro rata basis with their existing investments in MedAvail's preferred stock. Cash received for the notes and warrants in the initial closing was $7.8 million. The note accrues interest at a rate of 10%, payable at maturity or upon conversion with a maturity date of December 31, 2020.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2020 vs. 2019
|
|
2020
|
|
2019
|
|
Amount Change
|
|
% Change
|
Operating expenses:
|
(in thousands)
|
Wages and salaries
|
$
|
7,468
|
|
|
$
|
5,883
|
|
|
$
|
1,585
|
|
|
27
|
%
|
Pharmacy operations
|
109
|
|
|
183
|
|
|
(74)
|
|
|
(40)
|
%
|
Depreciation of property, plant and equipment
|
363
|
|
|
287
|
|
|
76
|
|
|
26
|
%
|
Research and development
|
121
|
|
|
128
|
|
|
(7)
|
|
|
—
|
%
|
Amortization of intangible assets
|
57
|
|
|
512
|
|
|
(455)
|
|
|
(89)
|
%
|
Foreign exchange loss (gain)
|
41
|
|
|
(29)
|
|
|
70
|
|
|
(241)
|
%
|
Total operating expenses
|
$
|
8,159
|
|
|
$
|
6,964
|
|
|
$
|
1,195
|
|
|
17
|
%
|
During the six months ended June 30, 2020, wages and salaries expenses increased $1.6 million to $7.5 million compared to the same period in 2019. The increase was primarily a result of hiring additional employees in 2020 and the second half of 2019.
During the six months ended June 30, 2020, pharmacy operations expenses decreased $74 thousand to $109 thousand compared to the same period in 2019. The decrease was primarily due to the closure of MedAvail’s pharmacy operations (dba On-the-Spot pharmacy) in the broader Toronto Canada area.
During the six months ended June 30, 2020, depreciation of property, plant, and expenses increased $76 thousand to $363 thousand compared to the same period in 2019. The increase was a result of capitalizing additional property plant and equipment related to the build out of our SpotRx pharmacy footprint in California in the last two quarters of 2019 and the first two quarters of 2020.
During the six months ended June 30, 2020, research and development expenses decreased $7 thousand to $121 thousand compared to the same period in 2019. The decrease was due to increased activity related to MedCenter hardware technology and software development.
During the six months ended June 30, 2020, amortization of intangible assets decreased $455 thousand to $57 thousand compared to the same period in 2019. This was due to intangible assets being fully amortized during 2019.
During the six months ended June 30, 2020, foreign exchange loss decreased $70 thousand to $41 thousand compared to the same period in 2019. This was due to a more favorable Canadian Dollar, or CAD, to US Dollar, or USD, exchange rate in 2020.
Results of Operations
The following table summarizes our statement of operations data for the year ended December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019 vs. 2018
|
|
2019
|
|
2018
|
|
Amount Change
|
|
% Change
|
Sales:
|
(in thousands)
|
Pharmacy technology
|
$
|
544
|
|
$
|
4,176
|
|
$
|
(3,632)
|
|
|
(87)
|
%
|
% of total sales
|
14
|
%
|
|
90
|
%
|
|
|
|
|
Retail pharmacy services
|
3,227
|
|
489
|
|
2,738
|
|
|
560
|
%
|
% of total sales
|
86
|
%
|
|
10
|
%
|
|
|
|
|
Total sales
|
3,771
|
|
4,665
|
|
(894)
|
|
|
(19)
|
%
|
Cost of sales:
|
|
|
|
|
|
|
|
Pharmacy technology
|
149
|
|
1,641
|
|
(1,492)
|
|
(91)
|
%
|
% of total sales
|
4
|
%
|
|
35
|
%
|
|
|
|
|
Retail pharmacy services
|
2,674
|
|
436
|
|
2,238
|
|
|
513
|
%
|
% of total sales
|
71
|
%
|
|
9
|
%
|
|
|
|
|
Total cost of sales
|
2,823
|
|
2,077
|
|
746
|
|
|
36
|
%
|
Gross profit
|
948
|
|
2,588
|
|
(1,640)
|
|
|
(63)
|
%
|
% of total sales
|
25
|
%
|
|
55
|
%
|
|
|
|
|
Operating expenses
|
15,420
|
|
11,983
|
|
3,437
|
|
29
|
%
|
% of total sales
|
409
|
%
|
|
257
|
%
|
|
|
|
|
Selling, general and administrative expenses
|
5,881
|
|
5,581
|
|
300
|
|
5
|
%
|
% of total sales
|
156
|
%
|
|
120
|
%
|
|
|
|
|
Share-based payments
|
354
|
|
1,362
|
|
(1,008)
|
|
(74)
|
%
|
% of total sales
|
9
|
%
|
|
29
|
%
|
|
|
|
|
Goodwill write-off
|
137
|
|
—
|
|
137
|
|
—
|
%
|
% of total sales
|
4
|
%
|
|
—
|
%
|
|
|
|
|
Operating loss
|
(20,844)
|
|
(16,338)
|
|
(4,506)
|
|
28
|
%
|
% of total sales
|
(553)
|
%
|
|
(350)
|
%
|
|
|
|
|
Interest expense - net
|
689
|
|
667
|
|
22
|
|
3
|
%
|
% of total sales
|
18
|
%
|
|
14
|
%
|
|
|
|
|
Net loss
|
$
|
(21,533)
|
|
$
|
(17,005)
|
|
$
|
(4,528)
|
|
—
|
% of total sales
|
(571)
|
%
|
|
(365)
|
%
|
|
|
|
|
Revenue
During the year ended December 31, 2019, pharmacy technology sales decreased $3.6 million to $544 thousand compared to the same period in 2018. The decrease in sales was due to the completion of a long-term contract with a major pharmacy company, for which revenue recognition ended in 2018.
During the year ended December 31, 2019, retail pharmacy services sales increased $2.7 million to $3.2 million compared to the same period in 2018. The increase was due to volume growth in prescription sales at existing sites and additional Arizona site launches in 2019.
Costs of Sales
During the year ended December 31, 2019, pharmacy technology cost of sales decreased $1.5 million to $149 thousand compared to the same period in 2018. The decrease was due to the end of recognition of revenue for a major pharmacy technology sales contract in 2018.
During the year ended December 31, 2019, retail pharmacy services cost of sales increased $2.2 million to $2.7 million compared to the same period in 2018. The increase was due to costs associated with volume growth in prescription sales at existing sites and additional Arizona site launches in 2019.
Other expenses
During the year ended December 31, 2019, operating expenses increased $3.4 million to $15.4 million compared to the same period in 2018. The increase was primarily due to an increase in wages and salaries as MedAvail hired additional personnel in 2019.
During the year ended December 31, 2019, selling, general and administrative expenses increased $300 thousand to $5.9 million compared to the same period in 2018. The increase was primarily a result of increases to rent, legal fees and professional fees.
During the year ended December 31, 2019, share-based payments decreased $1.0 million to $354 thousand compared to the same period in 2018. The increase was due to fewer options granted to employees in 2019.
During the year ended December 31, 2019, goodwill write-off increased $137 thousand to $137 thousand compared to the same period in 2018. This write-off is related to the closure of MedAvail’s pharmacy operations in Toronto Canada (DBA On-The-Spot Rx), which was closed in the fourth quarter of 2019.
During the year ended December 31, 2019, interest expense increased $22 thousand to $689 thousand compared to the same period in 2018. The increase was due to additional debt incurred in 2019.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019 vs. 2018
|
|
2019
|
|
2018
|
|
Amount Change
|
|
% Change
|
Operating expenses:
|
(in thousands)
|
Wages and salaries
|
$
|
13,192
|
|
|
$
|
9,482
|
|
|
$
|
3,710
|
|
|
39
|
%
|
Pharmacy operations
|
383
|
|
|
240
|
|
|
143
|
|
|
60
|
%
|
Depreciation of property, plant and equipment
|
650
|
|
|
621
|
|
|
29
|
|
|
5
|
%
|
Research and development
|
287
|
|
|
346
|
|
|
(59)
|
|
|
(17)
|
%
|
Amortization of intangible assets
|
941
|
|
|
1,092
|
|
|
(151)
|
|
|
(14)
|
%
|
Foreign exchange (gain) loss
|
(33)
|
|
|
202
|
|
|
(235)
|
|
|
(116)
|
%
|
Total operating expenses
|
$
|
15,420
|
|
|
$
|
11,983
|
|
|
$
|
3,437
|
|
|
29
|
%
|
During the year ended December 31, 2019, wages and salaries expenses increased $3.7 million to $13.2 million compared to the same period in 2018. The increase was primarily a result of hiring additional employees in 2019 as the company expanded its pharmacy operations in Arizona.
During the year ended December 31, 2019, pharmacy operations expenses increased $143 thousand to $383 thousand compared to the same period in 2018. The increase was primarily due to an increase in pharmacy retail sales volume growth at both existing and newly launched sites in Arizona.
During the year ended December 31, 2019, depreciation of property, plant and equipment increased $29 thousand to $650 thousand compared to the same period in 2018. This was a result of capitalizing additional property, plant and equipment in 2019 related to investments in retail pharmacy facilities and associated infrastructure.
During the year ended December 31, 2019, research and development expenses decreased $59 thousand to $287 thousand compared to the same period in 2018. The decrease was due to intangible assets being amortized in 2018 and no new assets added in 2019.
During the year ended December 31, 2019, amortization of intangible assets decreased $151 thousand to $941 thousand compared to the same period in 2018. The decrease was due to intangible assets being amortized in 2018 and no new assets added in 2019.
During the year ended December 31, 2019, foreign exchange (gain) loss increased $235 thousand to $(33) thousand compared to the same period in 2018. This was due to a more favorable CAD to USD exchange rate in 2019.
Liquidity and Capital Resources
Sources of Liquidity
Since inception through June 30, 2020, MedAvail’s operations have been financed primarily by net cash proceeds of $94.3 million from the sale of its redeemable preferred stock and debt in the amount of $21.0 million. As of June 30, 2020, MedAvail had $7.3 million in cash and an accumulated deficit of $133.3 million.
Cash Flows
The following table summarizes MedAvail’s cash flows for the six months ended June 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2020 vs. 2019
|
|
2020
|
|
2019
|
|
Amount Change
|
|
% Change
|
|
(in thousands)
|
Cash used in operating activities
|
$
|
(10,433)
|
|
|
$
|
(9,362)
|
|
|
$
|
(1,071)
|
|
|
11
|
%
|
Cash used in investing activities
|
(171)
|
|
|
(438)
|
|
|
267
|
|
|
(61)
|
%
|
Cash provided by financing activities
|
9,075
|
|
|
7,925
|
|
|
1,150
|
|
|
15
|
%
|
Net decrease in cash
|
$
|
(1,529)
|
|
|
$
|
(1,875)
|
|
|
$
|
346
|
|
|
(18)
|
%
|
Operating Activities
During the six months ended June 30, 2020, cash used in operating activities increased $1.1 million to $10.4 million compared to the same period in 2019. The increase was primarily due to an increase in operating expenses from wages and salaries and costs attributable to the launch and growth of our retail pharmacy operations in Arizona and California.
Investing Activities
During the six months ended June 30, 2020, cash used in investing activities decreased $267 thousand to $171 thousand compared to the same period in 2019. The decrease was primarily due to a decrease in investment in property, plant and equipment associated with investments in pharmacy operations in Arizona.
Financing Activities
During the six months ended June 30, 2020, cash provided by financing activities increased $1.2 million to $9.1 million compared to the same period in 2019. The increase was primarily due to an increase in issuances of debt, offset by a decrease in issuances of preferred stock.
The following table summarizes MedAvail’s cash flows for the year ended December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019 vs. 2018
|
|
2019
|
|
2018
|
|
Amount Change
|
|
% Change
|
|
(in thousands)
|
Cash used in operating activities
|
$
|
(19,546)
|
|
|
$
|
(11,942)
|
|
|
$
|
(7,604)
|
|
|
64
|
%
|
Cash used in investing activities
|
(402)
|
|
|
(1,040)
|
|
|
638
|
|
|
(61)
|
%
|
Cash provided by financing activities
|
24,986
|
|
|
13,716
|
|
|
11,270
|
|
|
82
|
%
|
Net increase in cash
|
$
|
5,038
|
|
|
$
|
734
|
|
|
$
|
4,304
|
|
|
586
|
%
|
Operating Activities
During the year ended December 31, 2019, cash used in operating activities increased $7.6 million to $19.5 million compared to the same period in 2018. The increase was primarily due to an increase in operating expenses from wages and salaries and costs attributable to the launch and growth of our retail pharmacy operations in Arizona.
Investing Activities
During the year ended December 31, 2019, cash used in investing activities decreased $638 thousand to $402 thousand compared to the same period in 2018. The decrease in cash used for investing activities was primarily due to higher investments in 2018 for property, plant and equipment associated with our initial opening of two central pharmacies in Arizona.
Financing Activities
During the year ended December 31, 2019, cash provided by financing activities increased $11.3 million to $25.0 million compared to the same period in 2018. The increase was primarily due to an increase in issuances of preferred stock.
Long-Term Debt
On March 23, 2016, MedAvail and a significant customer and investor entered into a subordinated secured convertible promissory five-year note agreement for $10.0 million. This note is convertible into common shares at the option holder’s request. Interest of 6% is accumulated and repayable on the maturity date at MedAvail’s option. Unpaid interest is added to the outstanding principal. MedAvail expects to repay the note including accrued interest in cash prior to or upon its maturity in March 2021.
Short-Term Debt
On May 26, 2020, MedAvail completed a convertible notes and warrants offering to certain of its existing investors whereby those investors purchased notes and warrants on a pro rata basis with their existing investments in MedAvail's preferred stock. Cash received for the notes and warrants in the Initial Closing was $7.8 million. The note accrues interest at a rate of 10%, payable at maturity or upon conversion with a maturity date of December 31, 2020. Additional financing under the agreement was received in July 2020, totaling $150 thousand.
PPP Loan
On May 14, 2020, MedAvail entered into a Promissory Note with HSBC Bank, which provides for a loan in the amount of $341 thousand (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The Promissory Note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses, including certain payroll costs, group health care benefits and other permitted expenses as described in the CARES Act. MedAvail intends to use the entire PPP Loan amount for qualifying expenses and to apply for forgiveness of the loan in accordance with the terms of the CARES Act. Management has determined that it is likely that MedAvail will meet the qualifications necessary for forgiveness.
Impact of Inflation
Inflation has not had a negative impact on MedAvail’s business since inception. Management believes that any increases in costs of products sold would coincide with an increase in the sales prices of those products, which would offset the higher costs.
Contractual Obligations and Other Commitments
The following table summarizes our significant contractual obligations and commercial commitments as of June 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
Total
|
|
< 1year
|
|
1-3 years
|
|
3-5 years
|
|
5+ years
|
Contractual obligations
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
20,952
|
|
|
20,952
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Operating lease obligations
|
1,335
|
|
|
639
|
|
|
558
|
|
|
138
|
|
|
—
|
|
Finance lease obligations
|
76
|
|
|
28
|
|
|
48
|
|
|
—
|
|
|
—
|
|
Total contractual obligations
|
$
|
22,363
|
|
|
$
|
21,619
|
|
|
$
|
606
|
|
|
$
|
138
|
|
|
$
|
—
|
|
Off-Balance Sheet Arrangements
MedAvail has not entered into any off-balance sheet arrangements and does not have any holdings in variable interest entities.
Recent Accounting Pronouncements
See discussion of recently issued accounting pronouncements and the potential effect of that new guidance on MedAvail in Note 5 to the MedAvail Annual Financial Statements presented elsewhere in this Form S-4.
Critical Accounting Policies
See critical accounting policies in Note 4 to the MedAvail Annual Financial Statements presented elsewhere in this proxy statement/ prospectus/ information statement.