As filed with the Securities and Exchange Commission on
November
18
,
2016
Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
ENDRA LIFE SCIENCES INC.
(
Exact name of registrant as
specified in its charter
)
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Delaware
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3845
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26-0579295
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(
State or other jurisdiction
of
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(
Primary Standard
Industrial
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(
I.R.S. Employer
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incorporation or organization)
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Classification Code Number)
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Identification No.)
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ENDRA
Life Sciences Inc.
3600
Green Court, Suite 350
Ann
Arbor, MI 48105
(734)
335-0468
(
Address, including zip code,
and telephone number, including area code, of registrant’s
principal executive offices
)
Francois
Michelon
Chief
Executive Officer
ENDRA
Life Sciences Inc.
3600
Green Court, Suite 350
Ann
Arbor, MI 48105
(734)
335-0468
(
Name, address, including zip
code, and telephone number, including area code, of agent for
service
)
Copies to
:
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Mark R.
Busch
K&L Gates
LLP
214 North Tryon
St., 47th Floor
Charlotte, North
Carolina 28202
Telephone: (704)
331-7440
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Jonathan
R. Zimmerman
Ben A.
Stacke
Faegre
Baker Daniels LLP
2200
Wells Fargo Center
90
South Seventh Street
Minneapolis,
MN 55402-3901
Telephone:
(612)
766-7000
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As soon as practicable after the effective date of this
Registration Statement.
(
Approximate date of
commencement of proposed sale to the public
)
If any of the securities being registered on this
Form are to be offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933 check the following
box.
[X
]
If
this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
[ ]
If
this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
[ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (check
one):
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Large
accelerated filer [ ]
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Accelerated
filer
[ ]
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Non-accelerated
filer [ ]
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Smaller
reporting company [X]
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(
Do not check if a smaller reporting
company
)
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CALCULATION
OF REGISTRATION FEE
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Title
of Each Class of Securities to be Registered
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Proposed
Maximum
Aggregate
Offering Price
(1)
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Amount
of
Registration
Fee
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Common Stock, par
value $0.0001 per share
(2)
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Warrants to
purchase Common Stock
(3)
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Common Stock
Underlying Warrants
(2)
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Underwriter
Warrant
(3)(4)
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Shares of Common
Stock Underlying Underwriter Warrant
(3)
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Total Registration
Fee
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$10,000,000
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$1,159.00
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(1)
Estimated solely
for the purpose of calculating the amount of the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as
amended. Includes the offering price of the shares and warrants
that the underwriters have the option to purchase to cover
over-allotments, if any.
(2)
Pursuant to Rule
416 under the Securities Act of 1933, as amended, there is also
being registered hereby such indeterminate number of additional
shares of common stock of the registrant as may be issued or
issuable because of stock splits, stock dividends, stock
distributions, and similar transactions.
(3)
No separate
registration fee required pursuant to Rule 457(g) under the
Securities Act of 1933, as amended.
(4)
Represents a
warrant granted to the underwriter to purchase shares of common
stock in an amount up to 8% of the number of shares sold to the
public in this offering. See “Underwriting” contained
within this Registration Statement for information on underwriting
arrangements relating to this offering.
The
registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment, which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933, as amended, or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED NOVEMBER
18, 2016
ENDRA Life
Sciences Inc.
Shares
of Common Stock
Warrants
to Purchase up
to
Shares of Common Stock
This is our
initial public offering. We are offering
shares of our common stock
and warrants to purchase up to
shares of our common stock. Each share of our
common stock is being sold together with a warrant to purchase
one-half of one share of our common stock. Each warrant will have
an exercise price equal to 100% of the combined initial public
offering price per share of common stock and related warrant set
forth on the cover page of this prospectus, will be immediately
exercisable and will expire on the fifth anniversary of the
original issuance date. The shares of our common stock and warrants
are immediately separable and will be issued separately, but will
be purchased together in this offering. Prior to this offering,
there has been no public market for our common stock. We have
applied to list our common stock on the Nasdaq Capital Market under
the symbol “NDRA.” There is no established trading
market for the warrants and we do not expect a market to develop.
In addition, we do not intend to apply for the listing of the
warrants on any national securities exchange or other trading
market. Without an active trading market, the liquidity of the
warrants will be limited. We expect that the public offering price
will be between
$ and $
per share of common stock and
related warrant.
We are
an “emerging growth company” as that term is used in
the Jumpstart Our Business Startups Act of 2012 and, as such, have
elected to comply with certain reduced public company reporting
requirements for this prospectus and future filings. See
“Prospectus Summary – Implications of Being an Emerging
Growth Company.”
Investing
in our securities involves a high degree of risk. See
“Risk Factors” beginning on page 8 for a
discussion of information that should be considered in connection
with an investment in our securities.
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Per Share
and Related Warrant
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Public offering
price
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$
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$
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Underwriting
discount
(1)
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$
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$
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Proceeds, before
expenses, to us
(2)
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$
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$
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________
(1) We
have also granted warrants to the underwriters in connection with
this offering and agreed to reimburse the underwriters for certain
expenses incurred by them. See “Underwriting” for a
description of the compensation payable by us to the
underwriters.
(2) We
estimate the total expenses payable by us, excluding the
underwriting discount, will be approximately
$600,000.
We have granted the
underwriters a 30-day option to purchase up
to
additional shares of our common stock at a purchase price of
$ per
share and/or additional warrants to purchase up
to
shares of our common stock at a purchase price of
$ per
warrant to cover over-allotments, if any.
Neither
the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
determined if this prospectus is truthful or
complete. Any representation to the contrary is a
criminal offense.
The
underwriters expect to deliver the common stock and
warrants to investors on or about
, 2016.
______________________________________
Sole Book-Running Manager
Dougherty
& Company
______________________________________
The
date of this prospectus is ,
2016.
TABLE
OF CONTENTS
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Page
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PROSPECTUS
SUMMARY
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1
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THE
OFFERING
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6
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SUMMARY
SELECTED FINANCIAL DATA
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7
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RISK
FACTORS
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8
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS
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32
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USE
OF PROCEEDS
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33
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DIVIDEND
POLICY
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34
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CAPITALIZATION
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35
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DILUTION
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36
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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38
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BUSINESS
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47
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EXECUTIVE
OFFICERS, DIRECTORS AND CORPORATE GOVERNANCE
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62
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EXECUTIVE
COMPENSATION
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66
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
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69
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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72
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DESCRIPTION
OF SECURITIES WE ARE OFFERING
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73
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SHARES
ELIGIBLE FOR FUTURE SALE
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76
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UNDERWRITING
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78
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NOTICE
TO INVESTORS
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81
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LEGAL
MATTERS
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83
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EXPERTS
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83
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WHERE
YOU CAN FIND MORE INFORMATION
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83
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INDEX
TO FINANCIAL STATEMENTS
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F-1
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Unless otherwise
stated or the context otherwise requires, the terms
“ENDRA”, “we,” “us,”
“our” and the “Company” refer to
ENDRA
Life Sciences Inc
., a Delaware
corporation.
You
should rely only on the information contained in this prospectus
and any related free writing prospectus that we may provide to you
in connection with this offering. We have not, and the
underwriters have not, authorized anyone to provide you with
additional or different information. If anyone provides
you with different or inconsistent information, you should not rely
on it. We are not, and the underwriters are not, making an offer to
sell these securities in any jurisdiction where the offer or sale
is not permitted. You should assume that the information appearing
in this prospectus is accurate only as of the date on the front
cover of this prospectus. Our business, financial condition,
results of operations and prospects may have changed since that
date.
For
investors outside the United States: neither we nor the
underwriters have done anything that would permit this offering or
possession or distribution of this prospectus or any free writing
prospectus we may provide to you in connection with this offering
in any jurisdiction where action for that purpose is required,
other than in the United States. You are required to inform
yourselves about and to observe any restrictions relating to this
offering and the distribution of this prospectus and any such free
writing prospectus outside of the United States.
MARKET AND INDUSTRY DATA
Unless otherwise indicated, information contained
in this prospectus concerning our industry and the markets in which
we operate is based on information from independent industry and
research organizations, other third-party sources (including
industry publications, surveys and forecasts), and management
estimates. Management estimates are derived from publicly available
information released by independent industry analysts and
third-party sources, as well as data from our internal research,
and are based on
assumptions made by us
upon reviewing such data and our knowledge of such industry and
markets which we believe to be reasonable. Although we believe the
data from these third-party sources is reliable, we have not
independently verified any third-party information. In addition,
projections, assumptions and estimates of the future performance of
the industry in which we operate and our future performance are
necessarily subject to uncertainty and risk due to a variety of
factors, including those described in “Risk Factors”
and “Special Note Regarding Forward-Looking Statements and
Other Information Contained In This Prospectus.” These and
other factors could cause results to differ materially from those
expressed in the estimates made by the independent parties and by
us.
TRADEMARKS
We operate under a number of trademarks,
including, among others, “ENDRA
” and “TAEUS
,” all of which are registered under
applicable intellectual property laws. This prospectus contains
references to our trademarks and service marks and to those
belonging to other entities. Solely for convenience, trademarks and
trade names referred to in this prospectus may appear without
the
®
or
TM
symbols,
but such references are not intended to indicate, in any way, that
we will not assert, to the fullest extent possible under applicable
law, our rights or the rights of the applicable licensor to these
trademarks and trade names. We do not intend our use or display of
other companies’ trade names, trademarks or service marks to
imply a relationship with, or endorsement or sponsorship of us by,
any other companies.
-i-
Prospectus
Summary
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This summary highlights selected information
contained elsewhere in this prospectus and does not contain all of
the information that you should consider before investing in our
common stock. You should carefully read this prospectus
and the registration statement of which this prospectus is a part
in their entirety before investing in our common stock, including
the information discussed under “Risk Factors”
and our financial statements and notes thereto that appear
elsewhere in this prospectus.
Our
Company
We have
commercialized an enhanced ultrasound technology for the
pre-clinical research market and are leveraging that expertise to
develop technology for increasing the capabilities of clinical
diagnostic ultrasound, to broaden patient access to the safe
diagnosis and treatment of a number of significant medical
conditions in circumstances where expensive X-ray computed
tomography, or CT, and magnetic resonance imaging, or MRI,
technology is unavailable or impractical.
Since 2010, we have
marketed and sold our Nexus 128 system, which combines light-based
thermoacoustics and ultrasound, to address the imaging needs of
researchers studying disease models in pre-clinical applications.
Sales of the Nexus 128 system were $1.4 million in 2015, and our
Nexus 128 system is used in a number of leading global academic
research centers, including Stanford University, The University of
Michigan, Shanghai Jiao Tong University, and Purdue University. We
expect to continue to sell our Nexus 128 system to maintain a base
level of revenue, but believe the market potential for our clinical
systems is much higher.
Building on our
expertise in thermoacoustics, we have developed a next-generation
technology platform — Thermo Acoustic Enhanced Ultrasound, or
TAEUS — which is intended to enhance the capability of
clinical ultrasound technology and support the diagnosis and
treatment of a number of significant medical conditions that
currently require the use of expensive CT or MRI imaging or where
imaging is not practical using existing
technology.
Unlike the
near-infrared light pulses used in our Nexus 128 system, our TAEUS
technology uses radio frequency, or RF, pulses to stimulate
tissues, using a small fraction of the energy transmitted into the
body during an MRI scan. The use of RF energy allows our TAEUS
technology to penetrate deep into tissue, enabling the imaging of
human anatomy at depths equivalent to those of conventional
ultrasound. The RF pulses are absorbed by tissue and converted into
ultrasound signals, which are detected by an external ultrasound
receiver and a digital acquisition system that is part of the TAEUS
system. The detected ultrasound is processed into images using our
proprietary algorithms and overlaid in real time onto conventional
gray-scale ultrasound images.
Image below: Real-time ex-vivo bovine tissue temperature analysis
overlaid on traditional ultrasound image.
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We
believe that our TAEUS technology has the potential to add a number
of new capabilities to conventional ultrasound and thereby enhance
the utility of both existing and new ultrasound
systems.
Our TAEUS platform
is not intended to replace CT and MRI systems, both of which are
versatile imaging technologies with capabilities and uses beyond
the focus of our business. However, they are also expensive, with a
CT system costing approximately $1 million and an MRI system
costing up to $3 million. In addition, and in contrast to
ultrasound systems, due to their limited number and the fact that
they are usually fixed-in-place at major medical facilities, CT and
MRI systems are frequently inaccessible to
patients.
We believe that our
TAEUS platform can extend the use of ultrasound technology to a
number of important applications that either require the use of
expensive CT or MRI imaging systems or where imaging is not
practical using existing technology. In our ex-vivo and in-vivo
testing, we have demonstrated that the TAEUS platform has the
following capabilities and potential clinical
applications:
●
Tissue Composition:
Our TAEUS technology enables ultrasound to distinguish fat from
lean tissue. This capability would enable the use of TAEUS-enhanced
ultrasound for the early identification, staging and monitoring of
Non-Alcoholic Fatty Liver Disease, or NAFLD, which affects an
estimated 1.4 billion people worldwide and is a precursor to liver
fibrosis, cirrhosis and liver cancer.
●
Temperature
Monitoring: Our TAEUS technology enables traditional ultrasound to
visualize changes in tissue temperature, in real time. This
capability would enable the use of TAEUS-enhanced ultrasound to
guide thermoablative therapy, which uses heat or cold to remove
tissue, such as in the treatment of cardiac atrial fibrillation, or
removal of cancerous liver and kidney lesions, with greater
accuracy.
●
Vascular Imaging:
Our TAEUS technology enables ultrasound to view blood vessels from
any angle, using only a saline solution contrasting agent, unlike
Doppler ultrasound which requires precise viewing angles. This
capability would enable the use of TAEUS-enhanced ultrasound to
easily identify arterial plaque or malformed
vessels.
●
Tissue Perfusion:
Our TAEUS technology enables ultrasound to image blood flow at the
capillary level in a region, organ or tissue. This capability could
be used to assist physicians in characterizing microvasculature
fluid flows symptomatic of damaged tissue, such as internal
bleeding from trauma, or diseased tissue, such as certain
cancers.
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Sal
es
of ultrasound diagnostic equipment were approximately $4 billion
globally in 2014 and are expected to grow at approximately 4.4%
annually. There are approximately 800,000 installed systems
generating over 400 million annual diagnostic ultrasound procedures
globally. Additionally, an estimated 30,000 to 50,000 new and
replacement systems are sold into the market each year. These
numbers include both portable and cart-based ultrasound systems,
and cover all types of diagnostic ultrasound procedures, including
systems intended for cardiology, prenatal and abdominal use. We do
not intend to address low-cost, portable ultrasound systems and
systems focused on applications, such as prenatal care, where we
believe our TAEUS technology will not substantially impact patient
care. Accordingly, we define our addressable market for one or more
of our TAEUS applications at approximately 300,000 cart-based
ultrasound systems currently in use throughout the
world.
After approval, our
TAEUS technology can be added as an accessory to existing
ultrasound systems, helping to improve clinical decision-making on
the front lines of patient care, without requiring new clinical
workflows or large capital investments. We are also developing
TAEUS for incorporation into new ultrasound systems, primarily
through our collaboration with GE Healthcare, described more fully
below. We are not aware of any other ultrasound devices in
development that include the anticipated functionality of our
planned TAEUS applications.
Based on our design
work and our understanding of the ultrasound accessory market, we
intend to price our initial NAFLD TAEUS application at a price
point approximating one-half of the price of a new cart-based
ultrasound system, which should enable purchasers to recoup their
investment in less than one year by performing a relatively small
number of additional ultrasound procedures. We further believe that
clinicians will be attracted to our technology because it will
enable them to perform more procedures with their existing
ultrasound equipment, thereby retaining more imaging patients in
their clinics rather than referring patients out to a regional
medical center for a CT or MRI scan.
We expect that the
first-generation TAEUS application will be a standalone ultrasound
accessory designed to cost-effectively quantify fat in the liver
and stage progression of NAFLD, which can only be achieved today
with impractical surgical biopsies or MRI scans. Subsequent TAEUS
applications are expected to be implemented via a second generation
hardware platform that can run multiple clinical software
applications that we will offer TAEUS users for a one-time
licensing fee – adding ongoing customer value to the TAEUS
platform and a growing software revenue stream for
ENDRA.
Each of our TAEUS
platform applications will require regulatory approvals before we
are able to sell or license the application. Based on certain
factors, such as the installed base of ultrasound systems,
availability of other imaging technologies, such as CT and MRI,
economic strength and applicable regulatory requirements, we intend
to seek initial approval of our applications for sale in the
European Union, followed by the United States and
China.
We believe that our
NAFLD TAEUS application will qualify for sale in the European Union
as a Class IIa medical device. As a result, we will be required to
obtain a CE mark for our NAFLD TAEUS application before we can sell
the application in the European Union. Existing regulations would
not require us to conduct a clinical trial to obtain a CE mark for
this application. Nonetheless, for commercial reasons and to
support our CE mark application we plan to conduct a limited (less
than 10 person) trial to demonstrate our NAFLD TAEUS
application’s ability to distinguish fat from lean tissue.
Based on our understanding of applicable regulations and
consultations with medical device regulatory consulting firms and
medical device contract engineering firms, we expect to receive a
CE mark for our NAFLD TAEUS application approximately ten months
after the completion of this offering. However, this estimate is
subject to uncertainty and there can be no assurance that this
process will not take longer or be more costly than we expect.
While we are seeking a CE mark for our NAFLD TAEUS application, we
also plan to expand our sales, marketing, customer support and
contract manufacturing capabilities, so that we can commence
commercial sales of the application in the European Union promptly
following receipt of this regulatory approval. Following receipt of
such CE mark and placement of initial systems with researchers and
universities, we plan to conduct one or more clinical studies to
further demonstrate this product’s
capabilities.
While the process
of obtaining a CE mark for our NAFLD TAEUS application is underway,
we also intend to prepare for submission to the U.S. Food and Drug
Administration, or the FDA, an application under the Food, Drug and
Cosmetic Act, or the FD&C Act, to sell our NAFLD TAEUS
application in the U.S. We anticipate that the application, as well
as those for our other TAEUS applications, will be submitted for
approval under Section 510(k) of the FD&C Act. In connection
with our initial submission to the FDA, we believe we will be
required to provide imaging verification and validation testing
data, as well as the data from the limited trial we plan to conduct
to support our CE mark application. We expect that our initial FDA
clearance will allow us to sell the NAFLD TAEUS application in the
U.S. with general imaging claims. However, we will need to obtain
additional FDA clearances to be able to make diagnostic claims for
fatty tissue content determination. Accordingly, to support our
commercialization efforts we expect that, following receipt of our
initial FDA clearance, we will submit one or more additional
applications to the FDA, each of which will need to include
additional clinical trial data, so that following receipt of the
necessary clearances we may make those diagnostic claims. Based on
our understanding of applicable regulations and consultations with
medical device regulatory consulting firms and medical device
contract engineering firms, we expect to submit our initial FDA
application to the FDA approximately eleven months after the
completion of this offering and that the FDA will make a final
determination on our application approximately eleven months after
it is submitted. However, these estimates are subject to
uncertainty and there can be no assurance that these processes will
not take longer or be more costly than we
expect.
In April 2016, we
entered into a Collaborative Research Agreement with General
Electric Company, acting through its GE Healthcare business unit
and the GE Global Research Center, or GE Healthcare. Under the
terms of the agreement, GE Healthcare has agreed to assist us in
our efforts to commercialize our TAEUS technology for use in a
fatty liver application by, among other things, providing equipment
and technical advice, and facilitating introductions to GE
Healthcare clinical ultrasound customers. In return for this
assistance, we have agreed to afford GE Healthcare certain rights
of first offer with respect to manufacturing and licensing rights
for the target application.
More specifically, we have agreed
that, prior to commercially releasing our NAFLD TAEUS application,
we will offer to negotiate an exclusive ultrasound manufacturer
relationship with GE Healthcare for a period of at least one year
of commercial sales. The commercial sales would involve, within our
sole discretion, either our company commercially selling GE
Healthcare ultrasound systems as the exclusive ultrasound system
with our TAEUS fatty liver application embedded, or GE Healthcare
being the exclusive ultrasound manufacturer to sell ultrasound
systems with our TAEUS fatty liver application embedded.
The
agreement has a term of one year and is subject to termination by
either party upon not less than 60 days’
notice.
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Risks
Related to Our Business
An investment in
our common stock involves a high degree of risk. You should
carefully consider the risks summarized below. These risks are
discussed more fully in the “Risk Factors” section of
this prospectus immediately following this prospectus summary.
These risks include, but are not limited to, the
following:
●
We have a history
of operating losses, and we may never achieve or maintain
profitability.
●
Our limited
operating history makes it difficult to evaluate our current
business, predict our future results or forecast our financial
performance and growth.
●
Our efforts may
never result in the successful development of commercial
applications based on our TAEUS technology.
●
If we fail to
obtain and maintain necessary regulatory clearances or approvals
for our TAEUS applications, or if clearances or approvals for
future applications and indications are delayed or not issued, our
commercial operations will be harmed.
●
We will depend on
third parties to design, manufacture and seek regulatory approval
of our TAEUS applications. If any third party fails to successfully
design, manufacture and gain regulatory approval of our TAEUS
applications, our business will be materially
harmed.
●
Competition in the
medical imaging market is intense and we may be unable to
successfully compete.
●
We intend to market
our TAEUS applications, if approved, globally, in which case we
will be subject to the risks of doing business outside of the
United States.
●
If we are unable to
protect our intellectual property, then our financial condition,
results of operations and the value of our technology and products
could be adversely affected.
●
There is no
established public trading market for the warrants being offered in
this offering and we do not expect a market to
develop.
Implications
of Being an Emerging Growth Company
We are an
“emerging growth company,” as defined in the Jumpstart
Our Business Startups Act of 2012, or the JOBS Act, and, for as
long as we continue to be an “emerging growth company,”
we may choose to take advantage of exemptions from various
reporting requirements applicable to other public companies but not
to “emerging growth companies,” including, but not
limited to, not being required to comply with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act
of 2002, reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements, and
exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and stockholder approval of any
golden parachute payments not previously approved. We could be an
“emerging growth company” for up to five years, or
until the earliest of (i) the last day of the first fiscal year in
which our annual gross revenues exceed $1 billion, (ii) the date
that we become a “large accelerated filer” as defined
in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended, which would occur if the market value of our common stock
that is held by non-affiliates exceeds $700 million as of the last
business day of our most recently completed second fiscal quarter,
or (iii) the date on which we have issued more than $1 billion in
non-convertible debt during the preceding three-year period. We are
choosing to “opt out” of the extended transition
periods available under the JOBS Act for complying with new or
revised accounting standards, but intend to take advantage of the
other exemptions discussed above.
|
|
We
are also currently considered a “smaller reporting
company,” which generally means that we have a public float
of less than $75 million and had annual revenues of less than $50
million during the most recently completed fiscal year. If we are
still considered a “smaller reporting company” at such
time as we cease to be an “emerging growth company,” we
will be subject to increased disclosure requirements. However, the
disclosure requirements will still be less than they would be if we
were not considered either an “emerging growth company”
or a “smaller reporting company.” Specifically, similar
to “emerging growth companies”, “smaller
reporting companies” are able to provide simplified executive
compensation disclosures in their filings; are exempt from the
provisions of Section 404(b) of the Sarbanes-Oxley Act requiring
that independent registered public accounting firms provide an
attestation report on the effectiveness of internal control over
financial reporting; and have certain other decreased disclosure
obligations in their Securities and Exchange Commission filings,
including, among other things, being required to provide only two
years of audited financial statements in annual
reports.
Corporate
Information
We were
incorporated in Delaware in July 2007. Our corporate headquarters
is located at 3600 Green Court, Suite 350, Ann Arbor, Michigan
48105-1570. Our website can be accessed at
www.endrainc.com. The information contained on, or that
may be obtained from, our website is not, and shall not be deemed
to be, a part of this prospectus.
|
THE OFFERING
|
Common
stock offered by us
|
shares
(or
shares if the underwriters exercise their option to purchase
additional shares in full).
|
|
Warrants
offered by us
|
Warrants to purchase up
to
shares of our common stock
(or warrants to
purchase up
to
shares of our common stock if the underwriters exercise their
option to purchase additional warrants in
full)
. Each share of our common stock
is being sold together with a warrant to purchase one-half of one
share of our common stock. Each warrant will have an exercise price
equal to the combined initial public offering price per share of
common stock and related warrant set forth on the cover of this
prospectus, will be immediately exercisable and will expire on the
fifth anniversary of the original issuance
date.
|
|
Common
stock outstanding after this offering
|
shares (or
shares if the underwriters exercise their option to purchase
additional shares in full), and a total
of
shares of our common stock
outstanding if the warrants sold in this offering are exercised in
full (
or
shares if the underwriters exercise
their over-allotment in full with respect to shares of common stock
and warrants and such warrants are exercised).
(1)(2)
|
|
Over-allotment
option(3)
|
We will grant the
underwriters a 30-day option to purchase up
to
additional shares
of our common stock at a purchase price of $
per share and/or additional warrants to purchase
up to
additional shares of our common stock at a purchase price of
$ per warrant, to cover
over-allotments, if any.
|
|
Use
of proceeds
|
We intend to use
the net proceeds from this offering to fund the development,
regulatory approval and the commercialization of our Non-Alcoholic
Fatty Liver Disease, or NAFLD, TAEUS application in the European
Union and the United States and for working capital and other
general corporate purposes. See “Use of Proceeds” for
additional information.
|
|
Risk
factors
|
See the section
entitled “Risk Factors” and other information included
in this prospectus for a discussion of factors you should carefully
consider before deciding to invest in shares of our common
stock.
|
|
Proposed
Nasdaq Capital Market symbol
|
NDRA. There is no
established trading market for the warrants and we do not expect a
market to develop. In addition, we do not intend to apply for the
listing of the warrants on any national securities exchange or
other trading market. Without an active trading market, the
liquidity of the warrants will be limited.
|
|
(1)
The number of
shares of our common stock to be outstanding after this offering is
based on
2,531,808
shares of common stock outstanding as of
September 30
,
2016, assumes the conversion of the outstanding principal and
accrued interest on our outstanding convertible promissory notes at
September 30, 2016 into an aggregate of 3,576,225 shares of our
common stock at a conversion price of $0.40 per share immediately
prior to the completion of this offering, and excludes the
following
:
●
534,842
shares of common stock issuable
upon the exercise of outstanding warrants, at a weighted average
exercise price of $
5.41
per
share;
●
531,584
shares of our common stock issuable
upon the exercise of outstanding stock options issued pursuant to
our 2016 Omnibus Incentive Plan, or our Incentive Plan, at a
weighted average exercise price of $
2.86
per share and an estimated
shares of our common stock issuable upon the exercise of stock
options expected to be granted to our directors and certain of our
officers upon the completion of this offering at an exercise price
equal to the public offering price set forth on the cover of this
prospectus;
●
an
estimated
shares of our common stock that will be reserved for future
issuance under our Incentive Plan;
●
up
to
shares of our common stock that may be issued under warrants to be
sold in this offering; and
●
shares of our
common stock issuable upon exercise of the underwriters’
warrants.
(2) Except as
otherwise indicated herein, all information in this prospectus
assumes or gives effect to:
●
the conversion of
the outstanding principal and accrued interest on our outstanding
convertible promissory notes as of September 30, 2016 into an
aggregate of
3,576,225 shares of our
common stock at a conversion price of $0.40 per share immediately
prior to the completion of this
offering;
●
the
adoption of our Fourth Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws in connection with
the consummation of this offering; and
●
no
exercise of the underwriters’ over-allotment
option.
(3)
The
underwriters will be unable to satisfy any over-allotment of shares
and warrants without exercising the underwriters’
over-allotment option with respect to the warrants. The
underwriters may satisfy some or all of the overallotment of shares
of our common stock, if any, by purchasing shares in the open
market and will have no obligation to exercise the over-allotment
option with respect to our common stock.
|
|
SUMMARY SELECTED FINANCIAL DATA
The following tables set forth a summary of our historical
financial data at, and for the period ended on, the dates
indicated. We have derived the statements of operations data for
the years ended December 31, 2015 and 2014 from our audited
financial statements included in this prospectus. We have derived
the statements of operations data for the nine month
periods ended September 30, 2016 and 2015, and the
balance sheet data as of September 30, 2016 from our
unaudited financial statements included
in this prospectus. The unaudited financial data includes, in the
opinion of our management, all adjustments, consisting of normal
recurring adjustments that are necessary for a fair presentation of
our financial position and results of operations for these periods.
Our historical results for any prior period are not necessarily
indicative of results to be expected in any other period or for the
year ended December 31, 2016. You should read this data together
with our financial statements and related notes appearing elsewhere
in this prospectus and the section of this prospectus entitled
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
I
ncome
Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
1,410,064
|
$
559,355
|
$
0
|
$
1,155,065
|
|
Gross
Profit
|
$
799,767
|
$
249,028
|
$
0
|
$
688,992
|
|
Operating
Expenses
|
$
2,302,831
|
$
1,826,391
|
$
1,464,707
|
$
1,722,256
|
|
Other
Expenses
|
$
(710,634
)
|
$
(654,697
)
|
$
613,612
|
$
707,316
|
|
Net
Loss
|
$
(2,213,698
)
|
$
(2,232,060
)
|
$
(2,078,320
)
|
$
(1,740,580
)
|
|
|
|
|
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
Current
Assets
|
$
27,614
|
$
165,428
|
$
263,192
|
|
Fixed assets,
net
|
$
274,826
|
$
307,518
|
$
236,384
|
|
Total
Assets
|
$
302,440
|
$
472,946
|
$
499,576
|
|
Liabilities and
Stockholdersí Equity
|
|
|
|
|
Current
Liabilities
|
$
230,316
|
$
111,296
|
$
908,778
|
|
Stockholdersí
Equity
|
$
72,124
|
$
361,650
|
$
(409,202
)
|
|
Total Liabilities
and Stockholdersí Equity
|
$
302,440
|
$
472,946
|
$
499,576
|
|
|
|
|
|
|
Statements of Cash Flows Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from
Operating Activities
|
$
(946,575
)
|
$
(1,388,229
)
|
$
(1,385,033
)
|
$
(979,211
)
|
|
Cash Flows from
Investing Activities
|
$
(29,963
)
|
$
(284,371
)
|
$
--
|
$
(29,963
)
|
|
Cash Flows from
Financing Activities
|
$
839,224
|
$
1,751,015
|
$
1,441,448
|
$
955,617
|
|
|
$
19,128
|
$
156,442
|
$
75,543
|
$
102,885
|
|
|
|
|
|
|
An investment in our securities involves a high degree
of risk. You should carefully consider the following information
about these risks, together with the other information appearing
elsewhere in this prospectus, before deciding to invest in our
common stock.
If any of the events described in the following risk factors
actually occurs, or if additional risks and uncertainties that are
not presently known to us or that we currently deem immaterial
later materialize, then our business, prospects, results of
operations and financial condition could be materially adversely
affected. In that event, the trading price of our common
stock could decline, and you may lose all or part of your
investment in our securities. The risks
discussed below include forward-looking statements, and our actual
results may differ substantially from those discussed in these
forward-looking statements. See “Special Note Regarding
Forward-Looking Statements and Other Information Contained in this
Prospectus.”
Risks
Related to Our Business
We have a history of operating losses, and we may never achieve or
maintain profitability.
We have
a limited operating history upon which investors may evaluate our
prospects. We have only generated limited revenues to date and have
a history of losses from operations. As of September
30, 2016, we had an accumulated deficit of approximately
$11,999,600. Even following the sale of common stock
in this offering, we may require additional capital to
complete the commercialization of our planned TAEUS
applications and to meet our growth and profitability targets. We
expect to expend significant resources on hiring of personnel,
payroll and benefits, continued scientific and potential product
research and development, potential product testing and
pre-clinical and clinical investigations, intellectual property
development and prosecution, marketing and promotion, capital
expenditures, working capital, general and administrative expenses,
and fees and expenses associated with this offering. We also expect
to incur costs and expenses related to consulting, laboratory
development, hiring of scientists and other operational personnel,
and expenses associated with the development of relationships with
strategic partners.
Our
Thermo Acoustic Enhanced Ultrasound, or TAEUS, technology is still
in development and we do not have any applications for our TAEUS
technology approved for sale. Applications for our TAEUS technology
may never be approved, generate significant revenue or become
commercially viable. Our ability to generate significant revenues
and, ultimately, achieve profitability will depend on whether we
can obtain additional capital when we need it, complete the
development of our technology, receive required regulatory
approvals for our TAEUS
applications
and find
customers who will purchase our future products or strategic
partners that will incorporate our technology into their products.
Even if we develop commercially viable applications for our TAEUS
technology, which may include licensing, we may never recover our
research and development expenses and we may never be able to
produce material revenues or operate on a profitable
basis.
Our efforts may never
result in the successful development of commercial
applications
based on our TAEUS
technology.
Due to
the limited tissue penetration capability of light-based
thermoacoustic technology, we believe that there is a limited
clinical market for our current Nexus 128 product, which is focused
on laboratory specimen analysis. As a result, we are currently
focused on the development of products based on our TAEUS
technology. We have not yet completed the development of any
applications
based on such technology. Our research and development efforts
remain subject to all of the risks associated with the development
of new
products
based on emerging technologies, including, without limitation,
unanticipated technical or other problems, the inability to develop
a product that may be sold at an acceptable price point and the
possible insufficiency of funds needed in order to complete
development of these products. Technical problems may result in
delays and cause us to incur additional expenses that would
increase our losses. If we cannot complete, or if we experience
significant delays in developing
applications
based on, our
TAEUS technology, particularly after incurring significant
expenditures, our business may fail.
Our success is substantially dependent on the success of
applications for our TAEUS platform.
To date
we have generated only limited sales of our existing Nexus 128
product and our ability to generate meaningful revenues in the
future will depend on the successful development and
commercialization of our TAEUS platform applications. The
commercial success of our TAEUS platform applications and our
ability to generate revenues will depend on many factors, including
the following:
●
our
successful development of applications for our TAEUS technology,
such as those we intend to pursue for the diagnosis of Non-Alcohol
Fatty Liver Disease, or NAFLD, and the monitoring of thermal
ablation surgery, and the acceptance in the marketplace by
physicians and patients of such applications;
●
the
successful design and manufacturing of a device or devices which
enable the use of our TAEUS technology by physicians on their
patients;
●
receipt
of necessary regulatory approvals;
●
sufficient
coverage or reimbursement by third-party payors;
●
our
ability to successfully market our products;
●
our ability to demonstrate that our TAEUS
applications
have advantages over
competing products and procedures;
●
the
amount and nature of competition from competing or alternative
imaging products; and
●
our
ability to establish and maintain commercial manufacturing,
distribution and sales force capabilities.
We have limited data regarding the efficacy of our TAEUS platform
applications. If our applications do not perform in accordance with
our expectations, we are unlikely to successfully commercialize our
applications, even if they receive regulatory
approval.
Our
success depends in large part on the medical and third-party payor
community’s acceptance of our TAEUS applications. As a
result, even if we receive regulatory approval for our
applications, we believe that we will need to obtain additional
clinical data from users of our applications to persuade medical
professions to use our applications. We may conduct post-approval
clinical testing to obtain such additional data. Clinical testing
is expensive, can take a significant amount of time to complete and
can have uncertain outcomes. We have not yet conducted any clinical
studies and there can be no assurance that the results of any such
studies will be positive. Our failure to conduct successful
clinical studies could have a material, adverse impact on our
business.
Our limited operating history makes it difficult to evaluate our
business, predict our future results or forecast our financial
performance and growth.
We were
incorporated in 2007 and began commercializing our initial
pre-clinical Nexus 128 products in 2010. Our limited operating
history makes it difficult to evaluate our business, predict our
future results or forecast our financial performance and growth. If
our assumptions regarding the risks and uncertainties we face,
which we use to plan our business, are incorrect or change due to
circumstances in our business or our markets, or if we do not
address these risks successfully, our operating and financial
results could differ materially from our expectations and our
business could suffer.
We
may not remain commercially viable if there is an inadequate level
of reimbursement by governmental programs and other third-party
payors.
Medical imaging
products are purchased principally by hospitals, physicians and
other healthcare providers around the world that typically bill
various third-party payors, including governmental programs
(
e.g.
, Medicare and
Medicaid in the United States), private insurance plans and managed
care programs, for the services provided to their
patients.
Third-party payors
and governments may approve or deny coverage for certain
technologies and associated procedures based on independently
determined assessment criteria. Reimbursement decisions by payors
for these services are based on a wide range of methodologies that
may reflect the servicesí assessed resource costs, clinical
outcomes and economic value. These reimbursement methodologies and
decisions confer different, and sometimes conflicting, levels of
financial risk and incentives to healthcare providers and patients,
and these methodologies and decisions are subject to frequent
refinements. Third-party payors are also increasingly adjusting
reimbursement rates, often downwards, indirectly challenging the
prices charged for medical products and services. There can be no
assurance that our products will be covered by third-party payors,
that adequate reimbursement will be available or, even if payment
is available, that third-party payorsí coverage policies will
not adversely affect our ability to sell our products
profitably.
We will depend on third parties to design, manufacture and seek
regulatory approval of our TAEUS
applications
. If any third
party fails to successfully design, manufacture and gain regulatory
approval of our TAEUS
applications
, our business
will be materially harmed.
We
currently intend to outsource the design and manufacturing of
applications utilizing our TAEUS technology rather than manufacture
our TAEUS applications ourselves. We will have limited control over
the efforts and resources that any third-party original equipment
manufacturer, or OEM, will devote to developing and manufacturing
our TAEUS applications. In addition, we currently expect to depend
on OEMs to acquire CE marks for the device or devices that they
develop and manufacture which are necessary to permit marketing of
those devices in the European Union.
An OEM
may not be able to successfully design and manufacture the products
it develops based on our TAEUS technology, may not devote
sufficient time and resources to support these efforts or may fail
in gaining the required regulatory approvals of our TAEUS
applications. The failure by an OEM in its efforts to design,
manufacture or gain regulatory approval of our TAEUS applications
could substantially harm the value of our TAEUS technology, brand
and business.
If
we are unable to manage the anticipated growth of our business, our
future revenues and operating results may be
harmed.
Because of our
small size, growth in accordance with our business plan, if
achieved, will place a significant strain on our financial,
technical, operational and management resources. As we expand our
activities, there will be additional demands on these resources.
The failure to continue to upgrade our technical, administrative,
operating and financial control systems or the occurrence of
unexpected expansion difficulties, including issues relating to our
research and development activities and retention of experienced
scientists, managers and technicians, could have a material adverse
effect on our business, financial condition and results of
operations and our ability to timely execute our business plan. If
we are unable to implement these actions in a timely manner, our
results may be adversely affected.
Competition in the medical imaging market is intense and we may be
unable to successfully compete.
In
general, competition in the medical imaging market is very
significant and characterized by extensive research and development
and rapid technological change. Competitors in this market include
very large companies with significantly greater resources than we
have. To successfully compete in this market we will need to
develop TAEUS applications for particular applications that offer
significant advantages over alternative imaging products and
procedures for such applications.
Developments by
other medical imaging companies of new or improved products,
processes or technologies may make our products or proposed
products obsolete or less competitive. Alternative medical imaging
devices may be more accepted or cost-effective than our products.
Competition from these companies for employees with experience in
the medical imaging industry could result in higher turnover of our
employees. If we are unable to respond to these competitive
pressures, we could experience delayed or reduced market acceptance
of our products, higher expenses and lower revenue. If we are
unable to compete effectively with current or new entrants to these
markets, we will be unable to generate sufficient revenue to
maintain our business.
For
additional information regarding our competition, see the section
of this prospectus captioned
“BusinessóCompetition.”
Changes in the healthcare industry could result in a reduction in
the size of the market for our products or may require us to
decrease the selling price for our products, either of which could
have a negative impact on our financial performance.
Trends
toward managed care, healthcare cost containment, and other changes
in government and private sector initiatives in Europe, the United
States and China are placing increased emphasis on lowering the
cost of medical services, which could adversely affect the demand
for or the prices of our products. For example:
●
major
third-party payors of hospital and non-hospital based healthcare
services could revise their payment methodologies and impose
stricter standards for reimbursement of imaging procedures charges
and/or a lower or more bundled reimbursement;
●
there
has been a consolidation among healthcare facilities and purchasers
of medical devices who prefer to limit the number of suppliers from
whom they purchase medical products, and these entities may decide
to stop purchasing our products or demand discounts on our
prices;
●
there
is economic pressure to contain healthcare costs in markets
throughout the world; and
●
there
are proposed and existing laws and regulations in international and
domestic markets regulating pricing and profitability of companies
in the healthcare industry.
These
trends could lead to pressure to reduce prices for our products and
could cause a decrease in the demand for our products in any given
market that could adversely affect our revenue and profitability,
which could harm our business.
We have limited selling, marketing and manufacturing resources,
which may restrict our success in commercializing our TAEUS
technology.
We currently
do not have a sales, marketing, customer support or manufactoring
team dedicated to our TAEUS clinical applications. To grow
our business as planned, we must expand our sales, marketing,
customer support and manufacturing capabilities. We must also
establish satisfactory arrangements for the manufacture and
distribution of our TAEUS applications, which will involve the
development of our commercial infrastructure and/or collaborative
commercial arrangements and partnerships. We may be unable to
attract, retain and manage the specialized workforce and
collaborative manufacturing and distribution arrangements necessary
to successfully commercialize our products. In addition, developing
these functions is time consuming and expensive. We intend to
partner with others to assist us with some or all of these
functions. However, we may be unable to find appropriate third
parties with whom to enter into these arrangements. Furthermore, if
we do enter into these arrangements, these third parties may not
perform as expected.
If we experience problems in our relationships with our
distributors, our ability to sell our products could be
limited.
Because
we are a small company with limited resources, we expect to depend
on distributors to help promote market acceptance and demand for
our products. Distributors that are in the business of selling
other medical products may not devote a sufficient level of
resources and support required to generate awareness of our
products and grow or maintain product sales. If our distributors
are unwilling or unable to market and sell our products, or if they
do not perform to our expectations, we could experience delayed or
reduced market acceptance and sales of our products. In addition,
disagreements with our distributors or non-performance by these
third parties could lead to costly and time-consuming litigation or
arbitration and disrupt distribution channels for a period of time
and require us to re-establish a distribution channel.
We have and may in the future form or seek additional strategic
alliances, collaborations or enter into licensing arrangements, and
we may not realize the benefits of such alliances, collaborations
or licensing arrangements.
In
April 2016, we entered into a Collaborative Research Agreement with
GE Healthcare under which GE Healthcare has agreed to support our
efforts to commercialize our TAEUS technology for use in an NAFLD
application by, among other things, providing equipment and
technical advice, and facilitating introductions to GE Healthcare
clinical ultrasound customers. This agreement does not commit GE
Healthcare to a long-term relationship and it may disengage with us
at any time.
We
may in the future form or seek additional strategic alliances,
create joint ventures or collaborations or enter into licensing
arrangements with third parties that we believe will complement or
augment our development and commercialization efforts with respect
to our technologies and applications.
Any
of these relationships may require us to incur non-recurring and
other charges, increase our near- and long-term expenditures, issue
securities that dilute our existing stockholders or disrupt our
management and business. In addition, we face significant
competition in seeking appropriate strategic partners and the
negotiation process is time-consuming and complex. If we license
technologies or applications, we may not be able to realize the
benefit of such transactions. Further, strategic alliances and
collaborations are subject to numerous risks, which may include the
following:
●
collaborators
have significant discretion in determining the efforts and
resources that they will apply to a collaboration;
●
collaborators
may not pursue development and commercialization of our
technologies and applications or may elect not to continue or renew
development or commercialization programs based on clinical trial
results, changes in their strategic focus due to the acquisition of
competitive products, availability of funding, or other external
factors, such as a business combination that diverts resources or
creates competing priorities;
●
collaborators
may delay clinical trials, provide insufficient funding for a
clinical trial, stop a clinical trial, abandon the development of
an application, repeat or conduct new clinical trials, or require a
new formulation of an application for clinical
testing;
●
collaborators
could independently develop, or develop with third parties,
products that compete directly or indirectly with our applications
and technologies;
●
a
collaborator with marketing and distribution rights to one or more
applications may not commit sufficient resources to their marketing
and distribution;
●
collaborators
may not properly maintain or defend our intellectual property
rights or may use our intellectual property or proprietary
information in a way that gives rise to actual or threatened
litigation that could jeopardize or invalidate our intellectual
property or proprietary information or expose us to potential
liability;
●
disputes
may arise between us and a collaborator that cause the delay or
termination of the research, development or commercialization of
our technologies and applications, or that result in costly
litigation or arbitration that diverts management attention and
resources;
●
collaborations
may be terminated and, if terminated, may result in a need for
additional capital to pursue further development or
commercialization of the applicable applications or technologies;
and
●
collaborators
may own or co-own intellectual property covering our products that
results from our collaborating with them, and in such cases, we
would not have the exclusive right to commercialize such
intellectual property.
As
a result, if we enter into collaboration agreements and strategic
partnerships or license our applications or technologies, we may
not be able to realize the benefit of such transactions if we are
unable to successfully integrate them with our existing operations
and company culture, which could delay our timelines or otherwise
adversely affect our business. We also cannot be certain that,
following a strategic transaction or license, we will achieve the
revenue or specific net income that justifies such transaction. Any
delays in entering into new strategic partnership agreements
related to our applications could delay the development and
commercialization of our technologies and applications in certain
geographies or for certain applications, which would harm our
business prospects, financial condition and results of
operations.
We intend to market our TAEUS applications, if approved, globally,
in which case we will be subject to the risks of doing business
outside of the United States.
Because
we intend to market our TAEUS applications, if approved, globally,
our business may be subject to risks associated with doing business
globally. Accordingly, our business and financial results in the
future could be adversely affected due to a variety of factors,
including:
●
changes
in a specific country’s or region’s political and
cultural climate or economic condition;
●
unexpected
changes in laws and regulatory requirements in local
jurisdictions;
●
difficulty
of effective enforcement of contractual provisions in local
jurisdictions;
●
inadequate
intellectual property protection in certain countries;
●
trade-protection
measures, import or export licensing requirements such as Export
Administration Regulations promulgated by the United States
Department of Commerce and fines, penalties or suspension or
revocation of export privileges;
●
effects
of applicable local tax structures and potentially adverse tax
consequences; and
●
significant
adverse changes in currency exchange rates.
We depend on our senior management team and the loss of one or more
key employees or an inability to attract and retain highly skilled
employees could harm our business.
Our
success largely depends upon the continued services of our
executive management team and key employees and the loss of one or
more of our executive officers or key employees could harm us and
directly impact our financial results. Our employees may terminate
their employment with us at any time. Our executive management team
has significant experience and knowledge of medical devices and
ultrasound systems, and the loss of any team member could impair
our ability to design, identify, and develop new intellectual
property and new scientific or product ideas. Additionally, if we
lose the services of any of these persons, we would likely be
forced to expend significant time and money in the pursuit of
replacements, which may result in a delay in the implementation of
our business plan and plan of operations. We can give no assurance
that we could find satisfactory replacements for these individuals
on terms that would not be unduly expensive or burdensome to
us.
To
execute our growth plan, we must attract and retain highly
qualified personnel. Competition for skilled personnel is intense,
especially for engineers with high levels of experience in
designing and developing medical devices and for sales executives,
especially with industry expertise. We may experience,
difficulty in hiring and retaining employees with appropriate
qualifications. Many of the companies with which we compete for
experienced personnel have greater resources than we have. In
addition, we invest significant time and expense in training our
employees, which increases their value to competitors who may seek
to recruit them. If we fail to attract new personnel or fail to
retain and motivate our current personnel, our business and future
growth prospects would be harmed.
Our employees, independent contractors, consultants, commercial
partners and vendors may engage in misconduct or other improper
activities, including noncompliance with regulatory standards and
requirements.
We are
exposed to the risk of fraud, misconduct or other illegal activity
by our employees, independent contractors, consultants, commercial
partners and vendors. Misconduct by these parties could include
intentional, reckless and negligent conduct that fails to: comply
with the U.S. Food, Drug and Cosmetics Act, or the
FD&C Act, and similar laws of other countries, and
rules and regulations of the U.S. Food and Drug Administration, or
the FDA, and other similar foreign regulatory bodies; provide true,
complete and accurate information to the FDA and other similar
foreign regulatory bodies; comply with manufacturing standards we
establish; comply with healthcare fraud and abuse laws in the
United States and similar foreign fraudulent misconduct laws; or
report financial information or data accurately or to disclose
unauthorized activities to us. If we obtain European, Chinese or
FDA approval of any of our products and begin commercializing those
products in Europe, China or the United States, respectively, our
potential exposure under such laws will increase significantly, and
our costs associated with compliance with such laws are also likely
to increase. In particular, the promotion, sales and marketing of
healthcare items and services, as well as certain business
arrangements in the healthcare industry, are subject to extensive
laws designed to prevent fraud, kickbacks, self-dealing and other
abusive practices. These laws and regulations may restrict or
prohibit a wide range of pricing, discounting, marketing and
promotion, structuring and commissions, certain customer incentive
programs and other business arrangements generally. It is not
always possible to identify and deter misconduct by employees and
other parties, and the precautions we take to detect and prevent
this activity may not be effective in controlling unknown or
unmanaged risks or losses or in protecting us from governmental
investigations or other actions or lawsuits stemming from a failure
to comply with these laws or regulations. If any such actions are
instituted against us, and we are not successful in defending
ourselves or asserting our rights, those actions could have a
significant impact on our business, including the imposition of
significant fines or other sanctions.
Misdiagnosis, warranty and other claims initiated against us and
product field actions could increase our costs, delay or reduce our
sales and damage our reputation, adversely affecting our financial
condition.
Our
business exposes us to the risk of malpractice, warranty or product
liability claims inherent in the sale and support of medical device
products, including those based on claims that the use or failure
of one of our products resulted in a misdiagnosis or harm to a
patient. Such claims may cause financial loss, damage our
reputation by raising questions about our products’ safety
and efficacy, adversely affect regulatory approvals and interfere
with our efforts to market our products. Although to date we have
not been involved in any medical malpractice or product liability
litigation, we may incur significant liability if such litigation
were to occur. We may also face adverse publicity resulting from
product field actions or regulatory proceedings brought against us.
Claims could also be asserted under state consumer protection acts.
If we cannot successfully defend ourselves against product
liability or related claims, we may incur substantial liabilities
or be required to limit distribution of our products. Even a
successful defense would require significant financial and
management resources. Regardless of the merits or eventual outcome,
liability claims may result in:
●
decreased
demand for our products;
●
injury
to our reputation and negative media attention;
●
initiation
of investigations by regulators;
●
costs
to defend the related litigation;
●
a
diversion of management’s time and our
resources;
●
substantial
monetary awards to trial participants or
patients;
●
product
recalls, withdrawals or labeling, marketing or promotional
restrictions;
●
exhaustion
of any available insurance and our capital
resources;
●
the
inability to commercialize a product at all or for particular
applications; and
●
a
decline in the price of our common stock.
Although we
currently maintain liability insurance in amounts we believe are
commercially reasonable, any liability we incur may exceed our
insurance coverage. Our insurance policies may also have various
exclusions, and we may be subject to a claim for which we have no
coverage. Liability insurance is expensive and may cease to be
available on acceptable terms, if at all. A malpractice, warranty,
product liability or other claim or product field action not
covered by our insurance or exceeding our coverage could
significantly impair our financial condition. In addition, a
product field action or a liability claim against us could
significantly harm our reputation and make it more difficult to
obtain the funding and commercial relationships necessary to
maintain our business.
Our internal computer systems, or those used by third-party
manufacturers or other contractors or consultants, may fail or
suffer security breaches.
Despite
the implementation of security measures, our internal computer
systems and those of our future manufacturers and other contractors
and consultants are vulnerable to damage from computer viruses and
unauthorized access. Although to our knowledge we have not
experienced any such material system failure or security breach to
date, if such an event were to occur and cause interruptions in our
operations, it could result in a material disruption of our
development programs and our business operations. To the extent
that any disruption or security breach were to result in a loss of,
or damage to, our data or applications, or inappropriate disclosure
of confidential or proprietary information, we could incur
liability and the further development and commercialization of our
products could be delayed.
Unfavorable economic conditions may have an adverse impact on our
business.
Unfavorable changes
in economic conditions, including inflation, recession, or other
changes in economic conditions, may result in lower consumer
healthcare spending as well as physician and hospital spending and
availability of credit. If demand for medical devices or budgets
for capital improvements decline, our revenue could be adversely
affected. Additionally, if our suppliers face challenges in
obtaining credit, in selling their products or otherwise in
operating their businesses, they may become unable to continue to
offer the materials we use to manufacture our products, which could
result in sales disruption.
We may
face significant challenges if global economic conditions remain
unstable or worsen, including reduced demand for our products and
services, increased order cancellations, longer sales cycles and
slower adoption of new technologies; increased difficulty in
collecting accounts receivable and increased risk of excess and
obsolete inventories; increased price competition in our served
markets; increased prices in components as a result of higher
commodities prices; supply chain interruptions, which could disrupt
our ability to produce our products; and increased risk of
impairment of investments, goodwill and intangible and long-lived
assets.
The United Kingdom’s vote to leave the European Union will
have uncertain effects and could adversely affect us.
The
United Kingdom held a referendum on June 23, 2016 in which a
majority of voters voted to exit the European Union, commonly
referred to as “Brexit”. Negotiations are expected to
commence to determine the future terms of the United
Kingdom’s relationship with the European Union, including,
among other things, the terms of trade between the United Kingdom
and the European Union. The effects of Brexit will depend on any
agreements the United Kingdom makes to retain access to E.U.
markets either during a transitional period or more permanently.
Brexit could adversely affect European and worldwide economic and
market conditions and could contribute to instability in global
financial and foreign exchange markets, including volatility in the
value of the Sterling and Euro. In addition, Brexit could lead to
legal uncertainty and potentially divergent national laws and
regulations as the United Kingdom determines which E.U. laws to
replace or replicate. Any of these effects of Brexit, and others we
cannot anticipate, could adversely affect our business, results of
operations, financial condition and cash flows.
Risks
Related to Intellectual Property and Other Legal
Matters
If we are unable to protect our intellectual property, then our
financial condition, results of operations and the value of our
technology and products could be adversely affected.
Much of
our value arises out of our proprietary technology and intellectual
property for the design, manufacture and use of medical imaging
systems, including development of our TAEUS applications. We rely
on patent, copyright, trade secret and trademark laws to protect
our proprietary technology and limit the ability of others to
compete with us using the same or similar technology. Third parties
may infringe or misappropriate our intellectual property, which
could harm our business.
We
currently maintain a patent portfolio consisting of two granted
patents and thirteen pending patent applications in the United
States and foreign jurisdictions relating to our technology. In
addition, we currently license eight granted patents and three
pending patent applications in the United States and foreign
jurisdictions. We or our licensor may fail to maintain these
patents, may determine not to pursue litigation against entities
that are infringing upon these patents, or may pursue such
enforcement less aggressively than we ordinarily
would.
Policing
unauthorized use of our intellectual property is difficult, costly
and time-intensive. We may fail to stop or prevent misappropriation
of our technology, particularly in countries where the laws may not
protect our proprietary rights to the same extent as do the laws of
the United States. Proceedings to enforce our patent and other
intellectual property rights in non-U.S. jurisdictions could result
in substantial costs and divert our efforts and attention from
other aspects of our business. If we cannot prevent other companies
from using our proprietary technology or if our patents are found
invalid or otherwise unenforceable, we may be unable to compete
effectively against other manufacturers of ultrasound systems,
which could decrease our market share. In addition, the breach of a
patent licensing agreement by us may result in termination of a
patent license.
If we are unable to protect the confidentiality of our proprietary
information and know-how, the value of our technology and products
could be adversely affected.
In
addition to our patent activities, we rely upon, among other
things, unpatented proprietary technology, processes, trade secrets
and know-how. Any involuntary disclosure to or misappropriation by
third parties of our confidential or proprietary information could
enable competitors to duplicate or surpass our technological
achievements, potentially eroding our competitive position in our
market. We seek to protect confidential or proprietary information
in part by confidentiality agreements with our employees,
consultants and third parties. While we require all of our
employees, consultants, advisors and any third parties who have
access to our proprietary know-how, information and technology to
enter into confidentiality agreements, we cannot be certain that
this know-how, information and technology will not be disclosed or
that competitors will not otherwise gain access to our trade
secrets or independently develop substantially equivalent
information and techniques. These agreements may be terminated or
breached, and we may not have adequate remedies for any such
termination or breach. Furthermore, these agreements may not
provide meaningful protection for our trade secrets and know-how in
the event of unauthorized use or disclosure. To the extent that any
of our staff was previously employed by other pharmaceutical,
medical technology or biotechnology companies, those employers may
allege violations of trade secrets and other similar claims in
relation to their former employee’s therapeutic development
activities for us.
We may in the future be a party to intellectual property litigation
or administrative proceedings that could be costly and could
interfere with our ability to sell our TAEUS
applications.
The
medical device industry has been characterized by extensive
litigation regarding patents, trademarks, trade secrets, and other
intellectual property rights, and companies in the industry have
used intellectual property litigation to gain a competitive
advantage. It is possible that U.S. and foreign patents and pending
patent applications or trademarks controlled by third parties may
be alleged to cover our products, or that we may be accused of
misappropriating third parties’ trade secrets. Other medical
imaging market participants, many of which have substantially
greater resources and have made substantial investments in patent
portfolios, trade secrets, trademarks, and competing technologies,
may have applied for or obtained or may in the future apply for or
obtain, patents or trademarks that will prevent, limit or otherwise
interfere with our ability to make, use, sell and/or export our
products or to use product names. We may become a party to patent
or trademark infringement or trade secret claims and litigation as
a result of these and other third party intellectual property
rights being asserted against us. The defense and prosecution of
these matters are both costly and time consuming. Vendors from whom
we purchase hardware or software may not indemnify us in the event
that such hardware or software is accused of infringing a third
party's patent or trademark or of misappropriating a third
party’s trade secret.
Further, if such
patents, trademarks, or trade secrets are successfully asserted
against us, this may harm our business and result in injunctions
preventing us from selling our products, license fees, damages and
the payment of attorney fees and court costs. In addition, if we
are found to willfully infringe third-party patents or trademarks
or to have misappropriated trade secrets, we could be required to
pay treble damages in addition to other penalties. Although patent,
trademark, trade secret, and other intellectual property disputes
in the medical device area have often been settled through
licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing
royalties. We may be unable to obtain necessary licenses on
satisfactory terms, if at all. If we do not obtain necessary
licenses, we may not be able to redesign our TAEUS applications to
avoid infringement.
Similarly,
interference or derivation proceedings provoked by third parties or
brought by the U.S. Patent and Trademark Office, or USPTO, may be
necessary to determine the priority of inventions or other matters
of inventorship with respect to our patents or patent applications.
We may also become involved in other proceedings, such as
re-examination, inter partes review, or opposition proceedings,
before the USPTO or other jurisdictional body relating to our
intellectual property rights or the intellectual property rights of
others. Adverse determinations in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent us
from manufacturing and selling our TAEUS applications or using
product names, which would have a significant adverse impact on our
business.
Additionally, we
may need to commence proceedings against others to enforce our
patents or trademarks, to protect our trade secrets or know-how, or
to determine the enforceability, scope and validity of the
proprietary rights of others. These proceedings would result in
substantial expense to us and significant diversion of effort by
our technical and management personnel. We may not prevail in any
lawsuits that we initiate and the damages or other remedies
awarded, if any, may not be commercially meaningful. We may not be
able to stop a competitor from marketing and selling products that
are the same or similar to our products or from using product names
that are the same or similar to our product names, and our business
may be harmed as a result.
Intellectual property rights may not provide adequate protection,
which may permit third parties to compete against us more
effectively.
In
order to remain competitive, we must develop and maintain
protection of the proprietary aspects of our technologies. We rely
on a combination of patents, copyrights, trademarks, trade secret
laws and confidentiality and invention assignment agreements to
protect our intellectual property rights. Any patents issued to us
may be challenged by third parties as being invalid, or third
parties may independently develop similar or competing technology
that avoids our patents. Should such challenges be successful,
competitors might be able to market products and use manufacturing
processes that are substantially similar to ours. We may not be
able to prevent the unauthorized disclosure or use of our technical
knowledge or other trade secrets by consultants, vendors or former
or current employees, despite the existence generally of
confidentiality agreements and other contractual restrictions.
Monitoring unauthorized use and disclosure of our intellectual
property is difficult, and we do not know whether the steps we have
taken to protect our intellectual property will be adequate. In
addition, the laws of many foreign countries will not protect our
intellectual property rights to the same extent as the laws of the
United States. Consequently, we may be unable to prevent our
proprietary technology from being exploited abroad, which could
affect our ability to expand to international markets or require
costly efforts to protect our technology. To the extent our
intellectual property protection is incomplete, we are exposed to a
greater risk of direct competition. In addition, competitors could
purchase our products and attempt to replicate some or all of the
competitive advantages we derive from our development efforts or
design around our protected technology. Our failure to secure,
protect and enforce our intellectual property rights could
substantially harm the value of our TAEUS platform, brand and
business.
Risks
Related to Government Regulation
Failure to comply with laws and regulations could harm our
business.
Our
business is or in the future may be subject to regulation by
various federal, state, local and foreign governmental agencies,
including agencies responsible for monitoring and enforcing
employment and labor laws, workplace safety, environmental laws,
consumer protection laws, anti-bribery laws, import/export
controls, securities laws and tax laws and regulations. In certain
jurisdictions, these regulatory requirements may be more stringent
than those in the United States. Noncompliance with applicable
regulations or requirements could subject us to investigations,
sanctions, mandatory recalls, enforcement actions, adverse
publicity, disgorgement of profits, fines, damages, civil and
criminal penalties or injunctions and administrative actions. If
any governmental sanctions, fines or penalties are imposed, or if
we do not prevail in any possible civil or criminal litigation, our
business, operating results and financial condition could be
harmed. In addition, responding to any action will likely result in
a significant diversion of management's attention and our resources
and substantial costs. Enforcement actions and sanctions could
further harm our business, operating results and financial
condition.
If we fail to obtain and maintain necessary regulatory clearances
or approvals for our TAEUS applications, or if clearances or
approvals for future applications and indications are delayed or
not issued, our commercial operations will be harmed.
The
medical devices that we manufacture and market are subject to
regulation by numerous worldwide regulatory bodies, including the
FDA and comparable international regulatory agencies. These
agencies require manufacturers of medical devices to comply with
applicable laws and regulations governing development, testing,
manufacturing, labeling, marketing and distribution of medical
devices. Devices are generally subject to varying levels of
regulatory control, based on the risk level of the device.
Governmental regulations specific to medical devices are
wide-ranging and govern, among other things:
●
product
design, development and manufacture;
●
laboratory,
pre-clinical and clinical testing, labeling, packaging storage and
distribution;
●
premarketing
clearance or approval;
●
product
marketing, promotion and advertising, sales and distribution;
and
●
post-marketing
surveillance, including reporting of deaths or serious injuries and
recalls and correction and removals.
In the
European Union, we will be required to comply with applicable
medical device directives (including the Medical Devices Directive
and the Active Implantable Medical Devices Directive) and obtain CE
mark certification in order to market medical devices. The CE mark
is applied following approval from an independent notified body or
declaration of conformity. It is an international symbol of
adherence to quality assurance standards and compliance with
applicable European Medical Devices Directives. We believe that our
TAEUS applications will qualify for sale in the European Union as
Class IIa medical devices.
Existing regulations do
not
require clinical trials to obtain CE marks for Class IIa medical
devices. However, in 2012 the European Commission proposed a new
regulatory scheme that, if implemented, will impose significant
additional obligations on medical device companies. Expected
changes include stricter requirements for clinical evidence and
pre-market assessment of safety and performance, new
classifications to indicate risk levels, requirements for third
party testing by government accredited groups for some types of
medical devices, and tightened and streamlined quality management
system assessment procedures. It is anticipated that this new
regulatory scheme may be implemented prior to receipt of the CE
mark for our NAFLD TAEUS application but we believe that applicable
transition rules should allow us to avoid their application in that
case. However, such new rules could impose additional requirements,
such as a requirement to conduct clinical trials, on future CE mark
applications we make.
We are also
required to comply with the regulations of each other country where
we commercialize products, such as the requirement that we obtain
approval from the FDA and the China Food and Drug Administration
before we can launch new products in the United States and China,
respectively.
International sales
of medical devices manufactured in the United States that are not
approved by the FDA for use in the United States, or that are
banned or deviate from lawful performance standards, are subject to
FDA export requirements. Exported devices are subject to the
regulatory requirements of each country to which the device is
exported. Frequently, regulatory approval may first be obtained in
a foreign country prior to application in the United States due to
differing regulatory requirements; however, other countries, such
as China for example, require approval in the country of origin
first.
Before
a new medical device or a new intended use for an existing product
can be marketed in the United States, a company must first submit
and receive either 510(k) clearance or premarketing approval, or
PMA, from the FDA, unless an exemption applies. The typical
duration to receive a 510(k) approval is approximately nine to
twelve months from the date of the initial 510(k) submission and
the typical duration to receive a PMA approval is approximately two
years from the date of submission of the initial PMA application,
although there is no guarantee that the timing will not be
longer.
We
expect all of our products to be classified as Class II medical
devices that may be approved by means of a 510(k) clearance. In the
past, the 510(k) pathway for product marketing has required only
proof of substantial equivalence in technology for a given
indication with a previously cleared device. Recently, there has
been a trend of the FDA requiring additional clinical work to prove
efficacy in addition to technological equivalence and basic safety.
Whether clinical data is provided or not, the FDA may decide to
reject the substantial equivalence argument we present. If that
happens, the device is automatically designated as a Class III
device. The device sponsor must then fulfill more rigorous PMA
requirements, or can request a risk-based classification
determination for the device in accordance with the “de
novo” process, which may determine that the new device is of
low to moderate risk and that it can be appropriately be regulated
as a Class I or II device. Thus, although at this time we do not
anticipate that we will be required to do so, it is possible that
one or more of our other products may require approval through the
510(K) de novo process or by means of a PMA.
We may not be able
to obtain the necessary clearances or approvals or may be unduly
delayed in doing so, which could harm our business. Furthermore,
even if we are granted regulatory clearances or approvals, they may
include significant limitations on the indicated uses for the
product, which may limit the market for the product. Therefore,
even if we believe we have successfully developed our TAEUS
technology, we may not be permitted to market TAEUS applications in
the United States if we do not obtain FDA regulatory clearance to
market such applications. Delays in obtaining clearance or approval
could increase our costs and harm our revenues and
growth.
In
addition, we are required to timely file various reports with the
FDA, including reports required by the medical device reporting
regulations that require us to report to certain regulatory
authorities if our devices may have caused or contributed to a
death or serious injury or malfunctioned in a way that would likely
cause or contribute to a death or serious injury if the malfunction
were to recur. If these reports are not filed timely, regulators
may impose sanctions and sales of our products may suffer, and we
may be subject to product liability or regulatory enforcement
actions, all of which could harm our business.
If we
initiate a correction or removal for one of our devices to reduce a
risk to health posed by the device, we would be required to submit
a publically available Correction and Removal report to the FDA
and, in many cases, similar reports to other regulatory agencies.
This report could be classified by the FDA as a device recall which
could lead to increased scrutiny by the FDA, other international
regulatory agencies and our customers regarding the quality and
safety of our devices. Furthermore, the submission of these reports
has been and could be used by competitors against us in competitive
situations and cause customers to delay purchase decisions or
cancel orders and would harm our reputation.
The FDA
and the Federal Trade Commission, or FTC, also regulate the
advertising and promotion of our products to ensure that the claims
we make are consistent with our regulatory clearances, that there
are adequate and reasonable data to substantiate the claims and
that our promotional labeling and advertising is neither false nor
misleading in any respect. If the FDA or FTC determines that any of
our advertising or promotional claims are misleading, not
substantiated or not permissible, we may be subject to enforcement
actions, including warning letters, and we may be required to
revise our promotional claims and make other corrections or
restitutions.
The FDA
and state authorities have broad enforcement powers. Our failure to
comply with applicable regulatory requirements could result in
enforcement action by the FDA or state agencies, which may include
any of the following sanctions:
●
adverse
publicity, warning letters, fines, injunctions, consent decrees and
civil penalties;
●
repair,
replacement, refunds, recall or seizure of our
products;
●
operating
restrictions, partial suspension or total shutdown of
production;
●
refusing
our requests for 510(k) clearance or premarket approval of new
products, new intended uses or modifications to existing
products;
●
withdrawing
510(k) clearance or premarket approvals that have already been
granted; and
If any
of these events were to occur, our business and financial condition
would be harmed.
Our TAEUS applications may require recertification or new
regulatory clearances or premarket approvals and we may be required
to recall or cease marketing our TAEUS applications until such
recertification or clearances are obtained.
Most
countries outside of the United States require that product
approvals be recertified on a regular basis, generally every five
years. The recertification process requires that we evaluate any
device changes and any new regulations or standards relevant to the
device and, where needed, conduct appropriate testing to document
continued compliance. Where recertification applications are
required, they must be approved in order to continue selling our
products in those countries.
In the
United States, material modifications to the intended use or
technological characteristics of our TAEUS applications will
require new 510(k) clearances or premarket approvals or require us
to recall or cease marketing the modified devices until these
clearances or approvals are obtained. Based on FDA published
guidelines, the FDA requires device manufacturers to initially make
and document a determination of whether or not a modification
requires a new approval, supplement or clearance; however, the FDA
can review a manufacturer’s decision. Any modification to an
FDA-cleared device that would significantly affect its safety or
efficacy or that would constitute a major change in its intended
use would require a new 510(k) clearance or possibly a premarket
approval.
We may
not be able to obtain recertification or additional 510(k)
clearances or premarket approvals for our applications or for
modifications to, or additional indications for, our TAEUS
technology in a timely fashion, or at all. Delays in obtaining
required future governmental approvals would harm our ability to
introduce new or enhanced products in a timely manner, which in
turn would harm our future growth. If foreign regulatory
authorities or the FDA require additional approvals, we may be
required to recall and to stop selling or marketing our TAEUS
applications, which could harm our operating results and require us
to redesign our applications. In these circumstances, we may be
subject to significant enforcement actions.
If we or our suppliers fail to comply with the FDA’s Quality
System Regulations or other regulatory bodies’ equivalent
regulations, our manufacturing operations could be delayed or shut
down and TAEUS platform sales could suffer.
Our
manufacturing processes and those of our third party suppliers will
be required to comply with the FDA’s Quality System
Regulations and other regulatory bodies’ equivalent
regulations, which cover the procedures and documentation of the
design, testing, production, control, quality assurance, labeling,
packaging, storage and shipping of our TAEUS applications. We will
also be subject to similar state requirements and licenses. In
addition, we must engage in extensive recordkeeping and reporting
and must make available our manufacturing facilities and records
for periodic unannounced inspections by governmental agencies,
including the FDA, state authorities and comparable agencies in
other countries. If we fail such an inspection, our operations
could be disrupted and our manufacturing interrupted. Failure to
take adequate corrective action in response to an adverse
inspection could result in, among other things, a shut-down of our
manufacturing operations, significant fines, suspension of
marketing clearances and approvals, seizures or recalls of our
products, operating restrictions and criminal prosecutions, any of
which would cause our business to suffer. Furthermore, our key
component suppliers may not currently be or may not continue to be
in compliance with applicable regulatory requirements, which may
result in manufacturing delays for our product and cause our
results of operations to suffer.
Our TAEUS applications may in the future be subject to product
recalls that could harm our reputation.
Governmental
authorities in Europe, the United States and China have the
authority to require the recall of commercialized products in the
event of material regulatory deficiencies or defects in design or
manufacture. A government-mandated or voluntary recall by us could
occur as a result of component failures, manufacturing errors or
design or labeling defects. Recalls of our TAEUS applications would
divert managerial attention, be expensive, harm our reputation with
customers and harm our financial condition and results of
operations. A recall announcement would negatively affect our stock
price.
Healthcare reform measures could hinder or prevent our planned
products' commercial success.
There
have been, and we expect there will continue to be, a number of
legislative and regulatory changes to the healthcare system in ways
that could harm our future revenues and profitability and the
future revenues and profitability of our potential customers. In
the European Union, although there have not been any recent
amendments to the relevant regulatory legislation, there are
ongoing discussions regarding amending the current regulatory
framework for medical devices. Moreover, because the Medical
Devices Directive requires only minimum harmonization in the
European Union, member countries may alter their enforcement of the
directives or amend their national regulatory rules. We cannot
predict what healthcare initiatives, if any, will be implemented by
the European Union or E.U. member countries, or the effect any
future legislation or regulation will have on us.
In the
United States, federal and state lawmakers regularly propose and,
at times, enact legislation that would result in significant
changes to the healthcare system, some of which are intended to
contain or reduce the costs of medical products and services. For
example, one of the most significant healthcare reform measures in
decades, the Patient Protection and Affordable Care Act, as amended
by the Health Care and Education Affordability Reconciliation Act,
or Affordable Care Act, was enacted in 2010. The Affordable Care
Act contains a number of provisions, including those governing
enrollment in federal healthcare programs, reimbursement changes
and fraud and abuse measures, all of which will impact existing
government healthcare programs and will result in the development
of new programs. The Affordable Care Act, among other things,
imposes an excise tax of 2.3% on the sale of most medical devices,
including ours, and any failure to pay this amount could result in
the imposition of an injunction on the sale of our products, fines
and penalties.
It
remains unclear whether changes will be made to the Affordable Care
Act, or whether it will be repealed or materially
modified. We cannot assure you that the Affordable Care Act,
as currently enacted or as amended or discontinued in
the future, will not harm our business and financial results and we
cannot predict how future federal or state legislative or
administrative changes relating to healthcare reform will affect
our business.
There
likely will continue to be legislative and regulatory proposals at
the federal and state levels directed at containing or lowering the
cost of healthcare. We cannot predict the initiatives that may be
adopted in the future or their full impact. The continuing efforts
of the government, insurance companies, managed care organizations
and other payors of healthcare services to contain or reduce costs
of healthcare may harm:
●
our
ability to set a price that we believe is fair for our
products;
●
our
ability to generate revenues and achieve or maintain profitability;
and
●
the
availability of capital.
If we fail to comply with healthcare regulations, we could face
substantial penalties and our business, operations and financial
condition could be adversely affected.
Even
though we do not and will not control referrals of healthcare
services or bill directly to Medicare, Medicaid or other third
party payors, certain federal and state healthcare laws and
regulations pertaining to fraud and abuse and patients’
rights are and will be applicable to our business. We could be
subject to healthcare fraud and abuse and patient privacy
regulation by both the federal government and the states in which
we conduct our business. Other jurisdictions such as the European
Union have similar laws. The regulations that will affect how we
operate include:
●
the
federal healthcare program Anti-Kickback Statute, which prohibits,
among other things, any person from knowingly and willfully
offering, soliciting, receiving or providing remuneration, directly
or indirectly, in exchange for or to induce either the referral of
an individual for, or the purchase, order or recommendation of, any
good or service for which payment may be made under federal
healthcare programs, such as the Medicare and Medicaid
programs;
●
the
federal False Claims Act, which prohibits, among other things,
individuals or entities from knowingly presenting, or causing to be
presented, false claims, or knowingly using false statements, to
obtain payment from the federal government;
●
federal
criminal laws that prohibit executing a scheme to defraud any
healthcare benefit program or making false statements relating to
healthcare matters;
●
the
federal Physician Payment Sunshine Act, created under the
Affordable Care Act, and its implementing regulations, which
require manufacturers of drugs, medical devices, biologicals and
medical supplies for which payment is available under Medicare,
Medicaid, or the Children's Health Insurance Program to report
annually to the U.S. Department of Health and Human Services, or
HHS, information related to payments or other transfers of value
made to physicians and teaching hospitals, as well as ownership and
investment interests held by physicians and their immediate family
members;
●
HIPAA,
as amended by the Health Information Technology for Economic and
Clinical Health Act, which governs the conduct of certain
electronic healthcare transactions and protects the security and
privacy of protected health information; and
●
state
law equivalents of each of the above federal laws, such as
anti-kickback and false claims laws which may apply to items or
services reimbursed by any third-party payor, including commercial
insurers.
The
Affordable Care Act, among other things, amends the intent
requirement of the Federal Anti-Kickback Statute and criminal
healthcare fraud statutes. A person or entity no longer needs to
have actual knowledge of this statute or specific intent to violate
it. In addition, the Affordable Care Act provides that the
government may assert that a claim including items or services
resulting from a violation of the Federal Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the False
Claims Act.
Efforts
to ensure that our business arrangements will comply with
applicable healthcare laws may involve substantial costs. It is
possible that governmental and enforcement authorities will
conclude that our business practices do not comply with current or
future statutes, regulations or case law interpreting applicable
fraud and abuse or other healthcare laws and regulations. If any
such actions are instituted against us, and we are not successful
in defending ourselves or asserting our rights, those actions could
have a significant impact on our business, including the imposition
of civil, criminal and administrative penalties, damages,
disgorgement, monetary fines, possible exclusion from participation
in Medicare, Medicaid and other federal and similar foreign
healthcare programs, contractual damages, reputational harm,
diminished profits and future earnings, and curtailment of our
operations, any of which could harm our ability to operate our
business and our results of operations.
Compliance with environmental laws and regulations could be
expensive. Failure to comply with environmental laws and
regulations could subject us to significant liability.
Our
research and development and manufacturing operations may involve
the use of hazardous substances and are subject to a variety of
federal, state, local and foreign environmental laws and
regulations relating to the storage, use, discharge, disposal,
remediation of, and human exposure to, hazardous substances and the
sale, labeling, collection, recycling, treatment and disposal of
products containing hazardous substances. In addition, our research
and development and manufacturing operations produce biological
waste materials, such as human and animal tissue, and waste
solvents, such as isopropyl alcohol. These operations are permitted
by regulatory authorities, and the resultant waste materials are
disposed of in material compliance with environmental laws and
regulations. Liability under environmental laws and regulations can
be joint and several and without regard to fault or negligence.
Compliance with environmental laws and regulations may be expensive
and non-compliance could result in substantial liabilities, fines
and penalties, personal injury and third part property damage
claims and substantial investigation and remediation costs.
Environmental laws and regulations could become more stringent over
time, imposing greater compliance costs and increasing risks and
penalties associated with violations. We cannot assure you that
violations of these laws and regulations will not occur in the
future or have not occurred in the past as a result of human error,
accidents, equipment failure or other causes. The expense
associated with environmental regulation and remediation could harm
our financial condition and operating results.
Risks
Related to this Offering and Owning Our Common Stock and Warrants,
Our Financial Results and Our Need for Financing
Our quarterly and annual results may fluctuate significantly, may
not fully reflect the underlying performance of our business and
may result in decreases in the price of our common
stock.
Our
operating results will be affected by numerous factors such
as:
●
variations
in the level of expenses related to our proposed
products;
●
status
of our product development efforts;
●
execution
of collaborative, licensing or other arrangements, and the timing
of payments received or made under those arrangements;
●
intellectual
property prosecution and any infringement lawsuits to which we may
become a party;
●
regulatory
developments affecting our products or those of our
competitors;
●
our
ability to obtain and maintain FDA clearance and approval from
foreign regulatory authorities for our products, which have not yet
been approved for marketing;
●
market acceptance of our TAEUS
applications
;
●
the availability of reimbursement for our
TAEUS
applications
;
●
our
ability to attract new customers and grow our business with
existing customers;
●
the
timing and success of new product and feature introductions by us
or our competitors or any other change in the competitive dynamics
of our industry, including consolidation among competitors,
customers or strategic partners;
●
the
amount and timing of costs and expenses related to the maintenance
and expansion of our business and operations;
●
changes
in our pricing policies or those of our competitors;
●
general
economic, industry and market conditions;
●
the
hiring, training and retention of key employees, including our
ability to expand our sales team;
●
litigation
or other claims against us;
●
our
ability to obtain additional financing; and
●
advances
and trends in new technologies and industry standards.
Any or
all of these factors could adversely affect our cash position
requiring us to raise additional capital which may be on
unfavorable terms and result in substantial dilution.
The forecasts of market growth included in this prospectus may
prove to be inaccurate, and even if the markets in which we compete
achieve the forecasted growth, our business may not grow at similar
rates, if at all.
Growth
forecasts are subject to significant uncertainty and are based on
assumptions and estimates that may not prove to be accurate. The
forecasts in this prospectus relating to, among other things, the
expected growth and need for diagnosis of NAFLD and the growth and
need for temperature monitoring of thermal ablation procedures may
prove to be inaccurate.
Even if
these markets experience the forecasted growth described in this
prospectus, we may not grow our business at similar rates, or at
all. Our growth is subject to many factors, including whether the
markets for NAFLD diagnosis and thermal ablation continue to grow,
the rate of market acceptance of our TAEUS applications versus the
products of our competitors and our success in implementing our
business strategies, each of which is subject to many risks and
uncertainties. Accordingly, the forecasts of market growth included
in this prospectus should not be taken as indicative of our future
growth.
If we are unable to implement and maintain effective internal
control over financial reporting in the future, investors may lose
confidence in the accuracy and completeness of our financial
reports and the market price of our common stock may
decrease.
As a
public company, we will be required to maintain internal control
over financial reporting and to report any material weaknesses in
such internal controls. Section 404 of the Sarbanes-Oxley Act
of 2002, or the Sarbanes-Oxley Act, requires that we evaluate and
determine the effectiveness of our internal control over financial
reporting and, beginning with our annual report for the year ending
December 31, 2016, provide a management report on our internal
control over financial reporting, which must be attested to by our
independent registered public accounting firm to the extent we are
no longer an “emerging growth company,” as defined by
the Jumpstart Our Businesses Act of 2012, or the JOBS Act, or a
smaller reporting company under the Securities Act.
Currently and in
the future, if we have material weaknesses in our internal control
over financial reporting, we may not detect errors on a timely
basis and our financial statements may be materially misstated. We
are in the process of designing and implementing our internal
control over financial reporting, which process will be time
consuming, costly and complicated. Until such time as we are no
longer an "emerging growth company" or a smaller reporting company,
our auditors will not be required to attest as to our internal
control over financial reporting. If we continue to identify
material weaknesses in our internal control over financial
reporting, if we are unable to comply with the requirements of
Section 404 in a timely manner, if we are unable to assert
that our internal control over financial reporting is effective or,
once required, if our independent registered public accounting firm
is unable to attest that our internal control over financial
reporting is effective, investors may lose confidence in the
accuracy and completeness of our financial reports and the market
price of our common stock could decrease. We could also become
subject to stockholder or other third-party litigation as well as
investigations by the stock exchange on which our securities are
listed, the Securities and Exchange Commission, or the SEC, or
other regulatory authorities, which could require additional
financial and management resources and could result in fines,
trading suspensions or other remedies.
We may not be able to secure additional financing on favorable
terms, or at all, to meet our future capital needs and our failure
to obtain additional financing when needed could force us to delay,
reduce or eliminate our product development programs and
commercialization efforts.
We
believe that the net proceeds from this offering, together with our
current cash and expected revenues from operations, will be
sufficient for us to fund the development, regulatory approval and
the commercialization of our NAFLD TAEUS application in the
European Union and the United States. However, the expected net
proceeds from this offering are not expected to be sufficient for
us to complete the full commercialization of this application or to
complete the development of any other TAEUS application. As a
result, we expect that we will need to finance our future cash
needs through public or private equity offerings, debt financings,
corporate collaboration and licensing arrangements or other
financing alternatives.
To
date, we have financed our operations primarily through sales of
our Nexus 128 system and net proceeds from the issuance of equity
and debt securities. We do not know when or if our operations will
generate sufficient cash to fund our ongoing operations. In the
future, we may require additional capital in order to
(i) continue to conduct research and development activities;
(ii) conduct clinical studies; (iii) fund the costs of seeking
regulatory approval of TAEUS applications; (iv) expand our
sales and marketing infrastructure; (v) acquire complementary
business technology or products; or (vi) respond to business
opportunities, challenges, increased regulatory obligations or
unforeseen circumstances. Our forecast of the period of time
through which our financial resources will be adequate to support
our operations is a forward-looking statement and involves risks
and uncertainties, and actual results could vary as a result of a
number of factors, including the factors discussed elsewhere in
this “Risk Factors” section. We have based this
estimate on assumptions that may prove to be wrong, and we could
utilize our available capital resources sooner than we currently
expect. Our future funding requirements will depend on many
factors, including, but not limited to:
●
the costs, timing and outcomes of regulatory
reviews associated with our future products, including TAEUS
applications
;
●
the
costs and expenses of expanding our sales and marketing
infrastructure;
●
the costs and timing of developing variations of
our TAEUS
applications
and, if
necessary, obtaining regulatory clearance of such
variations;
●
the degree of success we experience in
commercializing our products, particularly our TAEUS
applications
;
●
the extent to which our TAEUS
applications
are adopted by hospitals for use by
primary care physicians, hepatologists, radiologists and
oncologists for diagnosis of fatty liver disease and the thermal
ablation of lesions;
●
the
number and types of future products we develop and
commercialize;
●
the
costs of preparing, filing and prosecuting patent applications and
maintaining, enforcing and defending intellectual property-related
claims;
●
the
extent and scope of our general and administrative
expenses;
●
the
progress, timing, scope and costs of our clinical trials, including
the ability to timely enroll patients in our planned and potential
future clinical trials;
●
the
outcome, timing and cost of regulatory approvals, including the
potential that the FDA or comparable regulatory authorities may
require that we perform more studies than those that we currently
expect;
●
the
amount of sales and other revenues from technologies and products
that we may commercialize, if any, including the selling prices for
such potential products and the availability of adequate
third-party reimbursement;
●
selling
and marketing costs associated with our potential products,
including the cost and timing of expanding our marketing and sales
capabilities;
●
the
terms and timing of any potential future collaborations, licensing
or other arrangements that we may establish;
●
cash
requirements of any future acquisitions and/or the development of
other products;
●
the
costs of operating as a public company;
●
the
cost and timing of completion of commercial-scale, outsourced
manufacturing activities; and
●
the
time and cost necessary to respond to technological and market
developments.
We may
raise funds in equity or debt financings following our initial
public offering or enter into credit facilities in order to access
funds for our capital needs. Any debt financing obtained by us in
the future would cause us to incur debt service expenses and could
include restrictive covenants relating to our capital raising
activities and other financial and operational matters, which may
make it more difficult for us to obtain additional capital and
pursue business opportunities. If we raise additional funds through
further issuances of equity or convertible debt securities, our
existing stockholders could suffer significant dilution in their
percentage ownership of our Company, and any new equity securities
we issue could have rights, preferences and privileges senior to
those of holders of our common stock. General market conditions or
the market price of our common stock may not support capital
raising transactions such as an additional public or private
offering of our common stock or other securities. If we are unable
to obtain adequate financing or financing on terms satisfactory to
us when we require it, we may terminate or delay the development of
one or more of our products, or delay establishment of sales and
marketing capabilities or other activities necessary to
commercialize our products. In addition, if we raise additional
funds through collaborations, strategic alliances or marketing,
distribution or licensing arrangements with third parties, we may
have to relinquish valuable rights to our technologies, future
revenue streams or products or to grant licenses on terms that may
not be favorable to us.
If we
are unable to raise additional capital when needed, we may be
required to curtail the development of our technology or materially
curtail or reduce our operations. We could be forced to sell or
dispose of our rights or assets. Any inability to raise adequate
funds on commercially reasonable terms could have a material
adverse effect on our business, results of operation and financial
condition, including the possibility that a lack of funds could
cause our business to fail and liquidate with little or no return
to investors.
We may be subject to securities litigation, which is expensive and
could divert management attention.
The
price of our common stock may be volatile, and in the past
companies that have experienced volatility in the market price of
their common stock have been subject to an increased incidence of
securities class action litigation. We may be the target of this
type of litigation in the future. Securities litigation against us
could result in substantial costs and divert our management’s
attention from other business concerns, which could seriously harm
our business.
As an investor, you may lose all of your investment.
Investing in our
common stock and warrants involves a high degree of
risk. As an investor, you may never recoup all, or even part, of
your investment and you may never realize any return on your
investment. You must be prepared to lose all of your
investment.
Prior to the completion of our initial public offering, there will
have been no public trading market for our common stock. An active
public trading market for our common stock may not develop and our
common stock may trade below the public offering
price.
The
offering under this prospectus is an initial public offering of our
securities. Prior to the closing of the offering, there
will have been no public market for our common stock. An active
public trading market for our common stock may not develop after
the completion of the offering. If an active trading market
for our common stock does not develop after this offering, the
market price and liquidity of our common stock may be materially
and adversely affected. The public offering price for our common
stock has been determined by negotiation among us and the
underwriters based upon several factors, and the price at which our
common stock trades after this offering may decline below the
public offering price. Investors in our common stock may experience
a significant decrease in the value of their common stock
regardless of our operating performance or prospects.
If a public market for our common stock develops, it may be
volatile. This may affect the ability of our investors
to sell their shares as well as the price at which they sell their
shares.
If a
market for our common stock develops, the market price for the
shares may be significantly affected by factors such as variations
in quarterly and yearly operating results, general trends in the
medical imaging industry, and changes in state or federal
regulations affecting us and our industry. Furthermore,
in recent years the stock market has experienced extreme price and
volume fluctuations that are unrelated or disproportionate to the
operating performance of the affected companies. Such
broad market fluctuations may adversely affect the market price of
our common stock, if a market for it develops.
In
addition to market and industry factors, the price and trading
volume for our common stock may be highly volatile for specific
business reasons, including:
●
announcements
of regulatory approval or a complete response letter, or specific
label indications or patient populations for its use, or changes or
delays in the regulatory review process;
●
announcements
of innovations or new products by us or other participants in the
medical imaging market;
●
adverse
actions taken by regulatory agencies with respect to our clinical
trials, manufacturing supply chain or sales and marketing
activities;
●
any
adverse changes to our relationship with manufacturers or
suppliers;
●
results
of our testing and clinical trials;
●
results
of our efforts to acquire or license additional
products;
●
variations
in the level of expenses related to our existing products or
pre-clinical and clinical development programs;
●
any
intellectual property infringement actions in which we may become
involved;
●
announcements
concerning our competitors or the medical imaging industry in
general;
●
achievement
of expected product sales and profitability;
●
manufacture,
supply or distribution shortages;
●
variations
in our results of operations;
●
announcements
about our earnings that are not in line with analyst
expectations;
●
publication
of operating or industry metrics by third parties, including
government statistical agencies, that differ from expectations of
industry or financial analysts;
●
changes
in financial estimates by securities research
analysts;
●
press
reports, whether or not true, about our
business;
●
additions
to or departures of our management;
●
release
or expiry of lock-up or other transfer restrictions on our
outstanding common stock;
●
sales
or perceived potential sales of additional shares of our common
stock;
●
sales
of our common stock by us, our executive officers and directors or
our stockholders in the future;
●
general
economic and market conditions and overall fluctuations in the U.S.
equity markets; and
●
changes
in accounting principles.
Any of
these factors may result in large and sudden changes in the volume
and trading price of our common stock. In addition, the stock
market, in general, and smaller companies like ours, in particular,
have experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating
performance of these companies. Broad market and industry factors
may negatively affect the market price of our common stock,
regardless of our actual operating performance.
There is no public market for the warrants.
There is no
established public trading market for the warrants being offered in
this offering, and we do not expect a market to develop. In
addition, we do not intend to apply to list the warrants on any
national securities exchange or other nationally recognized trading
system, including the Nasdaq Capital Market. Without an active
trading market, the liquidity of the warrants will be
limited.
The warrants may not have any value.
The warrants will
be exercisable for five years from the date of initial issuance at
an initial exercise price equal to the combined initial offering
price per share of common stock and related warrant set forth on
the cover page of this prospectus. In the event that our common
stock price does not exceed the exercise price of the warrants
during the period when the warrants are exercisable, the warrants
may not have any value.
A warrant does not entitle the holder to any rights as common
stockholders until the holder exercises the warrant for shares of
our common stock.
Until you acquire
shares upon exercise of your warrants, the warrants will not
provide you any rights as a common stockholder. Upon exercise of
your warrants, you will be entitled to exercise the rights of a
common stockholder only as to matters for which the record date
occurs after the exercise date.
We are an “emerging growth company” under the JOBS Act
and we cannot be certain if the reduced disclosure requirements
applicable to emerging growth companies will make our common stock
less attractive to investors.
We are
an “emerging growth company,” as defined in the
Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and
we may take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are
not “emerging growth companies” including, but not
limited to, not being required to comply with the auditor
attestation requirements of section 404 of the Sarbanes-Oxley Act,
reduced disclosure obligations regarding executive compensation in
our periodic reports and proxy statements, and exemptions from the
requirements of holding a nonbinding advisory vote on executive
compensation and stockholder approval of any golden parachute
payments not previously approved. We cannot predict if
investors will find our common stock less attractive because we may
rely on these exemptions. If some investors find our
common stock less attractive as a result, there may be a less
active trading market for our common stock and our stock price may
be more volatile.
We will
remain an “emerging growth company” for up to five
years, although we will lose that status sooner if our annual
revenues exceed $1 billion, if we issue more than $1 billion in
non-convertible debt in a three year period, or if the market value
of our common stock that is held by non-affiliates exceeds $700
million as of any June 30.
If securities or industry analysts do not publish research reports
about our business, or if they issue an adverse opinion about our
business, our stock price and trading volume could
decline.
The
trading market for our common stock will be influenced by the
research and reports that industry or securities analysts publish
about us or our business. We do not currently have and may never
obtain research coverage by securities and industry analysts. If no
or few analysts commence research coverage of us, or one or more of
the analysts who cover us issues an adverse opinion about our
company, our stock price would likely decline. If one or more of
these analysts ceases research coverage of us or fails to regularly
publish reports on us, we could lose visibility in the financial
markets, which in turn could cause our stock price or trading
volume to decline.
We have not paid dividends in the past and have no immediate plans
to pay dividends.
We plan
to reinvest all of our earnings, to the extent we have earnings, in
order to further develop our technology and potential products and
to cover operating costs. We do not plan to pay any cash
dividends with respect to our securities in the foreseeable
future. We cannot assure you that we would, at any time,
generate sufficient surplus cash that would be available for
distribution to the holders of our common stock as a
dividend. Therefore, you should not expect to receive
cash dividends on the common stock we are
offering.
Concentration of ownership among our existing executive officers,
directors and significant stockholders may prevent new investors
from influencing significant corporate decisions.
All
decisions with respect to the management of the Company will be
made by our board of directors and our officers, who, before this
offering, beneficially own approximately 19.6% of our common stock,
as calculated in accordance with Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended, or the Exchange
Act. After the issuance of our common stock in this
offering, management will beneficially own approximately
% of our common
stock, as calculated in accordance with Rule 13d-3. In
addition, before this offering, Blue Earth Fund, LP, Jeffrey and
Margaret Padnos and Robert Clifford and their affiliates
beneficially own approximately 22.2%, 16.4% and 10.0%
of our common stock, respectively,
and after this offering will beneficially own approximately
%, % and
% of our common stock, respectively, as
calculated in accordance with Rule 13d-3 promulgated under the
Exchange Act. As a result, these stockholders will be
able to exercise a significant level of control over all matters
requiring stockholder approval, including the election of
directors, amendment of our Fourth Amended and Restated Certificate
of Incorporation, or the Certificate of Incorporation, and approval
of significant corporate transactions. This control could have the
effect of delaying or preventing a change of control of the Company
or changes in management and will make the approval of certain
transactions difficult or impossible without the support of these
stockholders.
We will incur significant increased costs as a result of becoming a
public company that reports to the SEC and our management will be
required to devote substantial time to meet compliance
obligations.
As a
public company listed in the United States, we will incur
significant legal, accounting and other expenses that we did not
incur as a private company. We will be subject to
reporting requirements of the Exchange Act and the Sarbanes-Oxley
Act, as well as rules subsequently implemented by the SEC and
Nasdaq that impose significant requirements on public companies,
including requiring the establishment and maintenance of effective
disclosure and financial controls and changes in corporate
governance practices. In addition, in 2010, the
Dodd-Frank Wall Street Reform and Protection Act, or the Dodd-Frank
Act, was enacted. There are significant corporate
governance and executive compensation-related provisions in the
Dodd-Frank Act that will increase our legal and financial
compliance costs, make some activities more difficult,
time-consuming or costly and may also place undue strain on our
personnel, systems and resources. Our management and
other personnel will need to devote a substantial amount of time to
these compliance initiatives. In addition, these rules
and regulations may make it more difficult and more expensive for
us to obtain director and officer liability insurance, and we may
be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar
coverage. As a result, it may be more difficult for us
to attract and retain qualified people to serve on our board of
directors, our board committees or as executive
officers.
A significant portion of our total outstanding shares of common
stock is restricted from immediate resale but may be sold into the
market in the near future. This could cause the market price of our
common stock to drop significantly, even if our business is doing
well.
Sales
of a substantial number of shares of our common stock in the public
market could occur in the future. These sales, or the perception in
the market that the holders of a large number of shares of common
stock intend to sell shares, could reduce the market price of our
common stock. After this offering, we will have outstanding shares
of common stock. Of these shares, may be resold in the public
market immediately and the remaining shares are currently
restricted under securities laws or as a result of lock-up
agreements but will be able to be resold after the offering as
described in the “Shares Eligible for Future Sale”
section of this prospectus. We also intend to register all shares
of common stock that we may issue under our equity compensation
plans. Once we register these shares, they can be freely sold in
the public market upon issuance and once vested, subject to the
365-day lock-up periods under the lock-up agreements
described in the “Underwriting” section of this
prospectus.
Future sales and issuances of our common stock or rights to
purchase common stock, including pursuant to our equity incentive
plan, could result in additional dilution of the percentage
ownership of our stockholders and could cause our stock price to
fall.
We
expect that significant additional capital will be needed in the
future to continue our planned operations. To the extent we raise
additional capital by issuing equity securities, our stockholders
may experience substantial dilution. We may sell common stock,
convertible securities or other equity securities. If we sell
common stock, convertible securities or other equity securities,
your investment in our common stock will be diluted. These sales
may also result in material dilution to our existing stockholders,
and new investors could gain rights superior to our existing
stockholders.
We may allocate the net proceeds from this offering in ways that
differ from the estimates discussed in the section titled
“Use of Proceeds” and with which you may not
agree.
The
allocation of net proceeds of this offering set forth in the
“Use of Proceeds” section below represents our
estimates based upon our current plans and assumptions regarding
industry and general economic conditions, and our future revenues
and expenditures. The amounts and timing of our actual
expenditures will depend on numerous factors, including market
conditions, cash generated by our operations, business developments
and related rate of growth. We may find it necessary or
advisable to use portions of the proceeds from this offering for
other purposes. Circumstances that may give rise to a
change in the use of proceeds and the alternate purposes for which
the proceeds may be used are discussed in the section entitled
“Use of Proceeds” below. You may not have an
opportunity to evaluate the economic, financial or other
information on which we base our decisions on how to use our
proceeds. As a result, you and other stockholders may
not agree with our decisions. See “Use of
Proceeds” for additional information.
You will experience immediate dilution in the book value per share
of the common stock you purchase.
The
combined initial public offering price per share of our common
stock and related warrant will be substantially higher than the net
tangible book value (deficit) per share of our common stock
immediately prior to the offering. After giving effect to the
assumed sale of shares of our common stock and related warrants in
this offering, at the assumed combined initial public offering
price of $ per share and related warrant, the mid-point of the
range set forth on the cover page of this prospectus, and after
deducting the underwriting discount and estimated offering expenses
payable by us and attributing no value to the warrants sold in this
offering, purchasers of our common stock in this offering will
incur immediate dilution of
$ per
share in the net tangible book value (deficit) of the common stock
they acquire. In the event that you exercise your warrants, you
will experience additional dilution to the extent that the exercise
price of the warrants is higher than the tangible book value
(deficit) per share of our common stock. For a further description
of the dilution that investors in this offering will experience,
see “Dilution.”
Our charter documents and Delaware law may inhibit a takeover that
stockholders consider favorable.
Upon
the closing of this offering, provisions of our Certificate of
Incorporation and bylaws and applicable provisions of Delaware law
may delay or discourage transactions involving an actual or
potential change in control or change in our management, including
transactions in which stockholders might otherwise receive a
premium for their shares, or transactions that our stockholders
might otherwise deem to be in their best interests. The
provisions in our Certificate of Incorporation and
bylaws:
●
authorize
our board of directors to issue preferred stock without stockholder
approval and to designate the rights, preferences and privileges of
each class; if issued, such preferred stock would increase the
number of outstanding shares of our common stock and could include
terms that may deter an acquisition of us;
●
limit
who may call stockholder meetings;
●
do
not provide for cumulative voting rights; and
●
provide
that all vacancies may be filled by the affirmative vote of a
majority of directors then in office, even if less than a
quorum.
In
addition, once we become a publicly traded corporation, section 203
of the Delaware General Corporation Law may limit our ability to
engage in any business combination with a person who beneficially
owns 15% or more of our outstanding voting stock unless certain
conditions are satisfied. This restriction lasts for a
period of three years following the share
acquisition. These provisions may have the effect of
entrenching our management team and may deprive you of the
opportunity to sell your shares to potential acquirers at a premium
over prevailing prices. This potential inability to
obtain a control premium could reduce the price of our common
stock. See “Anti-Takeover Effects of Certain Provisions of
Delaware Law and Our Charter Documents” for additional
information.
Our disclosure controls and procedures may not prevent or detect
all errors or acts of fraud.
Upon
completion of this offering, we will become subject to the periodic
reporting requirements of the Exchange Act. Our disclosure controls
and procedures are designed to reasonably assure that information
required to be disclosed by us in reports we file or submit under
the Exchange Act is accumulated and communicated to management, and
recorded, processed, summarized and reported within the time
periods specified by the rules and forms of the SEC. We believe
that any disclosure controls and procedures or internal controls
and procedures, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met.
These
inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion
of two or more people or by an unauthorized override of the
controls. Accordingly, because of the inherent limitations in our
control system, misstatements due to error or fraud may occur and
not be detected.
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS
This
prospectus contains forward-looking statements. All statements
other than statements of historical facts contained in this
prospectus, including statements regarding the timing of our
clinical trials, our strategy, future operations, future financial
position, future revenue, projected costs, prospects, plans,
objectives of management and expected market growth are
forward-looking statements. Forward-looking statements
give our current expectations or forecasts of future events. You
can find many (but not all) of these statements by looking for
words such as “approximates,” “believes,”
“hopes,” “expects,”
“anticipates,” “estimates,”
“projects,” “intends,” “plans,”
“would,” “should,” “could,”
“may” or other similar expressions in this
prospectus. These statements may be found principally
under the sections entitled “Prospectus Summary,”
“Risk Factors,” “Use of Proceeds,”
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and
“Business.” These forward-looking statements are
subject to certain risks and uncertainties that could cause actual
results to differ materially from our historical experience and our
present expectations or projections.
Actual results may differ materially from those
discussed as a result of various factors, including, but not
limited to
:
●
our
need to secure required regulatory approvals from governmental
authorities in the European Union, United States and other
jurisdictions;
●
our dependence on
third parties to design, manufacture, obtain required regulatory
approvals of, market and distribute
our TAEUS
applications
;
●
our ability to commercialize any applications of
our TAEUS
technology
and the
pricing of any such
applications
;
●
our
limited operating history and our ability to achieve
profitability;
●
our
need for and ability to obtain adequate financing in the
future;
●
the
impact of competitive or alternative products, technologies and
pricing;
●
the
adequacy of protections afforded to us by the patents that we own
and the success we may have in, and the cost to us of, maintaining,
enforcing and defending those patents;
●
our
ability to obtain, expand and maintain patent protection in the
future, and to protect our non-patented intellectual
property;
●
general
economic conditions and events and the impact they may have on us
and our potential customers;
●
our
ability to continue as a going concern;
●
our success at managing the risks involved in the
foregoing items
; and
●
other factors
discussed in the “Risk Factors” section of this
prospectus.
These
statements reflect our views with respect to future events as of
the date of this prospectus and are based on assumptions and
subject to risks and uncertainties. Given these uncertainties, you
should not place undue reliance on these forward-looking
statements. These forward-looking statements represent our
estimates and assumptions only as of the date of this prospectus
and, except as required by law, we undertake no obligation to
update or review publicly any forward-looking statements, whether
as a result of new information, future events or otherwise after
the date of this prospectus. We anticipate that subsequent events
and developments will cause our views to change. You should read
this prospectus and the documents referenced in this prospectus and
filed as exhibits to the registration statement, of which this
prospectus is a part, completely and with the understanding that
our actual future results may be materially different from what we
expect. Our forward-looking statements do not reflect the potential
impact of any future acquisitions, merger, dispositions, joint
ventures or investments we may undertake. We qualify all of our
forward-looking statements by these cautionary
statements.
We
estimate that we will receive net proceeds of approximately $ from
this offering, or approximately $ if the underwriters exercise
their over-allotment option in full, based on an
assumed initial public offering price of $ , the mid-point of the
range set forth on the cover page of this prospectus, and after
deducting the underwriting discount and estimated offering expenses
payable by us and excluding the proceeds, if any, from the
exercise of the warrants.
A $
increase (decrease) in the assumed combined initial
public offering price of $ per share and related
warrant, the mid-point of the price range set forth on the
cover page of this prospectus, would increase (decrease) the net
proceeds to us from this offering by approximately $ , assuming the
number of shares of our common stock and warrants
offered by us, as set forth on the cover page of this prospectus,
remains the same and after deducting the underwriting discount and
estimated offering expenses payable by us. Similarly, each increase
(decrease) of one million shares and warrants in the
number of shares of common stock
and
warrants
offered by us, as set forth on the cover
page of this prospectus, would increase (decrease) the net proceeds
to us from this offering by approximately $ , assuming the
combined initial public offering price of $ per share
and related warrant, the mid-point of the price range
set forth on the cover page of this prospectus, remains the same
and after deducting the underwriting discount and estimated
offering expenses payable by us.
We
intend to use the net proceeds from this offering to fund the
development, regulatory approval and the initial commercialization
of our NAFLD TAEUS application in the European Union and the United
States and for working capital and other general corporate
purposes. Our initial target market for this application is the
European Union. We believe that our NAFLD TAEUS application will
qualify for sale in the European Union as a Class IIa medical
device. As a result, we will be required to obtain a CE mark for
our NAFLD TAEUS application before we can sell the application in
the European Union.
Existing
regulations would not require us to conduct a clinical trial to
obtain a CE mark for this application. Nonetheless, for commercial
reasons and to support our CE mark application we plan to conduct a
limited (less than 10 person) trial to demonstrate our NAFLD TAEUS
application’s ability to distinguish fat from lean tissue. We
intend to engage a medical device contract engineering firm to
perform commercial product engineering, and to obtain a CE mark,
for this application. Based on our understanding of
applicable regulations and consultations with medical device
regulatory consulting firms and medical device contract engineering
firms, we expect that the development of our NAFLD TAEUS
application, including the receipt of the necessary CE mark, will
be complete approximately ten months after the completion of this
offering and that we will use approximately $1,000,000
of the net proceeds from this offering on such
activities.
While we are seeking a CE mark for our NAFLD TAEUS
application
, we also plan to
expand our sales, marketing, customer support and
contract manufacturing capabilities,
so that we can commence commercial sales of the application in the
European Union promptly following receipt of this regulatory
approval. We estimate that we will use approximately $700,000
of
the net proceeds from this offering on such
activities.
Additionally, to
enhance our commercialization efforts in the European Union,
following receipt of such CE mark and placement of initial systems
with researchers and universities, we plan to conduct one or more
clinical studies to demonstrate this product’s capabilities,
and that we will use approximately $700,000 of the net proceeds
from this offering on such activities. However, these
estimates are subject to uncertainty and there can be no assurance
that these processes will not take longer or be more costly than we
expect.
While
the process of obtaining a CE mark for our NAFLD TAEUS application
is underway, we also intend to prepare for submission to the U.S.
Food and Drug Administration, or the FDA, an application under the
Food, Drug and Cosmetic Act, or the FD&C Act, to
sell our NAFLD TAEUS application in the U.S. We anticipate that the
application, as well as those for our other TAEUS applications,
will be submitted for approval under Section 510(k) of the
FD&C Act. Based on our understanding of
applicable regulations and consultations with medical device
regulatory consulting firms and medical device contract engineering
firms, we expect to submit this application to the FDA
approximately eleven months after the completion of this offering
and for the FDA to make a final determination on our application
approximately eleven months after that application is submitted. We
estimate that we will use approximately $100,000 of the net
proceeds from this offering on such activities. However,
these estimates are subject to uncertainty and there can be no
assurance that these processes will not take longer or be more
costly than we expect.
We
expect to use the balance of the net proceeds from this offering on
research and development, additional regulatory activities, sales
and marketing activities for general and administrative expense and
other general corporate purposes.
We
expect that our initial FDA clearance will allow us to sell the
NAFLD TAEUS application in the U.S. with general imaging claims.
However, we will need to obtain additional FDA clearances to be
able to make diagnostic claims for fatty tissue content
determination. Accordingly, to support our commercialization
efforts we expect that, following receipt of our initial FDA
clearance, we will submit one or more additional applications to
the FDA, each of which will need to include additional clinical
trial data, so that following receipt of the necessary clearances
we may make those diagnostic claims.
The
amounts and timing of our actual expenditures will depend on
numerous factors, including market conditions, results from our
research and development efforts, business developments and related
sales and marketing activities. Therefore, as of the date of this
prospectus, we cannot specify with certainty the specific
allocation of the net proceeds to be received upon the completion
of this offering. Our management will have broad discretion in the
application of the net proceeds, and investors will be relying on
the judgment of our management regarding the application of the
proceeds from this offering.
We
believe that the net proceeds of this offering, together with our
existing cash, will be sufficient for us to fund the development of
our NAFLD TAEUS application through the expected receipt of
regulatory approval in the European Union and the United States and
to commercialize this application in those markets. It is possible
that we will not achieve the progress that we expect because of
unforeseen costs or factors impacting timely completion of the
regulatory approvals for a new medical device, which are difficult
to predict and are subject to risks and delays. We have no other
committed external sources of funds. The expected net proceeds from
this offering are not expected to be sufficient for us to complete
the full commercialization of our NAFLD TAEUS application or to
complete the development of any other TAEUS application. As a
result, we expect that we will need to finance our future cash
needs through public or private equity offerings, debt financings,
corporate collaboration and licensing arrangements or other
financing alternatives.
Pending
our use of the net proceeds from this offering, we intend to invest
the net proceeds in a variety of capital preservation investments,
including short-term, investment-grade, interest-bearing
instruments and U.S. government securities.
We have
never declared or paid any dividends on our capital stock, and do
not plan to do so for the foreseeable future. We expect that we
will retain all of our available funds and future earnings, if any,
for use in the operation and expansion of our business. The terms
of any loan agreement we enter into or any debt securities we may
issue are likely to contain restrictions on our ability to pay
dividends on our capital stock. Subject to the foregoing, the
payment of dividends in the future, if any, will be at the
discretion of our board of directors and will depend upon such
factors as earnings levels, capital requirements, restrictions
imposed by applicable law, our overall financial condition and any
other factors deemed relevant by our board of
directors.
The
following table sets forth our actual cash and capitalization, each
as of September 30, 2016:
●
on a pro forma
basis to reflect the filing of our Fourth Amended and Restated
Certificate of Incorporation in connection with this offering and
to give
effect to the
assumed conversion of the outstanding principal and accrued
interest on our outstanding convertible promissory notes as of
September 30, 2016 into a
n aggregate
of 3,576,225
shares of our common stock at a conversion price of $0.40 per share
immediately prior to the completion of this offering;
and
●
on a pro forma as
adjusted basis, to further reflect the sale by us of shares of our
common stock and related warrants at an assumed
combined initial public offering price of $ per share
and related warrant, the mid-point of the price range
set forth on the cover page of this prospectus, and after deducting
the underwriting discount and estimated offering expenses payable
by us and the receipt by us of the expected net proceeds of such
sale.
The pro
forma and pro forma as adjusted information below is illustrative
only, and our capitalization following the closing of this offering
may differ from that shown below based on the actual initial public
offering price and other terms of this offering determined at
pricing. You should read this information together with the
sections entitled “Summary Financial Data” and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our financial
statements and the related notes, which appear elsewhere in this
prospectus.
|
|
|
|
|
|
|
Pro FormaAs Adjusted
(1)(2)
|
|
|
|
|
Cash
|
$
75,543
|
$
75,543
|
$
|
|
Capitalization
|
|
|
|
|
Debt:
|
|
--
|
|
|
Senior
convertible notes
|
1,386,448
|
--
|
--
|
|
Total
Debt
|
$
1,386,448
|
$
--
|
$
--
|
|
|
|
|
|
|
Stockholders
Equity:
|
|
|
|
|
Preferred
stock, $0.0001 par value; 34,861,927 shares authorized; no shares
issued or outstanding, actual; 10,000,000 shares authorized pro
forma; no shares issued or outstanding pro forma and pro forma as
adjusted;
|
--
|
--
|
--
|
|
Common stock, $0.0001 par value; 45,000,000 shares
authorized; 2,531,808 shares issued and
outstanding
actual; 50,000,000 shares authorized and 5,573,564
shares issued and outstanding, pro forma, and 50,000,000 shares
authorized and shares issued and outstanding, pro forma as
adjusted
|
253
|
557
|
|
|
Stock
payable
|
72,000
|
--
|
|
|
Additional
paid-in capital
|
11,518,145
|
12,967,289
|
|
|
Accumulated
deficit
|
(11,999,600
)
|
(11,999,600
)
|
|
|
Total
stockholders equity
|
(418,202
)
|
968,246
|
|
|
|
|
|
|
|
Total
capitalization
|
$
1,043,789
|
$
1,043,789
|
|
__________
(1)
A $ increase
(decrease) in the assumed combined initial public
offering price of $
per
share and related warrant, the mid-point of the price
range set forth on the cover page of this prospectus, would
increase or decrease the amount of cash, cash equivalents and
short-term investments, additional paid-in capital and total
capitalization by approximately $
million, assuming the number of
shares and warrants offered by us, as set forth on the
cover page of this prospectus, remains the same and after deducting
the underwriting discount and estimated offering expenses payable
by us. Similarly, a one million share and warrant
increase (decrease) in the number of shares and
warrants offered by us, as set forth on the cover page of
this prospectus, would increase (decrease) cash and cash
equivalents, working capital, total assets and total
stockholders’ equity by approximately $
million, assuming the assumed
combined initial public offering price of
$
per share and
related warrants, the mid-point of the price range set forth
on the cover page of this prospectus, remains the same, and after
deducting the underwriting discount and estimated offering expenses
payable by us.
(2)
The number of shares of our common stock to be
outstanding after this offering is based on
2,531,808
shares of common stock outstanding as
of September 30, 2016, assumes the conversion of the
principal and accrued interest on our outstanding convertible
promissory notes as of September 30, 2016 into an
aggregate of 3,576,225 shares of our common stock at a
conversion price of $0.40 per share immediately prior to the
completion of this offering, and excludes the
following:
●
534,842
shares of common stock
issuable upon the exercise of outstanding warrants, at a weighted
average exercise price of $
5.41
per share;
●
531,584
shares of our common stock issuable
upon the exercise of outstanding stock options issued pursuant to
our
2016
Omnibus
Incentive Plan,
or
our
Incentive Plan, at a weighted average
exercise price of $
2.86
per share
and an estimated shares of our
common stock issuable upon the exercise of stock options expected
to be granted to our directors and certain of our officers upon the
completion of this offering at an exercise price equal to the
public offering price set forth on the cover of this
prospectus
;
●
a
n
estimated
shares of our common stock that will be reserved for future
issuance under our Incentive Plan;
●
shares of our common stock that may be issued under warrants to be
sold in this offering; and
●
shares of our common stock issuable upon exercise of the
underwriter warrant.
If you
purchase shares of our common stock in this offering,
you will experience dilution to the extent of the
difference between the combined public offering price
per share and related warrant in this offering and our
pro forma as adjusted net tangible book value per share immediately
after this offering assuming no value is attributed to the
warrants, and such warrants are accounted for and classified as
equity.
Net tangible book
value per share represents total tangible assets less total
liabilities, divided by the number of shares of common stock
outstanding. Our historical net tangible book value as of September
30, 2016 was $(409,202), or $(0.16) per share of common stock. On a
pro forma basis assuming the conversion of the principal and
accrued interest on our outstanding convertible promissory notes as
of September 30, 2016 into an aggregate of 3,576,225 shares of our
common stock at a conversion price of $0.40 per share immediately
prior to the completion of this offering, our pro forma net
tangible book value as of September 30, 2016 would have been
$977,246, or $0.39 per share. After giving effect to the assumed
sale of shares of our common stock and warrants to purchase up
to
shares of our common stock in this offering at the assumed combined
initial public offering price of
$
per share and related warrant, the mid-point of the price range set
forth on the cover page of this prospectus, after deducting the
underwriting discount and estimated offering expenses payable by
us, our pro forma as adjusted net tangible book value as of
September 30, 2016 would have been $
, or $
per share. This represents an
immediate increase in pro forma as adjusted net tangible book value
of
$
per share to existing stockholders and an immediate dilution in pro
forma as adjusted net tangible book value of $ per share to
investors in this offering. The following table illustrates this
dilution on a per share basis:
|
Assumed
combined initial public offering price per share
and related warrant
|
|
$
|
|
Historical net
tangible book value per share as of September 30,
2016
|
$
(0.16)
|
|
|
Pro forma increase
in net tangible book value per share attributable to conversion of
convertible promissory notes
|
$
0.55
|
|
|
Pro forma net
tangible book value per share as of September 30,
2016
|
$
0.39
|
|
|
Pro forma as
adjusted net tangible book value per share as of
September 30, 2016 after giving effect to this
offering
|
|
|
|
Pro forma increase
in net tangible book value per share attributable to new
investors
|
|
|
|
Pro forma as
adjusted tangible book value per share, after giving effect to this
offering
|
|
|
|
Dilution of pro
forma as adjusted net tangible book value per share to new
investors
|
|
$
|
If the
underwriters exercise in full their option to purchase
additional shares of our common stock and
warrants to purchase up
to
shares of common stock at the combined initial public offering
price of $ per share and related warrant, the pro forma as
adjusted net tangible book value per share after giving effect to
this offering would be $ per share, which amount represents an
immediate increase in pro forma as adjusted net tangible book value
of $ per share of our common stock to existing stockholders and an
immediate dilution in pro forma as adjusted net tangible book value
of $ per share of our common stock to new investors
purchasing shares of our common stock and warrants in
this offering.
The underwriters
will be unable to satisfy any over-allotment of shares and warrants
without exercising the underwriters’ over-allotment option
with respect to the warrants. The underwriters may satisfy some or
all of the over-allotment of shares of our common stock, if any, by
purchasing shares in the open market and will have no obligation to
exercise the over-allotment option with respect to our common
stock.
The
following table summarizes, on a pro forma as adjusted basis as
described above as of September 30, 2016, the number
of shares of common stock purchased from us, the total
consideration paid
to us and the average price per share paid to us
by our existing stockholders and by new investors purchasing shares
of common stock and warrants in this offering at the
assumed combined initial public offering price of $
per share and related warrant, the mid-point of the
price range set forth on the cover page of this prospectus,
attributing no value to the warrants and assuming no exercise
of the warrants, and before the deduction of the
underwriting discount and estimated offering expenses payable by
us. Investors purchasing shares of our common stock and
warrants in this offering will pay an average price per
share substantially higher than our existing stockholders
paid.
|
|
|
Total Consideration
|
|
|
|
Number
|
|
|
Percent
|
Per Share
|
|
Existing
stockholders
|
|
|
|
|
|
|
New
investors
|
|
|
|
|
|
|
Total
|
|
100
|
100
|
%
|
|
In the event
that you exercise your warrants, you will experience additional
dilution to the extent that the exercise price of the warrants is
higher than the average price per share paid to us by our existing
stockholders. If any shares are issued upon exercise of
outstanding options or warrants, you may experience further
dilution.
The above
discussion and tables are based on
2,531,808
shares of common stock
outstanding as of September 30, 2016, assumes the conversion of the
principal and accrued interest on our outstanding convertible
promissory notes outstanding as of September 30, 2016 into an
aggregate of 3,576,225 shares of our common stock at a conversion
price of $0.40 per share immediately prior to the completion of
this offering, and excludes the
following:
●
534,842 shares of common stock issuable upon the exercise of
outstanding warrants, at a weighted average exercise price of $5.13
per share;
●
531,584 shares of our common stock
issuable upon the exercise of outstanding stock options issued
pursuant to our 2016 Omnibus Incentive Plan, or our Incentive Plan,
at a weighted average exercise price of $2.86 per share and an
estimated
shares of our
common stock issuable upon the exercise of stock options expected
to be granted to our directors and certain of our officers upon the
completion of this offering at an exercise price equal to the
public offering price set forth on the cover of this
prospectus;
●
an
estimated
shares of our common stock that will be reserved for future
issuance under our Incentive Plan;
●
shares of our common stock that may be issued under warrants to be
sold in this offering; and
●
shares
of our common stock issuable upon exercise of the underwriter
warrant.
A $1.00
increase (decrease) in the assumed initial public offering price of
$ per share, the mid-point of the price range set forth on the
cover page of this prospectus, would increase (decrease) the pro
forma as adjusted net tangible book value (deficit) per share after
this offering by approximately $ per share and the dilution of pro
forma as adjusted net tangible book value per share to new
investors by approximately $ per share, assuming that the number of
shares offered by us, as set forth on the cover page of this
prospectus, remains the same and after deducting the underwriting
discount and estimated offering expenses payable by us. An increase
(decrease) of one million in the number of shares offered by us, as
set forth on the cover of this prospectus, would increase
(decrease) the pro forma as adjusted net tangible book value
(deficit) per share after this offering by approximately $ and $( )
respectively and the dilution of pro forma as adjusted net tangible
book value per share to new investors by approximately $ and $( )
respectively, assuming the assumed initial public offering price of
$ per share, the mid-point of the price range set forth on the
cover page of this prospectus, remains the same, and after
deducting the underwriting discount and estimated offering expenses
payable by us.
We may choose to raise additional capital through the sale of
equity or convertible debt securities due to market conditions or
strategic considerations even if we believe we have sufficient
funds for our current or future operating plans. To the extent that
any of these options or warrants are exercised, new options are
issued under our Incentive Plan or we issue additional shares of
common stock or other equity securities in the future, there may be
further dilution to new investors participating in this
offering.
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 the
section entitled “Summary Financial Data” and our
financial statements and related notes included elsewhere in this
prospectus. Some of the information contained in this discussion
and analysis or set forth elsewhere in this prospectus, including
information with respect to our plans and strategy for our business
and related financing, includes forward-looking statements that
involve risks and uncertainties. See “Cautionary Note
Regarding Forward-Looking Statements.” Our actual results may
differ materially from those described below. You should read the
“Risk Factors” section of this prospectus for a
discussion of important factors that could cause actual results to
differ materially from the results described in or implied by the
forward-looking statements contained in the following discussion
and analysis.
Overview
We
have commercialized an enhanced ultrasound technology
for the pre-clinical research market and are leveraging that
expertise to develop technology for increasing the
capabilities of clinical diagnostic ultrasound, to broaden patient
access to the safe diagnosis and treatment of a number of
significant medical conditions in circumstances where
expensive X-ray computed tomography, or CT, and magnetic resonance
imaging, or MRI, technology is unavailable or
impractical.
Since
2010, we have marketed and sold our Nexus 128 system, which
combines light-based thermoacoustics and ultrasound,
to address the imaging needs of researchers studying disease models
in pre-clinical applications. Sales of the Nexus 128 system
were $1.4 million in 2015, and our Nexus 128 system is used in a
number of leading global academic research centers, including
Stanford University, The University of Michigan, Shanghai Jiao Tong
University, and Purdue University. We expect to continue to sell
our Nexus 128 system to maintain a base level of revenue, but
believe the market potential for our clinical systems is much
higher.
We
believe that our TAEUS technology has the potential to add a number
of new capabilities to conventional ultrasound and thereby enhance
the utility of both existing and new ultrasound systems. Our TAEUS
platform is not intended to replace CT and MRI systems, both of
which are versatile imaging technologies with capabilities and uses
beyond the focus of our business. However, they are also expensive,
with a CT system costing approximately $1 million and an MRI system
costing up to $3 million. In addition, and in contrast to
ultrasound systems, due to their limited number and the fact that
they are usually fixed-in-place at major medical facilities, CT and
MRI systems are frequently inaccessible to patients.
We
believe that our TAEUS platform can extend the use of ultrasound
technology to a number of important applications that
either require the use of expensive CT or MRI imaging systems or
where imaging is not practical using existing technology. In our
ex-vivo and in-vivo testing, we have demonstrated that the TAEUS
platform has the following capabilities and potential clinical
applications:
●
Tissue Composition:
Our TAEUS technology enables ultrasound to distinguish fat from
lean tissue. This capability would enable the use of TAEUS-enhanced
ultrasound for the identification, staging and monitoring of NAFLD,
a precursor to liver fibrosis, cirrhosis and liver
cancer.
●
Temperature
Monitoring: Our TAEUS technology enables traditional ultrasound to
visualize changes in tissue temperature, in real time. This
capability would enable the use of TAEUS-enhanced ultrasound to
guide thermoablative therapy, such as in the treatment of cardiac
atrial fibrillation, or removal of cancerous liver and kidney
lesions, with greater accuracy.
●
Vascular Imaging:
Our TAEUS technology enables ultrasound to view blood vessels from
any angle, using only a saline solution contrasting agent, unlike
Doppler ultrasound which requires precise viewing angles. This
capability would enable the use of TAEUS-enhanced ultrasound to
easily identify arterial plaque or malformed vessels.
●
Tissue Perfusion:
Our TAEUS technology enables ultrasound to image blood flow at the
capillary level in a region, organ or tissue. This capability could
be used to assist doctors in characterizing microvasculature fluid
flows symptomatic of damaged tissue, such as internal bleeding from
trauma, or diseased tissue, such as certain cancers.
After
approval, our TAEUS technology can be added as
an accessory to existing ultrasound systems, helping to improve
clinical decision-making on the front lines of patient care,
without requiring new clinical workflows or large capital
investments. We are also developing TAEUS for incorporation into
new ultrasound systems, primarily through our collaboration with GE
Healthcare
.
We are not aware of any other
ultrasound devices in development that include the anticipated
functionality of our planned TAEUS
applications.
Based on our design work and our understanding of
the ultrasound accessory market, we intend
to price our
initial NAFLD
TAEUS
application at
a
price
point approximating one-half
of
the price of a new cart-based ultrasound system, which
should enable purchasers to recoup their investment in less than
one year by performing a relatively small number of additional
ultrasound procedures. We further believe that clinicians will be
attracted to our technology because it will enable them to perform
more procedures with their existing ultrasound equipment, thereby
retaining more imaging patients in their clinics rather than
referring patients out to a regional medical center for a CT or MRI
scan.
We
expect that the first-generation TAEUS application
will be a standalone ultrasound accessory designed to
cost-effectively quantify fat in the liver and stage progression of
NAFLD, which can only be achieved today with impractical surgical
biopsies or MRI scans. Subsequent TAEUS offerings are expected to
be implemented via a second generation hardware platform that can
run multiple clinical software applications that we will offer
TAEUS users for a one-time licensing fee – adding ongoing
customer value to the TAEUS platform and a growing software revenue
stream for our Company.
Each of
our TAEUS platform applications will require regulatory approvals
before we are able to sell or license the application. Based on
certain factors, such as the installed base of ultrasound systems,
availability of other imaging technologies, such as CT and MRI,
economic strength and applicable regulatory requirements, we intend
to seek initial approval of our applications for sale in the
European Union, followed by the United States, and
China.
We
believe that our NAFLD TAEUS application will qualify for sale in
the European Union as a Class IIa medical device. As a result, we
will be required to obtain a CE mark for our NAFLD TAEUS
application before we can sell the application in the European
Union. Existing regulations would not require us to conduct a
clinical trial to obtain a CE mark for this application.
Nonetheless, for commercial reasons and to support our CE mark
application we plan to conduct a limited (less than 10 person)
trial to demonstrate our NAFLD TAEUS application’s ability to
distinguish fat from lean tissue. Based on our understanding
of applicable regulations and consultations with medical device
regulatory consulting firms and medical device contract engineering
firms, we expect to receive a CE mark for our NAFLD TAEUS
application approximately ten months after the completion of this
offering. However, this estimate is subject to uncertainty
and there can be no assurance that this process will not take
longer or be more costly than we
expect.
While
we are seeking a CE mark for our NAFLD TAEUS application, we also
plan to expand our sales, marketing, customer support and contract
manufacturing capabilities, so that we can commence commercial
sales of the application in the European Union promptly following
receipt of this regulatory approval.
Following
receipt of such CE mark and placement of initial systems with
researchers and universities, we plan to conduct one or more
clinical studies to further demonstrate this application’s
capabilities.
While
the process of obtaining a CE mark for our NAFLD TAEUS application
is underway, we also intend to prepare for submission to the U.S.
Food and Drug Administration, or the FDA, an application under the
Food, Drug and Cosmetic Act, or the FD&C Act, to
sell our NAFLD TAEUS application in the U.S. We anticipate that the
application, as well as those for our other TAEUS applications,
will be submitted for approval under Section 510(k) of the
FD&C Act. In connection with our initial
submission to the FDA, we believe we will be required to provide
imaging verification and validation testing data, as well as the
data from the limited trial we plan to conduct to support our CE
mark application. We expect that our initial FDA clearance will
allow us to sell the NAFLD TAEUS application in the U.S. with
general imaging claims. However, we will need to obtain additional
FDA clearances to be able to make diagnostic claims for fatty
tissue content determination. Accordingly, to support our
commercialization efforts we expect that, following receipt of our
initial FDA clearance, we will submit one or more additional
applications to the FDA, each of which will need to include
additional clinical trial data, so that following receipt of the
necessary clearances we may make those diagnostic claims.
Based on our understanding of applicable regulations and
consultations with medical device regulatory consulting firms and
medical device contract engineering firms, we expect to
submit our initial FDA application to the FDA approximately eleven
months after the completion of this offering and that the FDA will
make a final determination on our application approximately eleven
months after it is submitted. However, these estimates are
subject to uncertainty and there can be no assurance that these
processes will not take longer or be more costly than we
expect.
Financial Operations
Overview
Revenue
To
date, our revenue has been generated by the placement and sale of
our Nexus 128 system for use in pre-clinical
applications.
Cost of Goods Sold
Our
cost of goods sold is related to our direct costs associated with
the development and shipment of our thermoacoustic imaging systems
placed in pre-clinical settings.
Research and Development Expenses
Our
research and development expenses primarily include wages, fees and
equipment for the development of our TAEUS technology platform and
our proposed applications. Additionally, we incur certain costs
associated with the protection of our products and inventions
through a combination of patents, licenses, applications and
disclosures.
Sales and Marketing Expenses
Sales
and marketing expenses consist primarily of advertising, marketing
and consulting expenses and headcount. Currently, our marketing
efforts for our pre-clinical business are through distributors in
China, the European Union, Australia, Korea and the United Kingdom,
our website, and attendance of key industry meetings. In connection
with the commercialization of our TAEUS applications, we expect to
build a small sales and marketing team to train and support global
ultrasound distributors, as well as execute traditional marketing
activities such as promotional materials, electronic media and
participation in industry conferences.
General and Administrative Expenses
General
and administrative expenses consist primarily of salaries and
related expenses for our management and personnel, and professional
fees, such as accounting, consulting and legal.
Critical
Accounting Policies and Estimates
Use of Estimates
The
preparation of the financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and disclosure of
contingent liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
Management makes
estimates that affect certain accounts including deferred income
tax assets, accrued expenses, fair value of equity instruments and
reserves for any other commitments or contingencies. Any
adjustments applied to estimates are recognized in the period in
which such adjustments are determined.
Share-based Compensation
Our 2016 Omnibus
Incentive Plan, or our Incentive Plan, which has been approved by
our board of directors, permits the grant of share options and
shares to our employees, consultants and non-employee members of
our board of directors for up to an estimated shares of
common stock (to be an amount equal to 18% of our total issued and
outstanding shares of common stock following the completion of this
offering on a fully diluted basis, including shares issuable under
our Incentive Plan, shares issuable upon the conversion into shares
of common stock of all outstanding securities that are convertible
by their terms into shares of common stock and the exercise of all
options and warrants exercisable for shares of common stock, and
shares issuable upon exercise in full of the underwriters’
warrants to purchase shares of common stock and the
underwriters’ over-allotment option). We record share-based
compensation in accordance with the provisions of the Share-based
Compensation Topic of the FASB Codification. The guidance requires
the use of option-pricing models that require the input of highly
subjective assumptions, including the option’s expected life
and the price volatility of the underlying stock. The fair value of
each option grant is estimated on the date of grant using the
Black-Scholes option valuation model, and the resulting charge is
expensed using the straight-line attribution method over the
vesting period. We have elected to use the calculated value method
to account for the options we issued in 2014. A nonpublic entity
that is unable to estimate the expected volatility of the price of
its underlying shares may measure awards based on a
“calculated value,” which substitutes the volatility of
appropriate public companies (representative of the company’s
size and industry) as a bench mark for the volatility of the
entity’s own share price. There is no existing active market
for our common stock. We have used the historical closing values of
these companies to estimate volatility, which was calculated to be
90%.
Stock
compensation expense recognized during the period is based on the
value of share-based awards that were expected to vest during the
period adjusted for estimated forfeitures. The estimated fair value
of grants of stock options and warrants to non-employees is charged
to expense, if applicable, in the financial
statements.
Recent Accounting Pronouncements
See
Footnote 2 of the financial statements for a discussion of recently
issued accounting standards.
Results
of Operations
Years ended December 31, 2015 and 2014
Revenues
Revenues were
$1,410,064 for the year ended December 31, 2015, an increase of
$850,709, or 152%, as compared to $559,355 for the year ended
December 31, 2014. The increase in revenue was due to increased
unit sales of our Nexus 128 system. We expect revenues
for 2016 to decline compared to 2015 as we
focused our limited resources on developing our TAEUS
applications.
Cost of Goods Sold
Cost of
goods sold was $610,297 for the year ended December 31, 2015, an
increase of $299,970, or 97%, as compared to $310,327 for the year
ended December 31, 2014. Cost of goods sold increased as a result
of an increase in units sold during the year. Our gross margin was
approximately 57% for the year ended December 31, 2015, compared to
45% for the prior year. The increase in gross margin resulted from
an increase in the per unit price of units sold. We expect
increased margins in 2016 due to increased retail
prices.
Research and Development
Research and
development expenses were $1,038,878 for the year ended December
31, 2015, as compared to $873,167 for the year ended December 31,
2014, an increase of $165,711, or 19%. The increase was primarily
due to additional personnel dedicated to our research and
development activities. We expect to continue to dedicate a
substantial amount of our resources to research and development
related to the development of our TAEUS applications.
Sales and Marketing
Sales
and marketing expenses were $50,635 for the year ended December 31,
2015, as compared to $56,298 for the year ended December 31, 2014,
a decrease of $5,663, or 10%. The decrease was
primarily due to reduced commissions paid on the sale of our Nexus
128 system. Following completion of the offering we expect to
dedicate additional resources to our sales efforts for both our
Nexus 128 product line and our TAEUS
applications.
General and Administrative
Our
general and administrative expenses for the year ended December 31,
2015 were $1,213,318, an increase of $316,392, or 35%, compared to
$896,926 for the year ended December 31, 2014. Our
wage and related expenses for the
year ended December 31, 2015 were $774,779, an increase of
$302,464, or 69%, compared to $445,315 for the year ended December
31, 2014. The increase in wages and related expenses was due
primarily to increased headcount related to the development of our
TAEUS technology platform. Wage and related expenses in 2015
included $236,364 of stock compensation expense related to the
issuance and vesting of common stock, options and warrants issued
for services, compared to $188,287 of stock compensation expense
for 2014. We expect that our general and administrative expenses
will increase significantly as a result of our becoming a public
company.
Net loss
As a
result of the foregoing, for the year ended December 31, 2015, we
recorded a net loss of $2,213,698 compared to a net loss of
$2,232,060 for the year ended December 31, 2014.
Three Months ended September 30, 2016 and
2015
Revenues
We had no
revenue for the three months ended September
30, 2016, as compared to $326,085 for the three months
ended September 30, 2015. Revenues for 2016 declined
as compared to our revenues for 2015 due to our limited resources
and our decision to focus those resources on developing our TAEUS
applications. Although we expect some sales of our Nexus 128
product during the fourth quarter of 2016, given the
lack of sales in the first nine months of the year we
expect full year 2016 revenues will be lower than 2015
revenues.
Cost of Goods Sold
Cost of
goods sold was $265,056 for the three months ended
September 30, 2015. Gross margin was approximately
18.7% for the three months ended
September 30, 2015.
Research and Development
Research and
development expenses were $139,540 for the three
months ended September 30, 2016, as compared to
$265,025 for the three months ended
September 30, 2015, a decrease of $125,485, or
47%. These costs include primary wages, fees and equipment
for the development of our TAEUS product line. Research and
development expenses declined due to a reduction in spending to
conserve cash. Following completion of the offering we expect that
our research and development expenses will increase significantly
due to our efforts to develop our TAEUS applications.
Sales and Marketing
Sales
and marketing expenses were $16,040 for the three
months ended September 30, 2016, as compared to
$20,743 for the three months ended
September 30, 2015, a decrease of $4,703, or
23%. The decrease was primarily due to reduced commissions
paid on the sale of our Nexus 128 system. Currently our marketing
efforts for our pre-clinical business are through distributors in
China, the European Union, Australia and the United Kingdom, our
website and attendance of key industry meetings. Our future
clinical business will involve hiring and training additional staff
to support our sales efforts. As we seek to complete the
development and commercialization of our TAEUS applications, we
intend to build a small sales and marketing team to train and
support global ultrasound distributors, as well as execute
traditional marketing activities such as promotional materials,
electronic media and participation in industry
conferences.
General and Administrative
Our
general and administrative expenses for the three months ended
September 30, 2016 were $448,116, an
increase of $55,770, or 14%, compared to
$392,346 for the three months ended
September 30, 2015. This increase was due primarily to
increased professional fees associated with business advisory
consulting services. Our
wage and related expenses for the
three months ended September 30, 2016 were
$211,221, compared to $272,478 for the
three months ended September 30, 2015. Wage and
related expenses in 2015 included $103,483 of stock
compensation expense related to the issuance and vesting of
options, compared to $115,125 of stock compensation expense
for 2015. Our professional fees for the three months ended
September 30, 2016 were $149,454, an
increase of $88,976, or 147%, compared to
$60,478 for the three months ended September 30, 2015.
We expect that our general and administrative expenses will
increase significantly as a result of our becoming a public
company.
Net loss
As a
result of the foregoing, for the three months ended
September 30, 2016, we recorded a net loss of
$976,484 compared to a net loss of $613,093
for the three months ended September 30,
2015.
Nine Months ended September 30, 2016 and 2015
Revenues
We had no
revenue for the nine months ended
September 30, 2016, as compared to
$1,155,065 for the nine months ended
September 30, 2015 due to our limited resources and
our decision to focus those resources on developing our TAEUS
applications. Although we expect some sales of our Nexus 128
product during the fourth quarter of 2016, given the
lack of sales in the first nine months of the year we
expect full year 2016 revenues will be lower than 2015
revenues.
Cost of Goods Sold
Cost of goods sold
was $466,073 for the nine months ended September 30, 2015. Gross
margin was approximately 59.6% for the nine months ended September
30, 2015.
Research and Development
Research and
development expenses were $338,417 for the nine months
ended September 30, 2016, as compared to
$768,215 for the nine months ended
September 30, 2015, a decrease of $429,798, or
56%. These costs include primary wages, fees and equipment
for the development of our TAEUS product line. Research and
development expenses declined due to a reduction in spending to
conserve cash. Following completion of the offering we expect that
our research and development expenses will increase significantly
due to our efforts to develop our TAEUS applications.
Sales and Marketing
Sales
and marketing expenses were $26,197 for the nine months ended
September 30, 2016, as compared to
$41,422 for the nine months ended
September 30, 2015, a decrease of $15,225, or
37%. The decrease was primarily due to reduced commissions
paid on the sale of our Nexus 128 system. Currently our marketing
efforts for our pre-clinical business are through distributors in
China, the European Union, Australia and the United Kingdom, our
website and attendance of key industry meetings. Our future
clinical business will involve hiring and training additional staff
to support our sales efforts. As we seek to complete the
development and commercialization of our TAEUS applications, we
intend to build a small sales and marketing team to train and
support global ultrasound distributors, as well as execute
traditional marketing activities such as promotional materials,
electronic media and participation in industry
conferences.
General and Administrative
Our
general and administrative expenses for the nine months ended
September 30, 2016 were $1,100,093, an
increase of $187,474, or 21%, compared to
$912,619 for the nine months ended
September 30, 2015. Our
wage and related expenses for the
nine months ended September 30, 2016 were
$549,430, compared to $530,918 for the
nine months ended September 30, 2015. Wage and related
expenses in 2016 included $172,723 of stock
compensation expense related to the issuance and vesting of
options, compared to $140,569 of stock compensation expense for
2015. Our professional fees for the nine months ended
September 30, 2016 were $384,399, an
increase of $194,849, or 103%, compared to
$189,550 for the nine months ended
September 30, 2015. We expect that our general and
administrative expenses will increase significantly as a result of
our becoming a public company.
Net loss
As a
result of the foregoing, for the nine months ended
September 30, 2016, we recorded a net loss of
$2,078,320 compared to a net loss of
$1,740,580 for the nine months ended
September 30, 2015.
Liquidity
and Capital Resources
To
date, we have generated only limited revenues from sales of our
Nexus 128 system. We have funded our operations to date through the
private sale of our equity securities. As of September
30, 2016, we had $75,543 in cash.
The
consolidated financial statements included in this prospectus have
been prepared assuming the Company will continue as a going
concern, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of
business. As reflected in the accompanying consolidated financial
statements, during the year ended December 31, 2015, the Company
incurred a net loss of $2,213,698, used cash in operations of
$946,575, and at December 31, 2015, the Company had a
stockholders’ equity of $72,124. Also, as reflected in the
accompanying consolidated financial statements, during the
nine months ended September 30, 2016, the
Company incurred net loss of $2,078,320, and used cash
in operations of $1,385,033. At September 30, 2016,
the Company had a stockholders’ deficit of
$409,202. These and other factors raise substantial
doubt about the Company’s ability to continue as a going
concern. The financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as
a going concern.
Years ended December 31, 2015 and 2014
Operating Activities
During
the year ended December 31, 2015, we used $946,575 of cash in
operating activities primarily as a result of our net loss of
$2,213,698, offset by additional warrants issued during the warrant
exchange program of $686,343, share-based compensation of $309,837,
net changes in operating assets and liabilities of
$183,288, $62,655 in depreciation and amortization
expenses, and loss on warrant exercise of $25,000.
During
the year ended December 31, 2014, we used $1,388,229 of cash in
operating activities primarily as a result of our net loss of
$2,232,060, offset in part by a loss on warrant exercise of
$639,178, $259,493 in non-cash stock compensation expense, net
changes in operating assets and liabilities of $92,082, and $37,242
in depreciation and amortization expense.
Investing Activities
During
the year ended December 31, 2015, we acquired equipment in the
aggregate amount of $29,963. During the year ended December 31,
2014, we acquired equipment in the aggregate amount of
$284,371.
Financing Activities
During
the year ended December 31, 2015, financing activities provided
$839,224 from common stock issued for cash. Financing activities
provided $1,751,015 to us during the year ended December 31, 2014
from the issuance of common stock.
Nine
Months ended September 30, 2016 and
2015
Operating Activities
During
the
nine
months ended September 30, 2016, we used
$1,385,033 of cash in operating activities primarily
as a result of our net loss of $2,078,320, offset by
amortization of discount of convertible debt of
561,812, share-based compensation of
$199,723, $38,442 in depreciation and
amortization expenses, additional warrants issued during the
warrant exchange program of $5,823, and net changes in operating
assets and liabilities of $(112,513).
During
the
nine
months ended September 30, 2015, we used
$979,211 of cash in operating activities primarily as
a result of our net loss of $1,740,580, offset in part
by additional warrants issued during the warrant exchange program
of $686,343, net changes in operating assets and liabilities of
$(25,104),$49,686 in depreciation and
amortization expense, $25,444 in non-cash stock compensation
expense, and loss on warrant exercise of $25,000.
Investing Activities
During
the
nine
months ended
September
30, 2015, we acquired equipment in the aggregate amount of $29,963.
There were no investing activities for the nine months
ended September 30, 2016.
Financing Activities
During
the
nine months
ended September 30, 2016, financing activities
provided
$1,441,448
including $5,000 from common stock issued for cash, $50,000 in
proceeds from notes payable, and $1,386,448 in
proceeds from issuance of convertible notes. Financing activities
provided $955,617 to us during the nine
months ended September 30, 2015 from the issuance of
common stock.
Funding
Requirements
We have
not completed development of our TAEUS technology platform
applications. We expect to continue to incur significant expenses
for
the foreseeable future. We anticipate
that our expenses will increase substantially as we:
●
advance the
engineering design and development of our NAFLD TAEUS
application;
●
prepare
applications required for marketing approval of our NAFLD TAEUS
application in the European Union and the United
States;
●
seek to hire a
small internal marketing team to engage and support channel
partners and clinical customers for our NAFLD TAEUS
application;
●
commence marketing
of our NAFLD TAEUS application;
●
advance development
of our other TAEUS applications; and
●
add operational,
financial and management information systems and personnel,
including personnel to support our product development, planned
commercialization efforts and our operation as a public
company.
We
believe that the net proceeds of this offering, together with our
existing cash, will be sufficient for us fund the development,
regulatory approval and initial commercialization of our NAFLD
TAEUS application in the European Union and the United States. It
is possible that we will not achieve the progress that we expect
because the actual costs and timing of completing the development
and regulatory approvals for a new medical device are difficult to
predict and are subject to substantial risks and delays. We have no
committed external sources of funds. The expected net proceeds of
this offering are not expected to be sufficient for us to complete
the commercialization of our NAFLD TAEUS application or to complete
the development of any other TAEUS application and we will need to
raise substantial additional capital for those purposes. As a
result, we will need to finance our future cash needs through
public or private equity offerings, debt financings, corporate
collaboration and licensing arrangements or other financing
alternatives. Our forecast of the period of time through which our
financial resources will be adequate to support our operations is a
forward-looking statement and involves risks and uncertainties, and
actual results could vary as a result of a number of factors,
including the factors discussed in the section entitled “Risk
Factors” and elsewhere in this prospectus. We have based this
estimate on assumptions that may prove to be wrong, and we could
utilize our available capital resources sooner than we currently
expect.
Until
we can generate a sufficient amount of revenue from our TAEUS
platform applications, if ever, we expect to finance future cash
needs through public or private equity offerings, debt financings
or corporate collaborations and licensing arrangements. Additional
funds may not be available when we need them on terms that are
acceptable to us, or at all. If adequate funds are not available,
we may be required to delay, reduce the scope of or eliminate one
or more of our research or development programs or our
commercialization efforts. To the extent that we raise additional
funds by issuing equity securities, our stockholders may experience
additional dilution, and debt financing, if available, may involve
restrictive covenants. To the extent that we raise additional funds
through collaborations and licensing arrangements, it may be
necessary to relinquish some rights to our technologies or
applications or grant licenses on terms that may not be favorable
to us. We may seek to access the public or private capital markets
whenever conditions are favorable, even if we do not have an
immediate need for additional capital at that time.
Off
Balance
Sheet Transactions
We do
not have any off balance sheet transactions.
Overview
We
have
commercialized an enhanced ultrasound technology for
the pre-clinical research market and are leveraging that expertise
to develop technology for increasing the capabilities of
clinical diagnostic ultrasound to broaden patient access to the
safe diagnosis and treatment of a number of significant medical
conditions in circumstances where expensive X-ray computed
tomography, or CT, and magnetic resonance imaging, or MRI,
technology is unavailable or impractical.
Since
2010, we have marketed and sold our Nexus 128 system, which
combines light-based thermoacoustics and ultrasound,
to address the imaging needs of researchers studying disease models
in pre-clinical applications. Building on our
expertise in thermoacoustics, we have developed a next-generation
technology platform — Thermo Acoustic Enhanced Ultrasound, or
TAEUS — which is intended to enhance the capability of
clinical ultrasound technology and support the diagnosis and
treatment of a number of significant medical conditions that
require the use of expensive CT or MRI imaging or where imaging is
not practical using existing technology. We believe that our TAEUS
technology, which can be used with existing ultrasound equipment
and incorporated into next-generation ultrasound systems, has the
potential to make advanced imaging available in certain
applications to a wider range of patients on a more cost-effective
basis than is possible using existing CT and MRI technology.
We expect to continue to sell our Nexus 128 system to
maintain a base level of revenue, but believe the market potential
for our clinical systems is much higher.
Diagnostic
Imaging Technologies
Diagnostic imaging
technologies such as CT, MRI and ultrasound allow physicians to
look inside a person’s body to guide treatment or gather
information about medical conditions such as broken bones, cancers,
signs of heart disease or internal bleeding.
The type of imaging
technology a physician uses depends on a patient’s symptoms
and the part of the body being examined. CT technology is well
suited for viewing bone injuries, diagnosing lung and chest
problems, and detecting cancers. MRI technology excels at examining
soft tissue in ligament and tendon injuries, spinal cord injuries,
and brain tumors. CT scans can take as little as 5 minutes, while
an MRI scan can take up to 30 minutes.
Unfortunately,
while CT and MRI systems are versatile and create high quality
images, they are also expensive and not always accessible to
patients. A CT system costs approximately $1 million and an MRI
system can cost up to $3 million. CT and MRI systems are large and
can weigh several tons, typically requiring significant
modifications to existing healthcare facilities to safely handle
the load. Because of their size and weight, CT and MRI systems are
usually fixed-in-place at major medical facilities. As a result,
they are less accessible to primary care and rural clinics,
economically developing markets, and patient bedsides. There are
only approximately 64,000 CT systems and 32,000 MRI systems in the
world, approximately 50% of which are located in the U.S. and
Japan.
While
CT and MRI systems create high quality images, their use is not
always practical. For example, the diagnosis and treatment of the
estimated 1.4 billion patients suffering from Non-Alcoholic Fatty
Liver Disease, or NAFLD, requires ongoing surveillance of the
patients’ livers to assess the progression of the disease and
the efficacy of treatment. However, the use of CT and MRI systems
to perform that surveillance is impractical for a number of
reasons, including the high cost of the scan, the limited
availability of CT and MRI systems and the required use of contrast
agents, including those containing radioactive substances, that can
cause allergic reactions and reduced kidney functions. Patient
exposure to the ionizing radiation generated by a CT system must be
limited for safety reasons. Similarly, because of the strong
magnetic field created by an MRI machine, patients with metal joint
replacements or cardiac pacemakers cannot be imaged with an MRI
system.
Because
of CT and MRI’s limited availability and practical
limitations, a patient who would otherwise be a candidate for CT or
MRI scanning must often rely on less
effective or less practical methods. For example, MRI scans are not
typically used to measure tissue temperature during thermoablative
(temperature based) surgery. Instead, physicians use printed
manufacturer guidelines to time the thermal surgery or insert
surgical temperature probes in an attempt to guide treatment. As a
result, the treatment is often imprecise or comes with additional
risks, such as infection.
These
limitations have led to a decrease in the number of CT scans.
According to the American College of Radiology, the overall number
of CT scans performed in the United States under Medicare Part B
fell approximately 8% from 2009 to 2014. The decline in CT scans
has been accompanied by increased use of alternative scanning
technologies. The American College of Radiology reported that the
overall number of ultrasound scans performed in the United States
under Medicare Part B increased approximately 6% from 2009 to 2014.
During the same period MRI usage increased by 5%, but remains
significantly below the use of ultrasound technology, even in the
United States.
Ultrasound
Technology
An
ultrasound machine transmits sound waves, which bounce off tissues,
organs and blood in the body. The ultrasound machine captures these
echoes and uses them to create an image. Ultrasound technology
excels at imaging the structure of internal organs, muscles and
bone surfaces.
Ultrasound systems
are more broadly available to patients than either CT or MRI
systems. There are approximately 800,000 ultrasound systems
globally in use today. Ultrasound systems are relatively
inexpensive compared to CT and MRI systems, with smaller portable
ultrasound systems costing as little as $10,000 and n
ew
cart-based ultrasound systems
costing b
etween $75,000 and
$125,000
. Ultrasound systems are also more mobile than CT
and MRI systems and many are designed to be moved by an operator
from room to room, or closer to patients. Ultrasound technology
does not present the same safety concerns as CT and MRI technology,
since ultrasound does not emit ionizing radiation and ultrasound
contrast agents are considered to be generally safe.
Due to
its utility, cost-effectiveness and safety profile, ultrasound
imaging is frequently used in a physician’s examination room
or at a patient’s bedside as a first-line diagnostic tool,
which has resulted in an overall increase in the number of
ultrasound scans performed. According to the American College of
Radiology, the overall number of ultrasound scans performed in the
United States under Medicare Part B increased 6% from 2009 to 2014
(while CT exams declined 8% during the same period).
However,
ultrasound’s imaging capabilities are more limited compared
to CT and MRI technology. For example, ultrasound systems cannot
measure tissue temperature during thermal ablation surgery, or
quantify fat to diagnose early stage liver disease -- instances
where CT and MRI systems are commonly used.
Unmet
Need
We
believe that the limited availability of high-utility and
cost-effective imaging technology represents a significant unmet
medical need. We believe that expanding the capability of
ultrasound technology to perform more of the imaging tasks
presently available only on expensive CT and MRI systems will
satisfy this unmet need.
Our
Solution – Thermo-Acoustic Enhanced Ultrasound, or
TAEUS
Our
commercially available Nexus 128 system and our Thermo-Acoustic
Enhanced Ultrasound, or TAEUS technology, each use a pulsed energy
source – near-infrared light and radio-frequency, or RF,
respectively – to generate ultrasonic waves in tissue. These
waves are then detected with ultrasound equipment and used to
create high-contrast images using our proprietary algorithms.
Unlike conventional ultrasound, which creates images based on the
scattering properties of tissue, thermoacoustic imaging provides
tissue absorption maps of the pulsed energy, similar to those
generated by CT scans. Ultrasound is only utilized to transmit the
absorption signal to the imaging system outside of the
body.
Since
2010 we have marketed our Nexus 128 system to address the imaging
needs of researchers studying disease models
in pre-clinical
applications.
The Nexus 128 uses near-infrared light
combined with ultrasound to generate 3D images of tumors in
laboratory mice. We believe the Nexus 128 is the only commercially
available fully 3D thermoacoustic imaging system.
Sales
of the Nexus 128 system were $1.4 million in 2015, and our Nexus
128 system is used in a number of leading global academic research
centers, including Stanford University, The University of Michigan,
Shanghai Jiao Tong University, and Purdue University.
While
our Nexus 128 system is suited for small animal research, the
near-infrared light energy used in our Nexus 128 system only
penetrates tissues up to 3cm, limiting its utility beyond
shallow-depth human dermatological or breast applications.
Additionally, blood-filled organs, such as the liver, absorb most
of the near-infrared light, making it difficult to generate an
accurate image.
Our
TAEUS Technology Platform
To
increase the utility of our thermoacoustic technology, in 2013 we
began to develop our TAEUS technology platform. Unlike the
near-infrared light pulses used in our Nexus 128 system, our TAEUS
technology uses RF pulses to stimulate tissues, using a small
fraction of the energy transmitted into the body during an MRI
scan. Using RF energy enables our TAEUS technology to penetrate
deep into tissue, enabling the imaging of human anatomy at depths
equivalent to those of conventional ultrasound. The RF pulses are
absorbed by tissue and converted into ultrasound signals, which are
detected by an external ultrasound receiver and a digital
acquisition system that is part of the TAEUS system. The detected
ultrasound is processed into images using our proprietary
algorithms and overlaid in real time onto conventional gray-scale
ultrasound images. An example of a TAEUS image overlay is shown
below:
Image below: Real-time ex-vivo bovine tissue temperature analysis
overlaid on traditional ultrasound image.
Our
RF-based thermoacoustics are not adversely affected by blood-filled
organs, enabling our TAEUS technology to be used in clinical liver
applications, among others.
After
approval, our TAEUS technology can be added as
an accessory to existing ultrasound systems, helping to improve
clinical decision-making on the front lines of patient care,
without requiring new clinical workflows or large capital
investments. We are also developing TAEUS for incorporation into
new ultrasound systems, primarily through our collaboration with GE
Healthcare, described more fully below.
We
believe that our TAEUS technology has the potential to add a number
of new capabilities to conventional ultrasound and thereby enhance
the utility of both existing and new ultrasound systems and extend
the use of ultrasound technology to circumstances that either
require the use of expensive CT or MRI imaging systems or where
imaging is not practical using existing technology. In our ex-vivo
and in-vivo testing, we have demonstrated that the TAEUS platform
has the following capabilities and potential clinical
applications:
●
Tissue Composition:
Our TAEUS technology enables ultrasound to distinguish fat from
lean tissue. This capability would enable the use of TAEUS-enhanced
ultrasound for the early identification, staging and monitoring of
NAFLD, a precursor to liver fibrosis, cirrhosis and liver
cancer.
●
Temperature
Monitoring: Our TAEUS technology enables traditional ultrasound to
visualize changes in tissue temperature, in real time. This
capability would enable the use of TAEUS-enhanced ultrasound to
guide thermoablative therapy, which uses heat or cold to remove
tissue, such as in the treatment of cardiac atrial fibrillation, or
removal of cancerous liver and kidney lesions, with greater
accuracy.
●
Vascular Imaging:
Our TAEUS technology enables ultrasound to view blood vessels from
any angle, using only a saline solution contrasting agent, unlike
Doppler ultrasound, which requires precise viewing angles. This
capability would enable the use of TAEUS-enhanced ultrasound to
easily identify arterial plaque or malformed vessels.
●
Tissue Perfusion:
Our TAEUS technology enables ultrasound to image blood flow at the
capillary level in a region, organ or tissue. This capability could
be used to assist physicians in characterizing microvasculature
fluid flows symptomatic of damaged tissue, such as internal
bleeding from trauma, or diseased tissue, such as certain
cancers.
Because
of the large number of traditional ultrasound systems currently in
global use, we are first developing our TAEUS technology for sale
as an aftermarket accessory that works with existing ultrasound
systems. Because our TAEUS technology is designed to enhance the
utility of, not replace, conventional ultrasound, we believe
healthcare providers will be able to increase the utilization of,
and generate new revenue from, their existing ultrasound systems
once we obtain required regulatory approval for specific
applications.
Based on our design work
and our understanding of the ultrasound accessory market, we
intend
to price our
initial
NAFLD
TAEUS application at a price point
approximating one-half of
the price of a
new cart-based ultrasound system, which should enable purchasers to
recoup their investment in less than one year by performing a
relatively small number of additional ultrasound procedures. We
further believe that clinicians will be attracted to our technology
because it will enable them to perform more procedures with their
existing ultrasound equipment, thereby retaining more imaging
patients in their clinics rather than referring patients out to a
regional medical center for a CT or MRI scan.
Endra’s
first clinical product will interface with a conventional
ultrasound scanner, utilizing the scanner’s B-mode imaging to
guide the selected region for assessment of liver fat content. The
following sub-systems will comprise Endra’s first generation
product.
Radio frequency (RF) source and computer:
The
RF source consists of a low power waveform generator and an
amplifier. Together, these components provide the characteristic
pulses required to excite thermoacoustic signals in tissue. The
computer provides processing capability to both utilize the
conventional ultrasound data for navigation to the measurement site
of interest, and the calculations required to convert digitized
thermoacoustic signals to measurements of fat in liver tissue. The
entire sub-system is expected to be approximately the size of a
desk-side computer. The entire sub-system will reside in a single
enclosure, on wheels, and sit adjacent to the ultrasound imaging
system.
Specialized Transducer:
A
single channel ‘receive only’ ultrasound transducer is
specifically designed and optimized for thermoacoustic imaging. The
transducer sub-system will detect thermoacoustic signals excited by
the RF source within the liver. The transducer assembly includes
electronics for signal amplification, digitization, and signal
processing. The specialized transducer will attach to the
conventional ultrasound probe used for liver
imaging.
RF Applicator:
The
RF applicator transmits pulses of energy, provided by the RF
source, into tissue. The applicator contacts the patient’s
skin in proximity of the target region for
measurement.
A
second generation product is expected to provide two dimensional
imaging with a transducer composed of multiple receive elements.
The RF source and applicator will be similar to those in the first
generation product but the multi-element transducer will allow for
multiple applications including: reading tissue composition,
temperature, vascular flow, tissue perfusion, and other potential
applications. Ultimately, we expect our technology will be
incorporated into conventional ultrasound systems and our business
model will transition from producing stand-alone systems to
licensing our technology, IP and specialized components to
ultrasound OEMs. Existing ultrasound equipment already includes
power supplies, computation, high speed electronics, and ultrasound
transducers, which may be leveraged by our thermoacoustic imaging
applications. The RF source and applicator are the principal
hardware components that will be added to OEM ultrasound systems
for the OEM fully integrated form of our
product.
We
are following a model that mirrors the approach used by companies
in the past to introduce new ultrasound imaging capabilities to
existing conventional ultrasound scanners. Color Doppler,
elastography, 3-D imaging, and high channel count systems were all
introduced by new companies (not already involved in conventional
ultrasound imaging). Historically, ultrasound imaging has grown
through the introduction of unique technology and capabilities that
expanded the applications and use of clinical ultrasound in a form
that often added separate hardware to existing ultrasound systems.
Ultimately, as these new technologies gained acceptance in the
marketplace they were incorporated into OEM designed and built
systems that were sold by the leading ultrasound imaging
vendors.
Image:
Concept illustration of a typical
cart-based ultrasound system
(left) with our TAEUS technology to the
right.
Ultrasound
Market
Sales
of ultrasound diagnostic equipment were approximately $4 billion
globally in 2014 and are expected to grow at approximately 4.4%
annually. There are approximately 800,000 installed systems
generating over 400 million annual diagnostic ultrasound procedures
globally. Additionally, an estimated 30,000 to 50,000 new and
replacement systems are sold into the market each year. These
numbers include both portable and cart-based ultrasound systems,
and cover all types of diagnostic ultrasound procedures, including
systems intended for cardiology, prenatal and abdominal use. We do
not intend to address low-cost, portable ultrasound systems and
systems focused on applications, such as prenatal care, where we
believe our TAEUS technology will not substantially impact patient
care. Accordingly, we define our addressable market for one or more
of our TAEUS applications at approximately 300,000 cart-based
ultrasound systems currently in use throughout the
world.
We
believe that demand for ultrasound systems is driven primarily by
the following factors:
●
Population growth
and age demographics that increase the demand for diagnostic
screening for cancer, cardiology, and prenatal
applications.
●
Economic
development broadening investment in healthcare in previously
underserved markets such as China and Latin America, where
ultrasound technology has significant appeal due to its price point
and flexibility at point-of-care.
●
Expanding
ultrasound applications and improving image quality that drive
demand for new ultrasound technologies, such as software
enhancements, bi-axial probes, and dedicated single application
systems.
●
Positive insurance
reimbursement rate trends for ultrasound diagnostics due to the
technology’s safety and cost-effectiveness.
Potential
Clinical Applications for our TAEUS Technology
Early Diagnosis and Monitoring of Non-Alcoholic Fatty Liver
Disease, or NAFLD
Our
first TAEUS platform application will focus on quantifying fat in
the liver and stage progression of NAFLD which, untreated, can
progress to Non-Alcoholic Steato-Hepatitis, or NASH, cirrhosis and
liver cancer. In 2011, over 1.4 billion people were affected by
NAFLD/NASH. The World Gastroenterology Organisation considers
NAFLD/NASH a global pandemic affecting rich and poor countries
alike. Obesity, hepatitis, and diabetes are leading contributors to
the development of NAFLD.
Untreated, an
estimated 20% of NAFLD cases progress to NASH, a condition in which
liver fat causes inflammation and decreased liver function,
resulting in fatigue, weight loss, muscle pain and abdominal
pain.
Approximately 25%
of NASH cases progress to liver cirrhosis, in which liver
inflammation causes scar tissue which eventually prevents the liver
from functioning properly. The scar tissue blocks the flow of blood
through the liver and slows the processing of nutrients, hormones,
drugs, and naturally produced toxins. It also slows the production
of proteins and other substances made by the liver. Once a patient
develops cirrhosis of the liver, the only life-saving therapy is a
liver transplant. Additionally, cirrhosis patients may develop
liver cancer. In 2015, the World Health Organization ranked liver
cancer as the second highest cause of cancer death, after lung
cancer, killing 745,000 people annually. Because of the increased
incidence of obesity, hepatitis and diabetes throughout the world,
NAFLD has become the most common chronic liver disease and an
important cause of cirrhosis and liver cancer
worldwide.
Despite
the increased incidence of NAFLD and its role in the development of
NASH, cirrhosis and liver cancer, we believe that no low-cost,
accurate and safe method exists for measuring fat in the liver.
Current liver enzyme blood tests are indicative, but cannot
reliably confirm early stage NAFLD or NASH, and liver enzyme levels
are normal in a large percentage of patients with NAFLD. Existing
ultrasound technology can only measure fat qualitatively in the
liver at moderate to severe levels, typically greater than 30%
liver fat, and ultrasound has low accuracy when used on obese
patients. While early stage NAFLD and NASH can be confirmed by an
MRI scan, an MRI scan is expensive, and MRI systems are not widely
available or practical for many patients. A surgical biopsy can be
used to confirm NAFLD and NASH, but is also expensive, involves a
painful procedure and exposes patients to the risk of infection.
Furthermore, MRIs and surgical biopsies are impractical for
repeated screening and monitoring of liver disease. We believe
these limitations negatively impact the diagnosis and treatment of
patients with NAFLD.
Patients
diagnosed with NAFLD and related liver diseases are typically
treated with therapies such as statins, insulin sensitizers and
other compounds and are encouraged to adopt lifestyle changes to
improve their overall health.
A
significant number of pharmaceutical compounds are in development
by companies such as Bristol-Myers Squibb Company, Intercept
Pharmaceuticals, Inc., Gilead Sciences, Inc., Genfit SA, Galectin
Therapeutics Inc., Conatus Pharmaceuticals Inc., NuSirt Sciences
Inc., Tobira Therapeutics, Inc. and Immuron Limited.
Billions of dollars
are spent annually on the diagnosis and treatment of NAFLD and
related liver diseases. Identification and staging of NAFLD is
central to determining the course of treatment. In addition,
patients receiving treatment for NAFLD-spectrum liver diseases must
continue to be monitored to assess disease progression and the
efficacy of treatment. Because of the high cost and limited global
availability, CT and MRI technology is not typically used for this
function.
We
believe our TAEUS technology will enable primary care physicians,
radiologists and hepatologists to diagnose NAFLD earlier and
monitor patients with NAFLD-spectrum liver diseases more accurately
and cost-effectively than is possible with existing
technology.
Image below: Ex-vivo TAEUS tissue composition analysis overlaid on
traditional ultrasound image.
Temperature Monitoring of Thermoablative Surgery
We also
intend to develop a TAEUS platform application to guide thermal
ablation surgery, such as in the treatment of cardiac atrial
fibrillation, chronic pain and lesions of the liver, thyroid,
kidneys and other soft tissues. We plan to target clinical users of
thermoablative technology, including interventional radiologists,
cardiologists, gynecologists and surgical oncologists.
Thermoablation
involves the use of heat or cold to remove malfunctioning or
diseased tissue in surgical oncology, cardiology, neurology,
gynecology, and urology applications. Thermoablative technologies
include RF, microwave, laser and cryogenic ablation.
The worldwide market for RF surgical ablation procedures alone was
estimated in 2015 to be $3.7 billion per annum, generating over 5
million annual RF ablation procedures and growing at approximately
18% annually. We believe that the growth of this market is driven
primarily by the aging global population requiring more cardiac and
cancer procedures, as well as the relative ease-of-use and low cost
of thermoablative technologies when compared to open
surgery.
However,
RF and other thermoablative surgery technologies pose risks,
including under-treatment of diseased tissue and unintended thermal
damage to areas outside the treatment area. For example, it has
been reported that patients receiving RF ablation of liver tumors
have experienced thermal injury to the diaphragm, gallbladder, bile
ducts and gastrointestinal tract, some of which have resulted in
patient deaths.
Clinicians
must rely on printed manufacturer guidelines to plan
procedures using
thermal
ablation technologies or, when available, monitor tissue
temperature changes in real-time with MRI imaging or surgical
temperature probes. We believe these existing methods either lack
real-time precision or are impractical due to cost, poor
availability and other factors.
We
believe that the ability to visualize changes in tissue temperature
in real time could potentially enhance the effectiveness and safety
of thermoablation therapies and that our TAEUS technology platform
combined with traditional ultrasound has the potential to guide
thermoablation surgery more cost-effectively and more accurately
than existing methods.
Image below: Real-time ex-vivo TAEUS tissue temperature analysis
overlaid on traditional ultrasound image.
Vascular Imaging
We
believe that our TAEUS technology can be used to image blood
vessels and distinguish them from the surrounding tissue. In
addition to our NAFLD and thermoablation applications, we intend to
develop a cardiovascular application based on our TAEUS technology
that, with the use of a standard saline contrast agent, can enable
existing ultrasound systems to perform a number of cardiovascular
diagnostic functions, such as identifying arterial plaque or
blocked or malformed vessels, as well as safely guiding biopsies
away from vital vasculature.
Conventional
ultrasound imaging systems use Doppler imaging in a variety of
vascular applications. Doppler ultrasound, which images the
velocity of blood, is effective in larger vessels and regions where
blood velocity is high. However, Doppler ultrasound is not
sufficiently sensitive for use in very small vessels or in vascular
imaging applications where blood velocities are very low. For these
applications, contrast enhanced CT and MRI angiography is used
which requires the patient to be injected with a contrast agent,
iodinated compounds and gadolinium, respectively. Contrast-enhanced
CT and MRI scans both require referral for examination after
initial screening with ultrasound and carry risks associated with
their respective contrast agents. We believe that our TAEUS
platform application has the potential to offer the advantages of
CT and MR contrast enhanced imaging at the point of care using only
a safe electrolyte solution as the contrast agent.
Tissue Perfusion or “Leakiness”
We
believe that our TAEUS technology can be used to image tissue
perfusion, or the absorption of fluids into an organ or tissue. We
intend to develop an application for our TAEUS platform that would
enable ultrasound detection of microvasculature fluid flows
symptomatic of tissue compromised by trauma or
disease.
When a
person’s body is affected by disease or trauma, blood and
other fluids may leak from damaged tissues in subtle ways.
Traditional ultrasound cannot effectively image these disruptions
in microvascular permeability, but we believe ultrasound combined
with our TAEUS technology can.
We
believe that using our TAEUS technology physicians will be able to
quickly and clearly see tissue compromised by disease, such as
cancer, or trauma, especially with the use of a standard saline
contrast agent, when CT or MRI is not readily
available.
Collaboration
with GE Healthcare
In
April 2016, we entered into a Collaborative Research Agreement with
General Electric Company, acting through its GE Healthcare business
unit and the GE Global Research Center, or GE Healthcare. Under the
terms of the agreement, GE Healthcare has agreed to assist us in
our efforts to commercialize our TAEUS technology for use in a
fatty liver application by, among other things, providing equipment
and technical advice, and facilitating introductions to GE
Healthcare clinical ultrasound customers. In return for this
assistance, we have agreed to afford GE Healthcare certain rights
of first offer with respect to manufacturing and licensing rights
for the target application. More specifically, we have agreed that,
prior to commercially releasing our TAEUS technology for a fatty
liver application, we will offer to negotiate an exclusive
ultrasound manufacturer relationship with GE Healthcare for a
period of at least one year of commercial sales. The commercial
sales would involve, within our sole discretion, either our company
commercially selling GE Healthcare ultrasound systems as the
exclusive ultrasound system with their TAEUS fatty liver
application embedded, or GE Healthcare being the exclusive
ultrasound manufacturer to sell ultrasound systems with the TAEUS
fatty liver application technology embedded.
The
agreement with GE Healthcare does not prevent us from selling our
TAEUS fatty liver application technology to distributors or
directly to non-manufacturer purchasers.
Additionally, the
agreement provides that prior to offering to license any of our
TAEUS fatty liver application intellectual property to a third
party, we will first offer to negotiate to license our TAEUS fatty
liver application intellectual property to GE
Healthcare.
Finally, we agreed
that prior to selling any equity interests in our company to a
healthcare device manufacturer, we will first offer to negotiate in
good faith to sell such equity interests to GE
Healthcare.
The
agreement has a term of one year and is subject to termination by
either party upon not less than 60 days’ notice.
Intellectual
Property
We rely
on a combination of patent, copyright, trademark and trade secret
laws and other agreements with employees and third parties to
establish and protect our proprietary intellectual property rights.
We require our officers, employees and consultants to enter into
standard agreements containing provisions requiring confidentiality
of proprietary information and assignment to us of all inventions
made during the course of their employment or consulting
relationship. We also enter into nondisclosure agreements with our
commercial counterparties and limit access to, and distribution of,
our proprietary information.
We are
committed to developing and protecting our intellectual property
and, where appropriate, filing patent applications to protect our
technology. Our issued and pending patents claims are directed at
the following areas related to our technology:
●
Methods to induce
and enhance thermoacoustic signal generation;
●
System
configurations, devices and novel hardware for transmission of RF
pulses into tissue and detection of acoustic signals;
●
Methods for
integrating our devices with existing conventional ultrasound
systems; and
●
Methods and
algorithms for: signal processing, image formation and
analysis
We
currently maintain a patent portfolio consisting of two patents
issued in foreign jurisdictions, eight patent applications pending
in the United States and five patent applications pending in
foreign jurisdictions. These patents and patent applications cover
certain innovations relating to contrast-enhanced imaging as well
as several aspects of fat imaging and fat quantitation in the liver
and other tissues.
In
addition, we have in-licensed five U.S. patents, three foreign
patents, one patent application pending in the United States and
two patent applications pending in foreign jurisdictions. These
patents protect a number of key design attributes that are specific
to our Nexus 128 product.
Each of
our patents generally has a term of 20 years from its respective
priority filing date. Among our issued patents, the first patents
are set to expire in 2018 and the last patents expire in
2031.
Sales
and Marketing
We
currently market our Nexus 128 pre-clinical system through a small
internal marketing team and a global network of distributors in the
United Kingdom, the European Union, Australia, China and Korea. We
use our corporate website, sales materials and key industry
meetings to drive customer awareness, interest and trial of our
products.
We
currently do not have a sales and marketing team dedicated to our
TAEUS clinical applications. In parallel to securing all necessary
government marketing approvals, we intend to hire a small internal
marketing team to engage and support channel partners and clinical
customers. As we have done with our Nexus 128 system, we intend to
partner with several geographically-focused independent clinical
ultrasound equipment distributors to market and sell our TAEUS
applications. We believe that these distributors have existing
customer relationships, a strong knowledge of diagnostic imaging
technology and the capabilities to support the installation,
customer training and post-sale service of capital equipment and
software.
We also
intend to work with original equipment manufacturers, or OEMs, of
ultrasound and thermal ablation equipment to sell our TAEUS
applications alongside their own new systems and into their
existing installed base systems. We believe that these OEMs will
find our applications attractive as they will enable them to
generate additional revenue from their installed systems – as
they currently do with aftermarket accessory portfolios. We believe
our relationship with GE Healthcare will facilitate this
strategy.
Based on our design
work and our understanding of the ultrasound accessory market, we
intend to price our initial NAFLD TAEUS application at a price
point approximating one-half of the price of a new cart-based
ultrasound system, which should enable purchasers to recoup their
investment in less than one year by performing a relatively small
number of additional ultrasound
procedures.
Some of
our TAEUS offerings are expected to be implemented via a hardware
platform that can run multiple individual software applications
that we will offer TAEUS users for a one-time licensing fee,
enabling users to perform more procedures with their existing
ultrasound equipment and retaining more patients in their clinics
rather than referring them out to a regional imaging medical center
for a CT or MRI scan.
We also
intend to license our TAEUS technology to OEMs, such as GE
Healthcare, for incorporation in their new ultrasound
systems.
Manufacturing
We
assemble our Nexus 128 products from components provided to us by
third-party component suppliers and manufacturers. While many of
the components are off-the-shelf components
available
from multiple
suppliers, our proprietary receiver array is specially manufactured
to our specifications by one manufacturer. To date, we have not
experienced any component shortages. We do not have any long-term
supply or manufacturing agreements related to our Nexus 128
products and components are obtained on a purchase order basis when
required.
We
intend to contract with a medical device contract engineering firm
to perform the commercial product engineering for our NAFLD TAEUS
application, as well as any other application we decide to
commercialize. We expect that the selected contractor will have
quality systems and processes in place, commensurate with
productizing devices with CE mark certification that will meet FDA
requirements for approval. We believe that our contractor will have
the ability to provide product design, development and
documentation necessary to support a CE mark that will enable us to
sell the application in the European Union as a Class IIa medical
device once a final design has been developed and tested. We also
expect that this contractor, with support from a medical device
regulatory consulting firm, will lead the preparation of
documentation for regulatory approval submission both in the
European Union and in the United States. In order to foster
collaboration with and supervision of our contractor, we intend to
locate one or more of our employees at the medical device contract
engineering firm during the TAEUS
application
manufacturing
process. We have identified several medical device contract
engineering firms that have the capability to provide these
services. However, as of the date hereof, we have not entered into
a contract with any of them. We expect that our contract
manufacturers will either supply necessary components internally or
obtain them from third-party sources. At this time, we do not know
whether any components will be single sourced.
Regulatory
Approval Pathway
Each of our TAEUS
platform applications will require regulatory
approvals before we are able to sell or license the application.
Based on certain factors, such as the installed base of ultrasound
systems, availability of other imaging technologies, such as CT and
MRI, economic strength and applicable regulatory requirements, we
intend to seek initial approval of our applications for sale in the
European Union, followed by the United States and
China.
The
first TAEUS application we intend to commercialize is our NAFLD
TAEUS application. Our initial target market for this application
is the European Union. We believe that our NAFLD TAEUS application
will qualify for sale in the European Union as a Class IIa medical
device. As a result, we will be required to obtain a CE mark for
our NAFLD TAEUS application before we can sell the application in
the European Union. We have not yet initiated the process for
obtaining this CE mark. The first step we plan to take in this
regard is to contract with a medical device contract engineering
firm to perform the commercial product engineering for our NAFLD
TAEUS application, as well as any other application we decide to
commercialize. We expect that the selected contractor will have
quality systems and processes in place, commensurate with
productizing devices with CE mark and FDA certification and
approvals. We believe that our contractor will have the ability to
provide product design, development and documentation necessary to
support a CE mark that will enable us to sell the application in
the European Union as a Class IIa medical device once a final
design has been developed and tested. We also expect that this
contractor, with support from a medical device regulatory
consulting firm, will lead the preparation of documentation for
regulatory approval submission both in the European Union and in
the United States. We have identified several medical device
contract engineering firms that have the capability to provide
these services. However, as of the date hereof, we have not entered
into a contract with any of them. Existing regulations would not
require us to conduct a clinical trial to obtain a CE mark for this
application. Nonetheless, for commercial reasons and to support our
CE mark application we plan to conduct a limited (less than 10
person) trial to demonstrate our NAFLD TAEUS application’s
ability to distinguish fat from lean tissue. Based on our
understanding of applicable regulations and consultations with
medical device regulatory consulting firms and medical device
contract engineering firms, we expect that the development
of our NAFLD TAEUS application, including the receipt of the
necessary CE mark, will be complete approximately ten months after
the completion of this offering, and that we will use approximately
$1,000,000 of the net proceeds from this offering on such
activities. Additionally, to enhance our commercialization efforts
in the European Union, following receipt of such CE mark and
placement of initial systems with researchers and universities, we
plan to conduct one or more clinical studies to demonstrate this
product’s capabilities, and that we will use approximately
$700,000 of the net proceeds from this offering on such activities.
However, these estimates are subject to uncertainty and there
can be no assurance that these processes will not take longer or be
more costly than we expect. In 2012 the European Commission
proposed a new regulatory scheme that, if implemented, will impose
significant additional obligations on medical device companies.
Expected changes include stricter requirements for clinical
evidence and pre-market assessment of safety and performance, new
classifications to indicate risk levels, requirements for third
party testing by government accredited groups for some types of
medical devices, and tightened and streamlined quality management
system assessment procedures. It is anticipated that this new
regulatory scheme may be implemented prior to receipt of the CE
mark for our NAFLD TAEUS application but we believe that applicable
transition rules should allow us to avoid their application in that
case. However, such new rules could impose additional requirements,
such as a requirement to conduct clinical trials, on future CE mark
applications we make.
While
the process of obtaining a CE mark for our NAFLD TAEUS application
is underway, we also intend to prepare for submission to the U.S.
Food and Drug Administration, or the FDA, an application under the
Food, Drug and Cosmetic Act, or the FD&C Act, to
sell our NAFLD TAEUS application in the U.S. We anticipate that the
application, as well as those for our other TAEUS applications,
will be submitted for approval under Section 510(k) of the
FD&C Act. Based on our understanding of
applicable regulations and consultations with medical device
regulatory consulting firms and medical device contract engineering
firms, we expect to submit this application to the FDA
approximately eleven months after the completion of this offering
and for the FDA to make a final determination on our application
approximately eleven months after that application is submitted. We
estimate that we will use approximately $100,000 of the net
proceeds from this offering on such activities. However,
these estimates are subject to uncertainty and there can be no
assurance that these processes will not take longer or be more
costly than we expect. We expect that our initial FDA
clearance will allow us to sell the NAFLD TAEUS application in the
U.S. with general imaging claims. However, we will need to obtain
additional FDA clearances to be able to make diagnostic claims for
fatty tissue content determination. Accordingly, to support our
commercialization efforts we expect that, following receipt of our
initial FDA clearance, we will submit one or more additional
applications to the FDA, each of which will need to include
additional clinical trial data, so that following receipt of the
necessary clearances we may make those diagnostic
claims.
Regulation
European Union
The
primary regulatory environment in Europe is the European Union,
which consists of 28 member states encompassing most of the major
countries in Europe. We believe that in the European Union
applications
incorporating our TAEUS technology will be regulated as Class IIa
medical devices by the European Medicines Agency, or EMA, and the
European Union Commission. As described above, we expect our
applications
will
receive a CE mark from an appropriate Competent Authority as a
result of successful review of one or more submissions prepared by
our contract engineering and manufacturer(s), so that such
applications
can
be marketed and distributed within the European Economic Area. Each
of our
applications
will be required
to be recertified each year for CE marking, which recertification
may require an annual audit. The audit procedure, which will
include on-site visits at our facility, and the contract
manufacturer’s(s’) facility(ies), will require us to
provide the contract manufacturer(s) with information and
documentation concerning our quality management system and all
applicable documents, policies, procedures, manuals, and other
information.
In the
European Union, the manufacturer of medical devices is subject to
current Good Manufacturing Practice, or cGMP, as set forth in the
relevant laws and guidelines of the European Union and its member
states. Compliance with cGMP is generally assessed by a Notified
Body accredited by a Competent Authority. For a Class IIa device,
typically, quality system evaluation is performed by the Notified
Body, which also recommends to the relevant Competent Authority for
the European community whether a device will receive a CE mark. The
Notified Body may conduct inspections of relevant facilities, and
review manufacturing procedures, operating systems and personnel
qualifications. In addition to obtaining approval for each
application
, in
many cases each device manufacturing facility must be audited on a
periodic basis by the Notified Body. Further inspections may occur
over the life of the
application.
FDA Regulation
Each of
our products must be approved or cleared by the FDA before it is
marketed in the United States Before and after approval or
clearance in the United States, our applications are subject to
extensive regulation by the FDA under the
FD&C
Act and/or the
Public Health Service Act, as well as by other regulatory bodies.
The FDA regulations govern, among other things, the development,
testing, manufacturing, labeling, safety, storage, record-keeping,
market clearance or approval, advertising and promotion, import and
export, marketing and sales, and distribution of medical devices
and pharmaceutical products.
FDA Approval or Clearance of Medical Devices
In the
United States, medical devices are subject to varying degrees of
regulatory control and are classified in one of three classes
depending on the extent of controls the FDA determines are
necessary to reasonably ensure their safety and
efficacy:
●
Class I: general
controls, such as labeling and adherence to quality system
regulations;
●
Class II: special
controls, premarket notification (510(k)), specific controls such
as performance standards, patient registries and post-market
surveillance and additional controls such as labeling and adherence
to quality system regulations; and
●
Class III: special
controls and approval of a premarket approval, or PMA,
application.
We
expect all of our products to be classified as Class II medical
devices and require FDA authorization prior to marketing by means
of a 510(k) clearance.
To
request marketing authorization by means of a 510(k) clearance, we
must submit a premarket notification demonstrating that the
proposed device is substantially equivalent to another legally
marketed medical device, has the same intended use, and is as safe
and effective as a legally marketed device and does not raise
different questions of safety and effectiveness than a legally
marketed device. 510(k) submissions generally include, among other
things, a description of the device and its manufacturing, device
labeling, medical devices to which the device is substantially
equivalent, safety and biocompatibility information and the results
of performance testing. In some cases, a 510(k) submission must
include data from human clinical studies. Marketing may commence
only when the FDA issues a clearance letter finding substantial
equivalence. The typical duration to receive a 510(k) approval is
approximately nine to twelve months from the date of
the initial 510(k) submission, although there is no guarantee that
the timing will not be longer.
In the past, the
510(k) pathway for product marketing has required only proof of
substantial equivalence in technology for a given indication with a
previously cleared device. Recently, there has been a trend of the
FDA requiring additional clinical work to prove efficacy in
addition to technological equivalence and basic safety. Whether
clinical data is provided or not, the FDA may decide to reject the
substantial equivalence argument we present. If that happens, the
device is automatically designated as a Class III device. The
device sponsor must then fulfill more rigorous PMA requirements, or
can request a risk-based classification determination for the
device in accordance with the “de novo” process, which
may determine that the new device is of low to moderate risk and
that it can be appropriately be regulated as a Class I or II
device. If a de novo request is granted, the device may be legally
marketed and a new classification is established. If the device is
classified as Class II, the device may serve as a predicate for
future 510(k) submissions. If the device is not approved through de
novo review, then it must go through the standard PMA process for
Class III devices.
After a
device receives 510(k) clearance, any product modification that
could significantly affect the safety or effectiveness of the
product, or that would constitute a significant change in intended
use, requires a new 510(k) clearance or, if the device would no
longer be substantially equivalent, a PMA. If the FDA determines
that the product does not qualify for 510(k) clearance, then a
company must submit, and the FDA must approve, a PMA before
marketing can begin.
A PMA
application must provide a demonstration of safety and
effectiveness, which generally requires extensive pre-clinical and
clinical trial data. Information about the device and its
components, device design, manufacturing and labeling, among other
information, must also be included in the PMA. As part of the PMA
review, the FDA will inspect the manufacturer’s facilities
for compliance with quality system regulation requirements, which
govern testing, control, documentation and other aspects of quality
assurance with respect to manufacturing. If the FDA determines the
application or manufacturing facilities are not acceptable, the FDA
may outline the deficiencies in the submission and often will
request additional testing or information. Notwithstanding the
submission of any requested additional information, the FDA
ultimately may decide that the application does not satisfy the
regulatory criteria for approval. During the review period, a FDA
advisory committee, typically a panel of clinicians and
statisticians, is likely to be convened to review the application
and recommend to the FDA whether, or upon what conditions, the
device should be approved. The FDA is not bound by the advisory
panel decision. While the FDA often follows the panel’s
recommendation, there have been instances in which the FDA has not.
The FDA must find the information to be satisfactory in order to
approve the PMA. The PMA approval can include post-approval
conditions, including, among other things, restrictions on
labeling, promotion, sale and distribution, or requirements to do
additional clinical studies after approval. Even after approval of
a PMA, a new PMA or PMA supplement is required to authorize certain
modifications to the device, its labeling or its manufacturing
process. Supplements to a PMA often require the submission of the
same type of information required for an original PMA, except that
the supplement is generally limited to that information needed to
support the proposed change from the product covered by the
original PMA. The typical duration to receive PMA approval is
approximately two years from the date of submission of the initial
PMA application, although there is no guarantee that the timing
will not be longer.
Clinical Trials of Medical Devices
One or
more clinical trials are generally required to support a PMA
application and more recently are becoming necessary to support a
510(k) submission. Clinical studies of unapproved or uncleared
medical devices or devices being studied for uses for which they
are not approved or cleared (investigational devices) must be
conducted in compliance with FDA requirements. If an
investigational device could pose a significant risk to patients,
the sponsor company must submit an investigational device exemption
application to the FDA prior to initiation of the clinical study.
An investigational device exemption application must be supported
by appropriate data, such as animal and laboratory test results,
showing that it is safe to test the device on humans and that the
testing protocol is scientifically sound. The investigational
device exemption will automatically become effective 30 days after
receipt by the FDA unless the FDA notifies the company that the
investigation may not begin. Clinical studies of investigational
devices may not begin until an institutional review board has
approved the study.
During
the study, the sponsor must comply with the FDA’s
investigational device exemption requirements. These requirements
include investigator selection, trial monitoring, adverse event
reporting, and record keeping. The investigators must obtain
patient informed consent, rigorously follow the investigational
plan and study protocol, control the disposition of investigational
devices, and comply with reporting and record keeping requirements.
The sponsor, the FDA, or the institutional review board at each
institution at which a clinical trial is being conducted may
suspend a clinical trial at any time for various reasons, including
a belief that the subjects are being exposed to an unacceptable
risk. During the approval or clearance process, the FDA typically
inspects the records relating to the conduct of one or more
investigational sites participating in the study supporting the
application.
Post-Approval Regulation of Medical Devices
After a
device is cleared or approved for marketing, numerous and pervasive
regulatory requirements continue to apply. These
include:
●
the FDA quality
systems regulation, which governs, among other things, how
manufacturers design, test, manufacture, exercise quality control
over, and document manufacturing of their products;
●
labeling and claims
regulations, which prohibit the promotion of products for
unapproved or “off-label” uses and impose other
restrictions on labeling; and
●
the Medical Device
Reporting regulation, which requires reporting to the FDA of
certain adverse experiences associated with use of the
product.
Good Manufacturing Practices Requirements
Manufacturers of
medical devices are required to comply with the good manufacturing
practices set forth in the quality system regulation promulgated
under Section 520 of the
FD&C
Act. Current
good manufacturing practices regulations require, among other
things, quality control and quality assurance as well as the
corresponding maintenance of records and documentation. The
manufacturing facility for an approved product must be registered
with the FDA and meet current good manufacturing practices
requirements to the satisfaction of the FDA pursuant to a pre-PMA
approval inspection before the facility can be used. Manufacturers,
including third party contract manufacturers, are also subject to
periodic inspections by the FDA and other authorities to assess
compliance with applicable regulations. Failure to comply with
statutory and regulatory requirements subjects a manufacturer to
possible legal or regulatory action, including the seizure or
recall of products, injunctions, consent decrees placing
significant restrictions on or suspending manufacturing operations,
and civil and criminal penalties. Adverse experiences with the
product must be reported to the FDA and could result in the
imposition of marketing restrictions through labeling changes or in
product withdrawal. Product approvals may be withdrawn if
compliance with regulatory requirements is not maintained or if
problems concerning safety or efficacy of the product occur
following the approval.
China
Regulation
China’s
regulatory approval framework includes nationwide approval based on
a showing that the device for which approval is sought has been
previously approved in the country of origin. Alternatively, we
understand it is also possible to receive approval at the
provincial level or to work exclusively with hospitals that do not
require such nationwide or provincial approval. We intend to
explore these potential paths to regulatory compliance in
China.
Other Regulations
We will
become subject to regulations and product registration requirements
in many foreign countries in which we may sell our products,
including in the areas of product standards, packaging
requirements, labeling requirements, import and export restrictions
and tariff regulations, duties and tax requirements. The time
required to obtain clearance required by foreign countries may be
longer or shorter than that required for EMA or FDA clearance, and
requirements for licensing a product in a foreign country may
differ significantly from EMA and FDA requirements.
Competition
While
we believe that we are the only company developing RF-based
thermoacoustic ultrasound products, we will face direct and
indirect competition from a number of competitors, many of whom
have greater financial, sales and marketing and other resources
than we do.
Manufacturers of CT
and MRI systems include multi-national corporations such as Royal
Philips, Siemens AG and Hitachi, Ltd., many of whom also
manufacture and sell ultrasound equipment. In the NAFLD diagnosis
market we will compete with makers of surgical biopsy tools, such
as Cook Medical and Sterylab S.r.l. In the thermal ablation market,
we will compete with manufacturers of surgical temperature probes,
such as Medtronic plc and St. Jude Medical, Inc.
Research
and Development
Our
research and development expenses were approximately $1,038,878 and
$873,167 for the years ended December 31, 2015 and 2014,
respectively.
Employees
As of
September
30, 2016, we
had eight employees, five of whom are employed on a full-time
basis. Three full-time employees and two part-time employees were
engaged in research and development activities, one full-time
employee was engaged in administrative activities, one full-time
employee was engaged in product assembly and one part-time employee
was engaged in marketing activities. After the closing of the
offering, we intend to employ certain of our part-time employees on
a full-time basis and to hire a full-time Chief Financial Officer.
None of our employees is covered by a collective bargaining
agreement, and we believe our relationship with our employees is
good.
We also
employ technical advisors, on an as-needed basis, to supplement
existing staff. We believe that these technical advisors provide us
with necessary expertise in clinical ultrasound applications,
ultrasound technology, and intellectual property.
Properties
Our
principal office is located at 3600 Green Court, Suite 350, Ann
Arbor, Michigan 48105-1570. We currently lease approximately 3,657
square feet of office and light industrial/research space under a
lease that is due to expire in 2020. The rent is approximately
$6,135 per month, subject to moderate annual increases. We believe
that equivalent suitable space is available at similar
rents.
Legal
Proceedings
We are
not a party to any pending legal proceedings.
EXECUTIVE OFFICERS, DIRECTORS
AND CORPORATE GOVERNANCE
The
following table sets forth the names and ages of all of our
executive officers and directors. Our officers are appointed
by, and serve at the pleasure of, the board of
directors.
|
Name
|
Age
|
Position
|
|
Francois
Michelon
|
50
|
Chief
Executive Officer and Chairman
|
|
Michael
Thornton
|
48
|
Chief
Technology Officer
|
|
David
Wells
|
54
|
Chief
Financial Officer (Interim)
|
|
Anthony
DiGiandomenico
|
50
|
Director
|
|
Dr.
Sanjiv Sam Gambhir
|
53
|
Director
|
|
Michael
Harsh
|
62
|
Director
|
|
Alexander
Tokman
|
54
|
Director
|
Biographical
information with respect to our executive officers and directors is
provided below. There are no family relationships
between any of our executive officers or directors.
Francois
Michelon − Chief Executive Officer and Chairman
Francois Michelon
joined ENDRA as Chief Executive Officer and Chairman of the Board
of Directors in 2015. He has 18 years of healthcare technology
experience in general management, operations, strategy and
marketing across the diagnostic imaging, surgical instrument and
dental sectors.
From
2012 to 2014, Mr. Michelon served as Vice President of Global
Marketing for the 3i division of Biomet, Inc. (now Zimmer Biomet
Holdings, Inc.), a provider of oral reconstruction technologies,
where he was responsible for the upstream and downstream
development of the division’s global portfolio. From 2004 to
2011, Mr. Michelon served as Group Director of Global Services and
Visualization for Smith & Nephew plc’s Advanced Surgical
Devices division, where he led P&L’s in the B2B service
and capital equipment sectors. From 1997 to 2004, Mr. Michelon
worked at GE Healthcare in a variety of global upstream and
downstream marketing roles.
Mr.
Michelon received an MBA from Carnegie-Mellon University and a BA
in Economics from the University of Chicago. He has also earned his
Six Sigma Black Belt certification. Mr. Michelon’s extensive
industry and executive experience position him well to serve as our
Chief Executive Officer and a member of our board of
directors.
Michael
Thornton − Chief Technology Officer
Prior
to joining ENDRA as Chief Technology Officer in 2007, Michael
Thornton was a founder and President of Enhanced Vision Systems
Corp., or EVS, a developer and supplier of medical imaging
equipment to the pharmaceutical, biotech, and academic
sectors.
In
2002, EVS was acquired by General Electric Company and was
integrated into the Functional and Molecular Imaging business unit
of GE Medical Systems (now GE Healthcare, a subsidiary of General
Electric Company). Following the acquisition of EVS by GE Medical
Systems, Mr. Thornton held a number of positions at GE Healthcare,
including Sales Manager, Global Product Manager, and Site Leader.
He was a member of the leadership team that expanded the
pre-clinical imaging business to include: computed tomography,
optical, and positron emission tomography imaging technologies,
with global market reach. He is also a founder of Volumetrics
Medical Corp., a developer and manufacturer of quality assurance
devices for diagnostic imaging.
Prior
to founding EVS, Mr. Thornton developed medical imaging related
technologies at the Robarts Research Institute (London, Ontario,
Canada) for which he obtained an MSc in Electrical Engineering from
the University of Western Ontario. Mr. Thornton also holds a BASc
in Electrical Engineering from the University of Toronto and is a
member of the American Association of Physicists in
Medicine.
David
Wells − Chief Financial Officer (Interim)
David
Wells became our Chief Financial Officer on an interim basis in
2014. He possesses 30 years of experience in finance, operations
and administrative positions. While mainly focused on technology
companies, Mr. Wells has also worked in the water treatment,
supply-chain management, manufacturing and professional services
industries.
Mr.
Wells is the founder of Wells Compliance Group, a technology-based
services firm supporting the financial reporting needs of publicly
traded companies and privately held firms whose investor or
shareholder base requires timely GAAP-compliant financial
reporting. Mr. Wells has been the Chief Executive Officer of
StoryCorp Consulting (d/b/a/ Wells Compliance Group) since March
2013. In this role, Mr. Wells has served as the principal
financial officer of several emerging growth companies, including
Mount Tam Biotechnologies, Inc., a biopharmaceutical company
(August 2015 to April 2016), Content Checked Holdings, Inc., a
technology company (April 2015 to present), and Loton, Corp., a
media company (February 2016 to present). From 2009 to 2013,
he was the President, CFO and a Director of Sionix Corporation, a
publicly traded water treatment company.
Mr.
Wells holds an MBA from Pepperdine University and a BS in Finance
and Entrepreneurship from Seattle Pacific University.
Anthony
DiGiandomenico − Director
Anthony
DiGiandomenico joined ENDRA’s board of directors in 2013. A
co-founder of MDB Capital Group LLC, Mr. DiGiandomenico focuses on
corporate finance and capital formation for growth-oriented
companies. He has participated in all areas of corporate finance
including private capital, public offerings, PIPEs, business
consulting and strategic planning, and mergers and
acquisitions.
Mr.
DiGiandomenico has also worked on a wide range of transactions for
growth-oriented companies in biotechnology, nutritional
supplements, manufacturing and entertainment industries. Prior to
forming MDB Capital Group LLC in 1997, Mr. DiGiandomenico served as
President and CEO of the Digian Company, a real estate development
company.
Mr.
DiGiandomenico holds an MBA from the Haas School of Business at the
University of California, Berkeley and a BS in Finance from the
University of Colorado. Mr. DiGiandomenico’s financial
expertise, general business acumen and significant executive
leadership experience position him well to make valuable
contributions to our board of directors.
Dr.
Sanjiv Sam Gambhir − Director
Dr.
Sanjiv Sam Gambhir joined our board of directors in 2008. He is the
Virginia & D.K. Ludwig Professor of Cancer Research and the
Chair of Radiology at Stanford University School of Medicine. He
also heads the Canary Center at Stanford for Cancer Early Detection
and directs the Molecular Imaging Program at Stanford
(MIPS).
He
received an MD/PhD from the UCLA Medical Scientist Training
Program. He has many publications in the field and numerous patents
pending or granted. He has developed and clinically translated
several multimodality molecular imaging strategies including
imaging of gene and cell therapies. He has also pioneered imaging
areas such as Bioluminescence Resonance Energy Transfer (BRET),
split-reporter technology, Raman imaging in vivo, Molecular
Photoacoustic imaging, PET reporter genes, and novel in vitro and
in vivo strategies for the early detection of cancer.
Dr.
Gambhir serves on numerous academic advisory boards for
universities around the world and also served as a member of the
Board of Scientific Advisors of the National Cancer Institute from
2004 to 2012. He has also founded or co-founded several startups in
the diagnostics space. Among his many awards are the George Von
Hevesy Prize and the Paul C. Aebersold Award for outstanding
achievement in basic nuclear medicine science from the Society of
Nuclear Medicine, Outstanding Researcher Award from the
Radiological Society of Northern America, the Distinguished
Clinical Scientist Award from the Doris Duke Charitable Foundation,
the Holst Medal, the Tesla Medal, and the Hounsfield Medal from
Imperial College, London. He was elected to the Institute of
Medicine of the U.S. National Academies in 2008. Dr.
Gambhir’s unique and extensive scientific and technical
expertise positions him well to serve on our board of
directors.
Michael
Harsh − Director
Michael
Harsh joined ENDRA’s board of directors in 2015. He has 36
years’ experience in healthcare technology, focused on
diagnostic imaging. Mr. Harsh was most recently GE
Healthcare’s Vice President and Chief Technology Officer,
leading its global science and technology organization and research
and development teams in diagnostics, healthcare IT and life
sciences.
In
2004, Mr. Harsh was named Global Technology Leader – Imaging
Technologies Lab at the GE Global Research Center, where he
led the research for imaging technologies across the company as
well as the research associated with computer visualization/image
analysis and superconducting systems. He led the Engineering
division for GE Industrial and Enterprise Solutions from 2006
to 2009. Mr. Harsh was named an officer of General Electric Company
in November 2006. Mr. Harsh is a co-founder and current Chief
Product Officer of Terapede Systems Inc., a digital x-ray detector
startup, a member of the board of directors of FloDesign Sonics,
Inc., a member of the Scientific Advisory Board of Phoenix Nuclear
Labs, LLC and a consultant to start-ups in the medical device
industry.
Mr.
Harsh is a graduate of Marquette University, where he earned a
bachelor’s degree in Electrical Engineering. He holds
numerous U.S. patents in the field of medical imaging and
instrumentation. In 2008, Mr. Harsh was elected to the American
Institute for Medical and Biological Engineering College of
Fellows for his significant contributions to the medical and
biological engineering field. Mr. Harsh’s extensive industry,
executive and board experience position him well to serve on our
board of directors.
Alexander
Tokman − Director
Alexander Tokman
joined ENDRA’s board of directors in 2008. He has served as
President, Chief Executive Officer, and a director of Microvision,
Inc., a publicly traded laser beam scanning projection and imaging
company, since January 2006.
Previously, Mr.
Tokman completed a 10+ year tenure as an executive with GE
Healthcare, where he led several global businesses, most recently
as a General Manager of its Global Molecular Imaging and
Radiopharmacy multi-technology business unit from 2003 to
2005.
Between
1995 and 2003, Mr. Tokman served in various leadership roles at GE
Healthcare, where he led the definition and successful
commercialization of several product segments, including PET/CT,
which generated over $500 million of revenue within the first three
years of its launch.
Mr.
Tokman is a certified Six Sigma and Design for Six Sigma (DFSS)
Black Belt and Master Black Belt and as one of General Electric
Company’s Six Sigma pioneers, he drove the quality culture
change across GE Healthcare in the late 1990s. From 1989 to 1995,
Mr. Tokman served as development programs lead and a head of
Industry and Regional Development at Tracor Applied Sciences. Mr.
Tokman has both an MS and BS in Electrical Engineering from the
University of Massachusetts, Dartmouth. Mr. Tokman’s industry
expertise and significant executive leadership and director
experience position him well to make valuable contributions to our
board of directors.
Director
Independence
Our
board of directors has determined that Anthony DiGiandomenico, Dr.
Sanjiv Sam Gambhir, Michael Harsh and Alexander Tokman
are “independent
directors” as such term is defined by Nasdaq Marketplace Rule
5605(a)(2). We have established an Audit Committee, a
Compensation Committee and a Nominating and Corporate Governance
Committee. Each of
,
and
serve as members of the Audit
Committee, Compensation Committee and Nominating and Corporate
Governance Committee. Our board of directors has determined that
is an audit committee
financial expert, as defined under the applicable rules of the SEC,
and that all members of the Audit Committee are
“independent” within the meaning of the applicable
Nasdaq listing standards and the independence standards of Rule
10A-3 of the Exchange Act. Each of the members of the Audit
Committee meets the requirements for financial literacy under the
applicable rules and regulations of the SEC and The Nasdaq Stock
Market.
Scientific
Advisory Board
Our
Scientific Advisory Board members work with our management team in
the planning, development and execution of scientific and business
strategies. It reviews, and advises management on our progress in
research and clinical development as well as new scientific
perspectives.
Jonathan
Rubin, MD, PhD − Scientific Advisor
Dr.
Jonathan Rubin is the Martel Collegiate Professor of Radiology and
Section Head for Ultrasound and Abdominal Interventional Radiology
at the University of Michigan Medical School.
Dr.
Rubin has over 200 peer-reviewed publications, over 125 invited
presentations, and 10 patents. In 2005 he was awarded the
University of Michigan Medical School Innovation Award. In 2007 he
won the American Institute of Ultrasound in Medicine Joseph H.
Holmes Clinical Pioneer Award. In 2011 he received the Society of
Radiologists in Ultrasound Lawrence Mack Lifetime Achievement
Award.
Dr.
Rubin received a BA in Chemistry from the University of Utah. He
received an MD from the University of Chicago Pritzker School of
Medicine and a PhD in Biophysics and Theoretical Biology from the
University of Chicago. From 1979 to 1984, Dr. Rubin was the
director of the Section of Body Computed Tomography and Ultrasound
Imaging in the Department of Radiology at the University of
Chicago.
Dr. Jing Gao, MD
− Scientific Advisor
Dr.
Jing Gao is currently Research Assistant Professor of Radiology at
Weill Cornell Medicine in New York, NY. Dr. Gao brings over 30
years of clinical and research experience in abdominal ultrasound,
in both the United States and China.
Dr. Gao
completed her medical education at Changchun and Dalian Medical
Colleges in China. Besides her post at Cornell, Dr. Gao is also
Deputy President and guest professor at the Dalian University
International Institute of Medical Imaging in China.
Her
numerous honors and professional affiliations include being named
one of China’s Top 100 Ultrasound Physicians by the Chinese
Association of Medical Imaging Technology. She is a Fellow of the
Chinese Association of Ultrasound in Medicine and Biology, a Fellow
of the American Institute of Ultrasound in Medicine and an
Editorial Board Member of Clinical Imaging (Elsevier).
Dr. Gao
has numerous peer reviewed publications in the areas of liver,
spleen and kidney diseases and quantitative ultrasound
imaging.
Our
compensation philosophy is to offer our executive officers
compensation and benefits that are competitive and meet our goals
of attracting, retaining and motivating highly skilled management,
which is necessary to achieve our financial and strategic
objectives and create long-term value for our stockholders. We
believe the levels of compensation we provide should be
competitive, reasonable and appropriate for our business needs and
circumstances and our board of directors uses benchmark
compensation studies in determining compensation elements and
levels. The principal elements of our executive compensation
program have to date included base salary, annual bonus opportunity
and long-term equity compensation in the form of stock options. We
believe successful long-term Company performance is more critical
to enhancing stockholder value than short-term results. For this
reason and to conserve cash and better align the interests of
management and our stockholders, we emphasize long-term
performance-based equity compensation over base annual
salaries.
The
following table sets forth information concerning the compensation
earned by the individual that served as our Principal Executive
Officer during 2015 and our two most highly compensated executive
officers other than the individual who served as our Principal
Executive Officer during 2015 (collectively, the “named
executive officers”):
2015
Summary Compensation Table
|
Name & Position
|
Fiscal Year
|
|
|
|
All Other
Compensation ($)
|
|
|
Francois
Michelon
|
2015
(2)
|
177,083
|
-
|
248,359
|
-
|
425,442
|
|
Chief Executive Officer
|
2014
|
-
|
-
|
-
|
-
|
-
|
|
Michael
Thornton
|
2015
|
200,000
(3)
|
-
|
-
|
-
|
200,000
|
|
Chief Technology Officer
|
2014
|
200,000
|
-
|
-
|
-
|
200,000
|
|
David R.
Wells
|
2015
|
96,000
(
4)
|
-
|
-
|
-
|
9
6,000
|
|
Chief Financial Officer (Interim)
|
2014(5)
|
48,000
|
-
|
-
|
-
|
4
8,000
|
________
(1)
The amounts shown
in this column indicate the grant date fair value of option awards
granted in the subject year computed in accordance with FASB ASC
Topic 718. For additional information regarding the assumptions
made in calculating these amounts, see notes 2 and 6 to our audited
financial statements included herein.
(2)
Represents a
partial year of employment. Mr. Michelon joined us on April 16,
2015.
(3)
Includes $33,403 of
accrued compensation settled for 13,889 shares of common
stock.
(4)
R
epresents fees earned by StoryCorp
Consulting (d/b/a Wells Compliance Group) pursuant to the
consulting agreement described below. $60,000 of this was paid in
cash and the balance will be paid in shares of restricted stock
upon the completion of this offering.
(5)
Represents a
partial year of compensation. Mr. Wells joined us on July 23,
2014.
Outstanding
Equity Awards at 2015 Fiscal Year-End
The
following table provides information regarding equity awards held
by the named executive officers as of December 31,
2015.
|
Name and Principal Position
|
Number of Securities Underlying Unexercised Options Exercisable
(#)
|
Number of Securities Underlying Unexercised Options Unexercisable
(#)
|
Option Exercise Price ($)
|
|
|
Francois
Michelon
|
41,416
|
82,832
(1)
|
$
2.86
|
|
|
Chief Executive Officer
|
|
|
|
|
|
Michael
Thornton
|
103,150
|
-
|
$
2.86
|
|
|
Chief Technology Officer
|
|
|
|
|
|
David
R. Wells
|
-
|
-
|
-
|
-
|
|
Chief Financial Officer
(Interim)
|
|
|
|
|
________
(1) These
options vest in two equal annual installments on July 1 of 2017 and
2018
.
Employment
Agreements and Change of Control Arrangements
Employment Agreements
The
following is a summary of the employment arrangements with our
executive officers as currently in effect.
Francois
Michelon
. On July 21, 2016, our board of
directors approved an amended and restated employment agreement
with Francois Michelon, our Chief Executive Officer and Chairman of
our board of directors, which shall become effective upon the
closing of this offering. The term of the employment agreement runs
through December 31, 2019. The employment agreement provides for an
annual base salary of $325,000. Under the employment agreement, Mr.
Michelon is eligible for an annual cash bonus (in 2016, up to 35%
of his base salary then in effect) based upon achievement of
performance-based objectives established by our board of directors.
Pursuant to Mr. Michelon’s employment agreement, upon the
closing of this offering he is entitled to be granted options to
purchase a number of shares of common stock that, taken together
with the option to purchase 124,248 shares of common stock he
already holds, equals 5.0% of the Company’s total issued and
outstanding shares of common stock on the date of grant on a fully
diluted basis. The options will have an exercise price equal to the
price at which our common stock is offered to investors in this
offering and will vest in three equal annual installments beginning
on the first anniversary of its grant date. Upon termination
without cause, any portion of Mr. Michelon’s options
scheduled to vest within 12 months will automatically vest, and
upon termination without cause within 12 months following a change
of control, the entire unvested portion of the option will
automatically vest. Upon termination for any other reason, the
entire unvested portion of the option will terminate.
If Mr.
Michelon’s employment is terminated by the Company without
cause, Mr. Michelon will be entitled to receive 12 months’
continuation of his current base salary and a lump sum payment
equal to 12 months of continued healthcare coverage (or 24
months’ continuation of his current base salary and a lump
sum payment equal to 24 months of continued healthcare coverage if
such termination occurs within one year following a change in
control).
Under
his employment agreement, Mr. Michelon is eligible to receive
benefits that are substantially similar to those of the
Company’s other senior executive officers.
Michael
Thornton
. On July 21, 2016, our board of
directors approved an amended and restated employment agreement
with Michael Thornton, our Chief Technology Officer, which shall
become effective upon the closing of this offering. Under the
employment agreement, Mr. Thornton’s title will be Chief
Technology Officer. The term of the employment agreement runs
through December 31, 2019. The employment agreement provides for an
annual base salary of $245,000. Under the employment agreement, Mr.
Thornton is eligible for an annual cash bonus (in 2016, up to 22%
of his base salary then in effect) based upon achievement of
performance-based objectives established by our board of directors.
Pursuant to Mr. Thornton’s employment agreement, upon the
closing of this offering he is entitled to be granted options to
purchase a number of shares of common stock that, taken together
with the option to purchase 103,150 shares of common stock he
already holds, equals 5.0% of the Company’s total issued and
outstanding shares of common stock on the date of grant on a fully
diluted basis. The options will have an exercise price equal to the
price at which our common stock is offered to investors in this
offering and will vest in three equal annual installments beginning
on the first anniversary of its grant date. Upon termination
without cause, any portion of Mr. Thornton’s option scheduled
to vest within 12 months will automatically vest, and upon
termination without cause within 12 months following a change of
control, the entire unvested portion of the option will
automatically vest. Upon termination for any other reason, the
entire unvested portion of the option will terminate
If Mr.
Thornton’s employment is terminated by the Company without
cause, Mr. Thornton will be entitled to receive 12 months’
continuation of his current base salary and a lump sum payment
equal to 12 months of continued healthcare coverage (or 24
months’ continuation of his current base salary and a lump
sum payment equal to 24 months of continued healthcare coverage if
such termination occurs within one year following a change in
control).
Under
his employment agreement, Mr. Thornton is eligible to receive
benefits that are substantially similar to those of the
Company’s other senior executive officers.
David R. Wells
. We
entered into a consulting agreement with StoryCorp Consulting
(d/b/a Wells Compliance Group),or StoryCorp, in July 2014 for
services provided to the Company by David R. Wells, our Chief
Financial Officer (interim). Under this consulting agreement, the
Company pays to StoryCorp a monthly fee of $8,000, of which $5,000
is payable in cash and $3,000 is payable in shares of restricted
stock of the Company at the closing of this offering in an amount
based on the per share price of our common stock sold in this
offering. Additionally, StoryCorp may issue invoices to the Company
for services provided outside of those described in the consulting
agreement at a rate of $250 per hour, payable in cash, and the
Company will reimburse StoryCorp for reasonable and necessary
expenses incurred in connection with the performance of its
services under the consulting agreement. The consulting
agreement’s term renews monthly and the agreement may be
terminated by the Company with or without cause immediately and
without prior notice to StoryCorp. On July 21, 2016, our board of
directors approved a one-time grant
to Mr. Wells
effective upon the
closing of this offering of options to purchase $35,000 worth of
shares of our common stock with an exercise price equal to the
price at which our common stock is offered to investors in this
offering.
Director
Compensation
Members
of our board of directors received a one-time grant of fully vested
stock options in January 2016 for their service as directors for
the year ended December 31, 2015. On July 21, 2016, we adopted a
non-employee director compensation policy that will become
effective upon the closing of this offering pursuant to which our
non-employee directors will receive on an annual basis a $36,000
retainer paid in cash and an annual equity award with a value of
$30,000. The equity award will consist of a stock option grant made
on the first trading day following December 31 of each year
covering a number of shares of common stock equal to $30,000
divided by the closing price of our common stock on such date and
that vests in full on the one year anniversary of grant. Because
our non-employee directors have not received any compensation for
their service during 2016, the non-employee director policy
provides that upon the closing of this offering each non-employee
director is entitled to a stock option award covering a number of
shares of common stock equal to $30,000 divided by the price at
which our common stock is offered to investors in this offering and
that vests in full on first trading day following December 31,
2016.
2016 Omnibus Incentive Plan
In
September 2016, our board of directors and stockholders approved
the 2016 Omnibus Incentive Plan, or the Incentive Plan, pursuant to
which, effective following completion of the offering, the total
number shares available for issuance under such plan shall equal
18% of the total number of shares of common stock outstanding
immediately following the completion of the offering (assuming for
this purpose the issuance of all shares issuable under the
Company’s equity plan, the conversion into common stock of
all outstanding securities that are convertible by their terms into
common stock and the exercise of all options and warrants
exercisable for shares of common stock and including shares and
warrants issued to the underwriter pursuant to the offering upon
exercise of its over-allotment option, if any) (i.e. on a
“fully diluted basis”). Concurrently with the closing
of the offering and as described above, we expect to grant stock
options to our executive officers and directors covering a
significant number of shares. Following such grants we estimate
that the shares remaining available for grant under the Incentive
Plan will approximate % of the total number of shares of common
stock outstanding on a fully diluted basis following completion of
the offering.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
We have
set forth in the following table certain information regarding our
common stock beneficially owned by (i) each stockholder we know to
be the beneficial owner of 5% or more of our outstanding common
stock, (ii) each of our directors and named executive officers, and
(iii) all executive officers and directors as a
group. Generally, a person is deemed to be a
“beneficial owner” of a security if that person has or
shares the power to dispose or to direct the disposition of such
security. A person is also deemed to be a beneficial
owner of any securities of which the person has the right to
acquire beneficial ownership within 60 days pursuant to options,
warrants, conversion privileges or similar
rights. Unless otherwise indicated, ownership
information is as of
September
30, 2016, and
is based on
2,531,808
shares of
common stock outstanding on that date. The percentage
ownership after the offering is based on shares of common stock
outstanding.
Name
ofBeneficial Owner (1)
|
Number of
Shares
Beneficially
Owned
(2)
|
Percentage
Owned
Prior
to the Offering
|
Percentage
Owned
After
the Offering
|
|
Francois
Michelon
|
130,048
(3)(4)
|
4.9
%
|
|
|
Michael
Thornton
|
256,113
(4)(5)
|
9.2
%
|
|
|
David R.
Wells
|
- (6)
|
*
|
|
|
Dr. Sanjiv Sam
Gambhir
|
69,398
(7)
|
2.7
%
|
|
|
Michael
Harsh
|
18,794
(8)
|
*
|
|
|
Alexander
Tokman
|
42,579
(9)
|
1.7
%
|
|
|
Anthony
DiGiandomenico
|
233,955
(4)(10)
|
8.9
%
|
|
|
All
directors and named executive officers as a group (7
individuals)
|
750,887
|
24.0
%
|
|
|
|
|
|
|
|
5% or More Shareholders
|
|
|
|
|
Blue Earth Fund, LP
(11)
|
709,516
(4)(12)
|
22.9
%
|
|
|
Jeffrey S. Padnos
and Margaret M. Padnos (13)
|
471,098
(4)(14)
|
16.4
%
|
|
|
Benjamin L. Padnos
(15)
|
319,407
(4)(16)
|
11.7
%
|
|
Robert C.
Clifford (16) 262,189 (4)(17)
|
|
10.0
%
|
|
|
Daniel Landry (18
)
|
229,096
(19)
|
8.7
%
|
|
|
Endra Holdings LLC
(20)
|
205,846
|
8.1
%
|
|
|
Mark
L.
Baum
(
21
)
|
185,714
(22)
|
7.3
%
|
|
* Less
than one percent.
(1)
The
address of each officer and director is 3600 Green Court, Suite
350, Ann Arbor, MI 48105-1570.
(2)
Beneficial ownership is determined
in accordance with Rule 13d-3 under the Exchange Act and is
generally determined by voting powers and/or investment powers with
respect to securities. Unless otherwise noted, the shares of common
stock listed above are owned as of
September
30,
2016, and are owned of record by each individual named as
beneficial owner and such individual has sole voting and
dispositive power with respect to the shares of common stock owned
by each of them.
(3)
Consists of 41,416 shares of common
stock issuable upon the exercise of options held directly that are
presently exercisable
and 88,632
shares of
common stock issuable upon the conversion of a convertible
promissory note.
(4)
Amounts
of shares of common stock issuable upon the conversion of
outstanding convertible promissory notes assume that such notes are
converted immediately prior to the offering at a conversion price
of $0.40 per share pursuant to the terms thereof. These amounts
exclude shares to be issued with respect to interest accrued on
such convertible promissory notes after
September
30, 2016.
See “Description of Our Capital Stock—Convertible
Promissory Notes” for a description of the terms of our
convertible promissory notes
.
(5)
Consists of (a)
17,386 shares of common stock held directly; (b) 103,150 shares of
common stock issuable upon the exercise of options held directly
that are presently exercisable; (c) 3,497 shares of common stock
issuable upon the exercise of warrants held directly that are
presently exercisable; and (d) 132,080 shares of
common stock issuable upon the conversion of convertible promissory
notes.
(6)
Does not include
shares issuable upon the exercise of options awarded upon the
closing of this offering pursuant to our consulting agreement with
StoryCorp. See “Executive Compensation—Employment
Agreements and Change of Control Arrangements.”
(7)
Consists of 69,398
shares of common stock issuable upon the exercise of options held
directly that are presently exercisable.
(8)
Consists of 18,794
shares of common stock issuable upon the exercise of options held
directly that are presently exercisable.
(9)
Consists of 42,579
shares of common stock issuable upon the exercise of options held
directly that are presently exercisable.
(10)
Consists of (a)
137,198 shares of common stock held directly; (b) 28,322 shares of
common stock issuable upon the exercise of options held directly
that are presently exercisable; (c) 3,497 shares of common stock
issuable upon the exercise of warrants held directly that are
presently exercisable; and (d) 64,938 shares of common
stock issuable upon the conversion of a convertible promissory note
held directly.
(11)
The address of Blue
Earth Fund, LP is 1312 Cedar Street, Santa Monica, CA 90405.Sole
voting and dispositive power with respect to all of Blue Earth
Fund, LP's 681,951 shares of common stock is held by Brett Conrad,
the manager of Blue Earth Fund, LP, whose address is also 1312
Cedar Street, Santa Monica, CA 90405.
(12)
Consists of (a)
148,604 shares of common stock held directly; (b) 26,224 shares of
common stock issuable upon the exercise of warrants held directly
that are presently exercisable; and (c) 517,205 shares
of common stock issuable upon the conversion of a convertible
promissory note.
(13)
The address of
Jeffrey S. Padnos and Margaret M. Padnos is 1088 West 27th Street,
Holland, MI 49423.
(14)
Consists of (a)
63,026 shares of common stock held jointly by Mr. and Mrs. Padnos;
(b) 27,011 shares of common stock issuable upon the exercise of
warrants held jointly by Mr. and Mrs. Padnos that are presently
exercisable; (c) 148,017 shares of common stock issuable upon the
conversion of a convertible promissory note held jointly by Mr. and
Mrs. Padnos; (d) 31,818 shares of common stock held by Jeffrey
& Margaret Padnos 2010 Generation Trust fbo Benjamin Padnos (as
to which Mr. and Mrs. Padnos have shared voting and investment
power); (e) 13,636 shares of common stock issuable upon the
exercise of warrants held by Jeffrey & Margaret Padnos 2010
Generation Trust fbo Benjamin Padnos (as to which Mr. and Mrs.
Padnos have shared voting and investment power) that are presently
exercisable; (f)
150,959
shares of common
stock issuable upon the conversion of a convertible promissory note
held by Jeffrey & Margaret Padnos 2010 Generation Trust fbo
Benjamin Padnos (as to which Mr. and Mrs. Padnos have shared voting
and investment power); (j) 19,887 shares of common
stock held by Jeffrey & Margaret Padnos 2010 Generation Trust
fbo Rebecca Padnos (as to which Mr. and Mrs. Padnos have shared
voting and investment power); (h) 21,500 shares of
common stock issuable upon the exercise of warrants held by Jeffrey
& Margaret Padnos 2010 Generation Trust fbo Rebecca Padnos (as
to which Mr. and Mrs. Padnos have shared voting and investment
power) that are presently exercisable; (i)
34,919
shares of common stock
issuable upon the conversion of a convertible promissory note held
by Jeffrey & Margaret Padnos 2010 Generation Trust fbo Rebecca
Padnos (as to which Mr. and Mrs. Padnos have shared voting and
investment power); (g) 19,887 shares of common stock held by
Jeffrey & Margaret Padnos 2010 Generation Trust fbo Joshua
Padnos (as to which Mr. and Mrs. Padnos have shared voting and
investment power); (k) 8,523 shares of common stock issuable upon
the exercise of warrants held by Jeffrey & Margaret Padnos 2010
Generation Trust fbo Joshua Padnos (as to which Mr. and Mrs. Padnos
have shared voting and investment power) that are presently
exercisable; (l)
21,500
shares of common stock
issuable upon the conversion of a convertible promissory note held
by Jeffrey & Margaret Padnos 2010 Generation Trust fbo Joshua
Padnos (as to which Mr. and Mrs. Padnos have shared voting and
investment power); (m) 19,887 shares of common stock held by
Jeffrey & Margaret Padnos 2010 Generation Trust fbo Samuel
Padnos (as to which Mr. and Mrs. Padnos have shared voting and
investment power); (n) 8,523 shares of common stock issuable upon
the exercise of warrants held by Jeffrey & Margaret Padnos 2010
Generation Trust fbo Samuel Padnos (as to which Mr. and Mrs. Padnos
have shared voting and investment power) that are presently
exercisable; and (o)
21,500
shares of common stock
issuable upon the conversion of a convertible promissory note held
by Jeffrey & Margaret Padnos 2010 Generation Trust fbo Samuel
Padnos (as to which Mr. and Mrs. Padnos have shared voting and
investment power).
(15)
The address of Benjamin L. Padnos is
1088 West 27th Street, Holland, MI 49423.
(16)
Consists of (a)
42,134 shares of common stock held directly; (b) 138,161 shares of
common stock issuable upon the conversion of convertible promissory
notes held directly; and (c) 140,900
shares of common stock issuable
upon the conversion of a convertible promissory
note.
(17)
The address of
Robert C. Clifford is 1057 Corsica Drive, Pacific Palisades, CA
90272.
(18)
Consists of (a)
130,205 shares of common stock held by 1999 Clifford Family Trust,
dated 12/22/1999 (as to which Mr. Clifford has shared voting and
investment power); (b) 49,284 shares of common stock held by The
Kingdom Trust Company Custodian fbo Robert C. Clifford (as to which
Mr. Clifford has voting and investment power); (c) 32,361 shares of
common stock issuable upon the exercise of warrants held by The
Kingdom Trust Company Custodian fbo Robert C. Clifford (as to which
Mr. Clifford has voting and investment power); and (d)
50,339
shares of common
stock issuable upon the conversion of a convertible promissory note
held by The Kingdom Trust Company Custodian fbo Robert C. Clifford
(as to which Mr. Clifford has voting and investment
power).
(19)
The
address of Daniel Landry is 216 Avenue B, Redondo Beach, CA
90277.
(20)
Consists of (a)
137,199 shares of common stock held directly; (b) 22,028 shares of
common stock issuable upon the exercise of options held directly
that are presently exercisable; (c) 5,246 shares of common stock
issuable upon the exercise of warrants held directly that are
presently exercisable; and (d) 64,623 shares of common
stock issuable upon the conversion of a convertible promissory note
held by The Kingdom Trust Company Custodian fbo Daniel Landry (as
to which Mr. Landry has voting and investment power).
(21)
The address of
Endra Holdings LLC is 500 Boylston Street, Suite 1600, Boston, MA
02116.
The manager of Endra
Holdings LLC is Enlight Biosciences LLC, which also has an address
of 500 Boylston Street, Suite 1600, Boston MA 02116. Daphne Zohar,
chief executive officer of Enlight Biosciences LLC, has sole voting
and dispositive power with respect to all of Endra Holdings LLC's
205,846 shares of common stock.
(22)
The address of Mark
L. Baum is 1127 Cuchara Drive, Del Mar, CA 92014.
(23)
Consists of (a)
163,686 shares of common stock held by Mark Baum Trust dated May
17, 2011 (as to which Mr. Baum has voting and investment power);
and (b) 22,028 shares of common stock issuable upon the exercise of
options held by Mr. Baum that are presently
exercisable.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
We have
applied for the listing of our common stock on the Nasdaq Capital
Market, therefore, our determination of the independence of
directors is made using the definition of “independent”
contained in the listing standards of the Nasdaq Stock Market. On
the basis of information solicited from each director, the board
has determined that each of Anthony DiGiandomenico, Dr. Sanjiv Sam
Gambhir, Michael Harsh and Alexander Tokman has no material
relationship with the Company and is independent within the meaning
of such rules.
SEC
regulations define the related person transactions that require
disclosure to include any transaction, arrangement or relationship
in which the amount involved exceeds the lesser of $120,000 or one
percent of the average of the Company’s total assets at year
end for the last two completed fiscal years in which we were or are
to be a participant and in which a related person had or will have
a direct or indirect material interest. A related person is: (i) an
executive officer, director or director nominee of the Company,
(ii) a beneficial owner of more than 5% of our common stock, (iii)
an immediate family member of an executive officer, director or
director nominee or beneficial owner of more than 5% of our common
stock, or (iv) any entity that is owned or controlled by any of the
foregoing persons or in which any of the foregoing persons has a
substantial ownership interest or control.
For the
period from January 1, 2014 through the date of this prospectus
(the “Reporting Period”), described below are certain
transactions or series of transactions between us and certain
related persons.
In
May 2014, Mr. Tokman, Dr. Gambhir and Mr. DiGiandomenico received
stock options as compensation for their service on the
Company’s board of directors. Mr. Tokman, Dr. Gambhir and Mr.
DiGiandomenico each received options exercisable for 10,490 shares
of the Company’s common stock at an exercise price of $2.86
(adjusted for the Company’s 2015 reverse stock split) that
expire in May 2017. Mr. Tokman also received options exercisable
for 12,500 shares of the Company’s common stock at an
exercise price of $2.86 (adjusted for the Company’s 2015
reverse stock split) that expire in May 2019 in satisfaction of an
outstanding obligation of the Company to Mr. Tokman.
In
September 2014, the Company issued to Mr. DiGiandomenico 47,562
shares (adjusted for the Company’s 2015 reverse stock split)
of its common stock in exchange for the cancellation of a warrant
and of outstanding principal and accrued interest on a promissory
note held by Mr. DiGiandomenico
In July
2015, Mr. Thornton received 13,889 shares of company’s common
stock for accrued salary of approximately $33,000.
On
November 31, 2015, Kevin Cotter, an ENDRA common stockholder,
transferred to Mr. Thornton warrants to purchase 3,497 shares of
the Company’s common stock at an exercise price of $1.43. On
January 19, 2016, Mr. Thornton exercised these warrants, and
received an additional 3,497 warrants at an exercise price of $5.72
as a part of the warrant exchange program.
On
January 28, 2016, we issued convertible promissory notes to Sanjiv
Gambhir (the “Gambhir Note”), Michael Harsh (the
“Harsh Note”) and Alexander Tokman (the “Tokman
Note”), each a member of our board of directors. The Gambhir
Note and the Tokman Note are each in the principal sum of $20,000
and the Harsh Note is in the principal sum of $10,000. None of the
notes accrue interest and all three are payable upon the earlier of
(1) completion by the Company of an equity financing of $4.0
million or more and (2) the one-year anniversary of the issuance
date.
In April 2016, we issued convertible promissory
notes to the following related persons: (i) Anthony DiGiandomenico,
a director of the Company, in the principal sum of $25,000, (ii) a
trust beneficially owned by Robert C. Clifford, a beneficial owner
of more than 5% of our common stock, in the principal sum of
$19,474, (iii) a trust beneficially owned by Daniel Landry, a
beneficial owner of more than 5% of our common stock, in the
principal sum of $25,000, (iv) Benjamin L. Padnos, a beneficial
owner of more than 5% of our common stock, in the principal sum of
$54,500, (v) Cynthia Padnos, an immediate family member of a
beneficial owner of more than 5% of our common stock, in the
principal sum of $12,096, (vi) Daniel Padnos, an immediate family
member of a beneficial owner of more than 5% of our common stock,
in the principal sum of $7,258, (vii)
Jeffrey S. Padnos and Margaret M. Padnos
(including trusts which they beneficially own), joint beneficial
owners of more than 5% of our common stock, in the aggregate
principal sum of $96,811, (viii) Jonathan Padnos, an immediate
family member of a beneficial owner of more than 5% of our common
stock, in the principal sum of $17,258, (ix) Sivan Padnos Caspi, an
immediate family member of a beneficial owner of more than 5% of
our common stock, in the principal sum of $7,258, (x) Michael
Thornton, our Chief Technology Officer, in the principal sum of
$20,000, and (xi) Conal Thornton, the father of Michael Thornton,
our Chief Technology Officer, in the principal sum of $20,000.
These convertible promissory notes mature one year from the issue
date, accrue interest at the rate of 8% per annum, are payable at
maturity, are secured by all assets of the Company, now owned or
hereafter acquired, and automatically convert into the same
security issued by the Company, on the same terms, including price,
upon a qualified financing in the amount of $3.0 million or more.
Separately, upon any individual noteholder’s election, such
noteholder’s convertible promissory note is convertible into
shares of the Company’s common stock, and upon the election
of noteholders holding a majority of the outstanding principal
amount of the convertible promissory notes, all outstanding
convertible promissory notes are convertible into shares of the
Company’s common stock, in each case at a conversion price of
$0.40 per share. While we believe this offering will constitute a
qualified financing as described above, because the conversion
price is significantly lower than the expected public offering
price of the common stock sold in this offering, we have assumed
that the noteholders will convert all of the outstanding principal
and accrued interest on the convertible promissory notes into
shares of common stock of the Company at the lower conversion price
immediately prior to the completion of the
offering.
On
July 21, 2016, we issued convertible promissory notes to Francois
Michelon, our Chief Executive Officer, or the Michelon Note, and
Michael Thornton, our Chief Technology Officer, or the Thornton
Note. The Michelon Note and the Thornton Note are in the principal
sums of $35,000 and $51,389, respectively. The Michelon Note and
the Thornton Note mature one year from the issue date, accrue
interest at the rate of 8% per annum and are payable at maturity,
are secured by all assets of the Company, now owned or hereafter
acquired, and automatically convert into the same security issued
by the Company, on the same terms, including price, upon a
qualified financing in the amount of $3.0 million or more.
Separately, upon any individual noteholder’s election, such
noteholder’s convertible promissory note is convertible into
shares of the Company’s common stock, and upon the election
of noteholders holding a majority of the outstanding principal
amount of the convertible promissory notes, all outstanding
convertible promissory notes are convertible into shares of the
Company’s common stock, in each case at a conversion price of
$0.40 per share. While we believe this offering will constitute a
qualified financing as described above, because the conversion
price is significantly lower than the expected public offering
price of the common stock sold in this offering, we have assumed
that the noteholders will convert all of the outstanding principal
and accrued interest on the convertible promissory notes into
shares of common stock of the Company at the lower conversion price
immediately prior to the completion of the offering.
DESCRIPTION OF
THE SECURITIES WE ARE OFFERING
The
following is a brief description of our capital stock. This summary
does not purport to be complete in all respects. This description
is subject to and qualified entirely by the terms of our Fourth
Amended and Restated Certificate of Incorporation (the
“Certificate of Incorporation”), and our bylaws, each
of which we plan to adopt prior to the completion of this offering
and copies of which have been filed with the SEC and are also
available upon request from us.
Authorized
Capitalization
We have
60,000,000
shares of
capital stock authorized under our Certificate of Incorporation,
consisting of 50,000,000 shares of common stock with a par value of
$0.0001
per share and
10,000,000 shares of preferred stock with a par value of
$0.0001
per share. As
of
September
30, 2016, we had
2,531,808
shares of common stock outstanding held of record by 62
stockholders and no shares of preferred stock outstanding. Our
authorized but unissued shares of common and preferred stock are
available for issuance without further action by our stockholders,
unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which our
securities may be listed or traded.
Common
Stock
Based
on the
2,531,808
shares of
common stock outstanding as of
September 30, 2016,
and assuming (1) the conversion of
$1,386,448
million
aggregate principal amount of our convertible notes (plus accrued
interest thereon as of
September
30, 2016 into
3,576,225
shares of our common stock) and a conversion date of
September
30, 2016 and (2) the issuance by us of shares of common stock in
this offering, there will be shares of common stock outstanding
upon the closing of this offering.
Holders
of our common stock are entitled to such dividends as may be
declared by our board of directors out of funds legally available
for such purpose. The shares of common stock are neither redeemable
nor convertible. Holders of common stock have no preemptive or
subscription rights to purchase any of our securities.
Each
holder of our common stock is entitled to one vote for each such
share outstanding in the holder’s name. No holder
of common stock is entitled to cumulate votes in voting for
directors.
In the
event of our liquidation, dissolution or winding up, the holders of
our common stock are entitled to receive pro rata our assets, which
are legally available for distribution, after payments of all debts
and other liabilities. All of the outstanding shares of
our common stock are fully paid and non-assessable. The
shares of common stock offered by this prospectus will also be
fully paid and non-assessable.
Description
of Warrants
The following summary of certain terms and provisions of the
warrants offered hereby is not complete and is subject to, and
qualified in its entirety by, the provisions of the warrant, the
form of which has been filed as an exhibit to the registration
statement of which this prospectus is a part. Prospective investors
should carefully review the terms and provisions of the form of
warrant for a complete description of the terms and conditions of
the warrants.
Form.
The warrants will be issued as
individual warrant agreements to the investors.
Exercisability
. The warrants are
exercisable at any time after their original issuance, expected to
be and at any time up to the date that is five years after their
original issuance. The warrants will be exercisable, at the option
of each holder, in whole or in part by delivering to us a duly
executed exercise notice and, at any time a registration statement
registering the issuance of the shares of common stock underlying
the warrants under the Securities Act is effective and available
for the issuance of such shares, or an exemption from registration
under the Securities Act is available for the issuance of such
shares, by payment in full in immediately available funds for the
number of shares of common stock purchased upon such exercise. If a
registration statement registering the issuance of the shares of
common stock underlying the warrants under the Securities Act is
not effective or available and an exemption from registration under
the Securities Act is not available for the issuance of such
shares, the holder may, in its sole discretion, elect to exercise
the warrant through a cashless exercise, in which case the holder
would receive upon such exercise the net number of shares of common
stock determined according to the formula set forth in the warrant.
No fractional shares of common stock will be issued in connection
with the exercise of a warrant. In lieu of fractional shares, we
will pay the holder an amount in cash equal to the fractional
amount multiplied by the exercise price.
Exercise Limitation
. A holder will not
have the right to exercise any portion of the warrant if the holder
(together with its affiliates) would beneficially own in excess of
4.99% of the number of shares of our common stock outstanding
immediately after giving effect to the exercise, as such percentage
ownership is determined in accordance with the terms of the
warrants. However, any holder may increase or decrease such
percentage to any other percentage not in excess of 9.99% upon at
least 61 days’ prior notice from the holder to
us.
Exercise Price
. The warrants will have
an exercise price equal to the combined initial public offering
price per share and related warrant set forth on the cover page of
this prospectus. The exercise price is subject to appropriate
adjustment in the event of certain stock dividends and
distributions, stock splits, stock combinations, reclassifications
or similar events affecting our common stock and also upon any
distributions of assets, including cash, stock or other property to
our stockholders.
Transferability
. Subject to applicable
laws, the warrants may be offered for sale, sold, transferred or
assigned without our consent.
No Exchange Listing
. There is no
established trading market for the warrants and we do not expect a
market to develop. In addition, we do not intend to apply for the
listing of the warrants on any national securities exchange or
other trading market. Without an active trading market, the
liquidity of the warrants will be limited.
Fundamental Transactions
. In the event
of a fundamental transaction, as described in the warrants and
generally including any reorganization, recapitalization or
reclassification of our common stock, the sale, transfer or other
disposition of all or substantially all of our properties or
assets, our consolidation or merger with or into another person,
the acquisition of more than 50% of our outstanding common stock,
or any person or group becoming the beneficial owner of 50% of the
voting power represented by our outstanding common stock, the
holders of the warrants will be entitled to receive upon exercise
of the warrants the kind and amount of securities, cash or other
property that the holders would have received had they exercised
the warrants immediately prior to such fundamental
transaction.
Rights as a Stockholder
. Except as
otherwise provided in the warrants or by virtue of such
holder’s ownership of shares of our common stock, the holder
of a warrant does not have the rights or privileges of a holder of
our common stock, including any voting rights, until the holder
exercises the warrant.
Waivers and Amendments
. Subject to
certain exceptions, any term of the warrants may be amended or
waived with our written consent and the written consent of the
holders of at least two-thirds of the then-outstanding
warrants.
Stock
Options and Warrants
As of
September
30, 2016, we had reserved the following shares of common stock for
issuance pursuant to stock options, warrants and equity
plans:
●
534,842
shares of common stock
issuable upon the exercise of outstanding warrants, at a weighted
average exercise price of
$
5.41
per share;
●
531,584
shares of our common stock
issuable upon the exercise of outstanding stock options issued
pursuant to our 2016 Omnibus Incentive Plan, or our Incentive Plan,
at a weighted average exercise price of $2.86 per share and an
estimated
shares of our common stock issuable
upon the exercise of stock options expected to be granted to our
directors and certain of our officers upon the completion of this
offering at an exercise price equal to the public offering price
set forth on the cover of this prospectus;
●
an estimated
shares of our common stock
that will be reserved for future issuance under our Incentive Plan;
and
●
shares
of our common stock issuable upon exercise of the warrant to be
issued to the underwriter representing eight percent of the number
of shares offered by this prospectus.
Convertible
Promissory Notes
As of
September
30, 2016, we had reserved an estimated 3,576,225
shares of our common stock for future issuance under convertible
promissory notes.
From
April
to August
2016, we
issued convertible promissory notes in the aggregate principal
amount of $
1,386,448
to 62
accredited investors. These convertible promissory notes mature one
year from the issue date, accrue interest at the rate of 8% per
annum, are payable at maturity, are secured by all assets of the
Company, now owned or hereafter acquired, and automatically convert
into the same security issued by the Company, on the same terms,
including price, upon a qualified financing in the amount of $3.0
million or more. Separately, upon any individual noteholder’s
election, such noteholder’s convertible promissory note is
convertible into shares of the Company’s common stock, and
upon the election of noteholders holding a majority of the
outstanding principal amount of the convertible promissory notes,
all outstanding convertible promissory notes are convertible into
shares of the Company’s common stock, in each case at a
conversion price of $0.40 per share. While we believe this offering
will constitute a qualified financing as described above, because
the conversion price is significantly lower than the expected
public offering price of the common stock sold in this offering, we
have assumed that the noteholders will convert all of the
outstanding principal and accrued interest on the convertible
promissory notes into shares of common stock of the Company at the
lower conversion price immediately prior to the completion of the
offering.
Preferred
Stock
Our
board of directors will has the authority, without further action
by the stockholders, to issue up to 10,000,000 shares of preferred
stock in one or more series and to fix the designations, powers,
rights, preferences, qualifications, limitations and restrictions
thereof. These designations, powers, rights and preferences could
include voting rights, dividend rights, dissolution rights,
conversion rights, exchange rights, redemption rights, liquidation
preferences, and the number of shares constituting any series or
the designation of such series, any or all of which may be greater
than the rights of common stock. The issuance of preferred stock
could adversely affect the voting power of holders of common stock
and the likelihood that such holders will receive dividend payments
and payments upon liquidation. In addition, the issuance of
preferred stock could have the effect of delaying, deferring or
preventing change in our control or other corporate action. No
shares of preferred stock are outstanding, and we have no present
plan to issue any shares of preferred stock.
GE
Healthcare Right
In
April 2016, we entered into a Collaborative Research Agreement with
General Electric Company, acting through its GE Healthcare business
unit and the GE Global Research Center, or GE Healthcare. The
agreement provides that prior to selling any equity interests in
our company to a healthcare device manufacturer, we will first
offer to negotiate in good faith to sell such equity interests to
GE Healthcare.
Anti-Takeover
Effects of Certain Provisions of Delaware Law and Our Charter
Documents
The
following is a summary of certain provisions of Delaware law, our
Certificate of Incorporation and our bylaws. This summary does not
purport to be complete and is qualified in its entirety by
reference to the corporate law of Delaware and our Certificate of
Incorporation and bylaws.
Effect of Delaware Anti-Takeover
Statute.
We are subject to Section 203 of the
Delaware General Corporation Law, an anti-takeover
law. In general, Section 203 prohibits a Delaware
corporation from engaging in any business combination (as defined
below) with any interested stockholder (as defined below) for a
period of three years following the date that the stockholder
became an interested stockholder, unless:
●
prior to that date,
the board of directors of the corporation approved either the
business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
●
upon consummation
of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining
the number of shares of voting stock outstanding (but not the
voting stock owned by the interested stockholder) those shares
owned by persons who are directors and officers and by excluding
employee stock plans in which employee participants do not have the
right to determine whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
●
on or subsequent to
that date, the business combination is approved by the board of
directors of the corporation and authorized at an annual or special
meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section
203 defines “business combination” to include the
following:
●
any merger or
consolidation involving the corporation and the interested
stockholder;
●
any sale, transfer,
pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder;
●
subject to certain
exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder;
●
subject to limited
exceptions, any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any
class or series of the corporation beneficially owned by the
interested stockholder; or
●
the receipt by the
interested stockholder of the benefit of any loans, advances,
guarantees, pledges or other financial benefits provided by or
through the corporation.
In
general, Section 203 defines an interested stockholder as any
entity or person beneficially owning 15% or more of the outstanding
voting stock of the corporation, or who beneficially owns 15% or
more of the outstanding voting stock of the corporation at any time
within a three-year period immediately prior to the date of
determining whether such person is an interested stockholder, and
any entity or person affiliated with or controlling or controlled
by any of these entities or persons.
Our Charter Documents.
Our
charter documents include provisions that may have the effect of
discouraging, delaying or preventing a change in control or an
unsolicited acquisition proposal that a stockholder might consider
favorable, including a proposal that might result in the payment of
a premium over the market price for the shares held by our
stockholders. Certain of these provisions are summarized
in the following paragraphs.
Effects of authorized but unissued common
stock.
One of the effects of the existence of
authorized but unissued common stock may be to enable our board of
directors to make more difficult or to discourage an attempt to
obtain control of our Company by means of a merger, tender offer,
proxy contest or otherwise, and thereby to protect the continuity
of management. If, in the due exercise of its fiduciary
obligations, the board of directors were to determine that a
takeover proposal was not in our best interest, such shares could
be issued by the board of directors without stockholder approval in
one or more transactions that might prevent or render more
difficult or costly the completion of the takeover transaction by
diluting the voting or other rights of the proposed acquirer or
insurgent stockholder group, by putting a substantial voting block
in institutional or other hands that might undertake to support the
position of the incumbent board of directors, by effecting an
acquisition that might complicate or preclude the takeover, or
otherwise.
Cumulative Voting.
Our
Certificate of Incorporation does not provide for cumulative voting
in the election of directors, which would allow holders of less
than a majority of the stock to elect some directors.
Vacancies.
Our Certificate
of Incorporation
provides that all vacancies may be
filled by
the
affirmative vote of a majority of directors then in office, even if
less than a quorum.
Special Meeting of
Stockholders.
A
special meeting of stockholders may only be called by the Chairman
of the board of directors, the President, the Chief Executive
Officer, or the board of directors at any time and for any purpose
or purposes as shall be stated in the notice of the meeting, or by
request of the holders of record of at least 20% of
the outstanding shares of common stock. This provision
could prevent stockholders from calling a special meeting because,
unless certain significant stockholders were to join with them,
they might not obtain the percentage necessary to request the
meeting. Therefore, stockholders holding less than
20% of the issued and outstanding common stock,
without the assistance of management, may be unable to propose a
vote on any transaction that would delay, defer or prevent a change
of control, even if the transaction were in the best interests of
our stockholders.
Transfer
Agent and Warrant Agent
The transfer agent
of our common stock is Corporate Stock Transfer, Inc., 3200 Cherry
Creek Dr. South, Suite 430, Denver, CO 80209. Its telephone number
is (303) 282-4800. We will act as the warrant agent for the
warrants.
SHARES
ELIGIBLE FOR FUTURE SALE
Prior
to this offering, there has been no public market for our
securities, and we cannot predict the effect, if any, that market
sales of our securities or the availability of our securities for
sale will have on the market price of our securities prevailing
from time to time. Nevertheless, sales of substantial amounts of
our common stock, including shares issued upon exercise of
outstanding options and warrants, in the public market
following this offering could adversely affect market prices
prevailing from time to time and could impair our ability to raise
capital through the sale of our equity securities.
Upon
the closing of this offering, we will have a total of
shares of our common stock outstanding (or
shares if the underwriters exercise their option to purchase
additional shares in full),
and a total of
shares of our common
stock outstanding if the warrants sold in this offering are
exercised in full (or
shares if the underwriters exercise
their over-allotment in full with respect to shares of common stock
and warrants and such warrants are exercised)
based
on the
shares of our common stock outstanding as of
,
assuming the conversion immediately prior to the closing of this
offering of all convertible promissory notes outstanding as of
September 30, 2016 into an aggregate of
3,576,225 shares of common stock at a conversion price
of $0.40 per share. Of these outstanding shares, all of the
shares of common stock and
warrants sold in this offering will be freely
tradable, except that any shares and warrants
purchased in this offering by our affiliates, as that term is
defined in Rule 144 under the Securities Act of 1933, as amended,
or the Securities Act, would only be able to be sold in compliance
with the Rule 144 limitations described below.In addition, we
expect that the shares issued upon exercise of the warrants issued
in this offering will be freely tradeable except for any such
shares issued to our affiliates, as that term is defined in Rule
144 under the Securities Act, which would only be able to be sold
in compliance with the Rule 144 limitations described
below.
The
remaining outstanding shares of our common stock will be deemed
“restricted securities” as defined in Rule 144.
Restricted securities may be sold in the public market only if they
are registered under the Securities Act or if they qualify for an
exemption from registration under Rule 144 or Rule 701 promulgated
under the Securities Act, which rules are summarized below. In
addition, our executive officers, directors and substantially all
of our existing stockholders have entered into lock-up agreements
with the underwriter under which they have agreed, subject to
specific exceptions, not to sell any of our stock for at least
365 days following the date of this prospectus, as
described below. As a result of these agreements, subject to the
provisions of Rule 144 or Rule 701, based on an assumed offering
date of ,
2016, shares will be available for sale in the public market as
follows:
●
Beginning on the
date of this prospectus, all of the shares sold in this offering
will be immediately available for sale in the public
market;
●
Beginning 181 days
after the date of this prospectus,
additional shares of
common stock will become eligible for sale in the public market, of
which
shares will be held by affiliates and subject to the volume and
other restrictions of Rule 144, as described below;
and
●
The remainder of
the shares will be eligible for sale in the public market from time
to time thereafter, subject in some cases to the volume and other
restrictions of Rule 144, as described below.
Rule
144
In
general, under Rule 144 as currently in effect, once we have been
subject to public company reporting requirements for at least 90
days, a person who is not deemed to have been one of our affiliates
for purposes of the Securities Act at any time during the 90 days
preceding a sale and who has beneficially owned the shares proposed
to be sold for at least six months, including the holding period of
any prior owner other than our affiliates, is entitled to sell
those shares without complying with the manner of sale, volume
limitation or notice provisions of Rule 144, subject to compliance
with the public information requirements of Rule 144. If such a
person has beneficially owned the shares proposed to be sold for at
least one year, including the holding period of any prior owner
other than our affiliates, then that person would be entitled to
sell those shares upon expiration of the lock-up agreements
described below, without complying with any of the requirements of
Rule 144.
In
general, under Rule 144, as currently in effect, our affiliates or
persons selling shares on behalf of our affiliates are entitled to
sell upon expiration of the lock-up agreements described above,
within any three-month period, a number of shares that does not
exceed the greater of:
●
1% of the number of
shares of common stock then outstanding, which will equal
approximately shares immediately
after this offering; or
●
the average weekly
trading volume of common stock on the Nasdaq Capital Market during
the four calendar weeks preceding the filing of a notice on Form
144 with respect to that sale.
Sales
under Rule 144 by our affiliates or persons selling shares on
behalf of our affiliates are also subject to certain manner of sale
provisions and notice requirements and to the availability of
current public information about us.
Rule
701
Rule
701 generally allows a stockholder who purchased shares of our
common stock pursuant to a written compensatory plan or contract
and who is not deemed to have been an affiliate of our company
during the immediately preceding 90 days to sell these shares in
reliance upon Rule 144, but without being required to comply with
the public information, holding period, volume limitation or notice
provisions of Rule 144. Rule 701 also permits affiliates of our
company to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. All
holders of Rule 701 shares, however, are required by that rule to
wait until 90 days after the date of this prospectus before selling
those shares pursuant to Rule 701, subject to the market standoff
agreements and lock-up agreements described above.
Stock
Options
As soon
as practicable after the closing of this offering, we intend to
file one or more registration statements on Form S-8 under the
Securities Act covering all of the shares of our common stock
subject to outstanding options and the shares of our common stock
reserved for issuance under our stock plans. In addition, we intend
to file a registration statement on Form S-8 or such other form as
may be required under the Securities Act for the resale of shares
of our common stock issued upon the exercise of options that were
not granted under Rule 701. We expect to file this registration
statement as soon as permitted under the Securities Act and the
terms of the lock-up agreements described below. However, the
shares registered on Form S-8 may be subject to the volume
limitations and the manner of sale, notice and public information
requirements of Rule 144 and will not be eligible for resale until
expiration of the lock-up and market standoff agreements to which
they are subject.
Lock-up
Agreements
For a
description of the lock-up agreements with the underwriter that
restrict sales of shares by us and our executive officers and
directors, see the information under the heading
“Underwriting.”
UNDERWRITING
We have entered
into an underwriting agreement with
Dougherty &
Company LLC
, acting as the representative of the several
underwriters named below, with respect to the shares of common
stock and warrants subject to this offering. Subject to certain
conditions, we have agreed to sell to the underwriters, and the
underwriters have severally agreed to purchase, the number of
shares of common stock and warrants provided below opposite their
respective names.
|
Underwriters
|
|
|
|
Dougherty & Company
LLC
|
|
|
|
|
|
|
|
Total
|
|
|
The underwriters
are offering the shares of common stock and warrants subject to
their acceptance of the shares of common stock and warrants from us
and subject to prior sale. The underwriting agreement provides that
the obligations of the several underwriters to pay for and accept
delivery of the shares of common stock and warrants offered by this
prospectus are subject to the approval of certain legal matters by
their counsel and to certain other conditions. The underwriters are
obligated to take and pay for all of the shares of common stock and
warrants if any such shares of common stock and warrants are taken.
However, the underwriters are not required to take or pay for the
shares of common stock and warrants covered by the
underwriters’ over-allotment option described
below.
Over-Allotment
Option
We have granted the
underwriters an option, exercisable for 30 days from the date of
this prospectus, to purchase up to an
additional
shares of our common stock at a purchase price of $
per share and/or
additional warrants to purchase up to
shares of
our common stock at a purchase price of $ per warrant, to cover
over-allotments, if any, of the shares of our common stock and
warrants offered by this prospectus. If the underwriters exercise
this option, each underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares and/or
warrants proportionate to that underwriter’s initial purchase
commitment as indicated in the table above for which the option has
been exercised. The underwriters will be unable to satisfy any
over-allotment of shares and warrants without exercising the
underwriters’ over-allotment option with respect to the
warrants. The underwriters may satisfy some or all of the
over-allotment of shares of our common stock, if any, by purchasing
shares in the open market and will have no obligation to exercise
the over-allotment option with respect to our common
stock.
Discount,
Commissions and Expenses
The underwriters
have advised us that they propose to offer the shares of common
stock and warrants to the public at the combined initial public
offering price set forth on the cover page of this prospectus and
to certain dealers at that price less a concession not in excess of
$ per share and related warrant. The underwriters may allow, and
certain dealers may reallow, a discount from the concession not in
excess of $ per share and related warrant to certain brokers and
dealers. After this offering, the combined initial public offering
price, concession and reallowance to dealers may be changed by the
representative. No such change shall change the amount of proceeds
to be received by us as set forth on the cover page of this
prospectus. The shares of common stock and warrants are offered by
the underwriters as stated herein, subject to receipt and
acceptance by them and subject to their right to reject any order
in whole or in part. The underwriters have informed us that they do
not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The following table
shows the underwriting discount payable to the underwriters by us
in connection with this offering. Such amounts are shown assuming
both no exercise and full exercise of the underwriters’
over-allotment option to purchase additional shares and
warrants.
|
|
Per
Share and Related
Warrant(1)
|
Total Without
Exercise of Over-Allotment Option
|
Total With Exercise
of Over-Allotment Option
|
|
Combined
initial public offering price
|
$
|
$
|
$
|
|
Underwriting
discount
|
$
|
$
|
$
|
__________________________
(1)
Does not include
the warrants to purchase shares of common stock equal to 8% of the
number of shares sold in the offering to be issued to the
underwriter at the closing.
We have agreed to
reimburse the underwriters for all accountable expenses, subject to
a cap of $100,000. We estimate that expenses payable by us in
connection with this offering, other than the underwriting discount
referred to above but including the reimbursement of the
underwriters’ expenses, will be approximately
$600,000.
Underwriters’
Warrants
We have
also agreed to issue to the underwriters warrants to purchase a
number of our shares of common stock equal to an aggregate of 8% of
the shares of common stock sold in this offering. The warrants will
have an exercise price equal to the combined initial
public offering price of the shares of common stock and
warrants sold in this offering and may be exercised on a
cashless basis. The warrants are not redeemable by us. The warrants
also provide for one demand registration of the shares of common
stock underlying the warrants at our expense, an additional demand
at the warrant holder’s expense and unlimited
“piggyback” registration rights at our expense with
respect to the underlying shares of common stock during the five
year period commencing six months after the date of this
prospectus. The warrants will provide for adjustment in the number
and price of such warrants (and the shares of common stock
underlying such warrants) in the event of recapitalization, merger
or other fundamental transaction. The warrants and the underlying
shares of common stock have been deemed compensation by FINRA and
are therefore subject to FINRA Rule 5110(g)(1). In accordance with
FINRA Rule 5110(g)(1), neither the underwriter warrants nor any
shares of our common stock issued upon exercise of the underwriter
warrants may be sold, transferred, assigned, pledged, or
hypothecated, or be the subject of any hedging, short sale,
derivative, put, or call transaction that would result in the
effective economic disposition of such securities by any person for
a period of 180 days immediately following the date of
effectiveness or commencement of sales of the offering pursuant to
which the underwriter warrants are being issued, except the
transfer of any security:
●
by operation of law
or by reason of reorganization of the Company;
●
to any FINRA member
firm participating in this offering and the officers or partners
thereof, if all securities so transferred remain subject to the
lock-up restriction described above for the remainder of the time
period;
●
if the aggregate
amount of securities of the Company held by either an underwriter
or a related person do not exceed 1% of the securities being
offered;
●
that is
beneficially owned on a pro-rata basis by all equity owners of an
investment fund, provided that no participating member manages or
otherwise directs investments by the fund, and participating
members in the aggregate do not own more than 10% of the equity in
the fund; or
●
the exercise or
conversion of any security, if all securities received remain
subject to the lock-up restriction set forth above for the
remainder of the time period.
In
addition, in accordance with FINRA Rule 5110(f)(2)(H), the
underwriter warrants may not contain certain terms.
No
Public Market
Prior
to this offering, there has not been a public market for our common
stock in the United States and the combined initial
public offering price for our common stock and
warrants will be determined through negotiations between us
and the underwriter. Among the factors to be considered in these
negotiations will be prevailing market conditions, our financial
information, market valuations of other companies that we and the
underwriters believe to be comparable to us, estimates of our
business potential, the present state of our development and other
factors deemed relevant.
No
assurance can be given that the combined initial
public offering price will correspond to the price at which our
common stock will trade in the public market subsequent to this
offering or that an active trading market for our common stock will
develop and continue after this offering.
There is no
established trading market for the warrants and we do not expect a
market to develop. In addition, we do not intend to apply for the
listing of the warrants on any national securities exchange or
other trading market. Without an active trading market, the
liquidity of the warrants will be
limited.
Indemnification
We have
agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended,
or the Securities Act, and liabilities arising from breaches of
representations and warranties contained in the underwriting
agreement, or to contribute to payments that the underwriter may be
required to make in respect of those liabilities.
Lock-up
Agreements
We, our
officers, directors and substantially all of our existing
stockholders have agreed, subject to limited exceptions, for a
period of 365 days after the date of the underwriting
agreement, not to offer, sell, contract to sell, pledge, grant any
option to purchase, make any short sale or otherwise dispose of,
directly or indirectly any shares of common stock or any securities
convertible into or exchangeable for our common stock either owned
as of the date of the underwriting agreement or thereafter acquired
without the prior written consent of the representative. The
representative may, in its sole discretion and at any time or from
time to time before the termination of the lock-up period release
all or any portion of the securities subject to lock-up agreements;
provided, however, that, subject to limited exceptions, at least
three business days before the release or waiver or any lock-up
agreement, the representative must notify us of the impending
release or waiver and we will be required to announce the impending
release or waiver through a major news service at least two
business days before the release or waiver.
Price
Stabilization, Short Positions and Penalty Bids
In
connection with the offering the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions and penalty bids in accordance with
Regulation M under the Exchange Act:
●
Stabilizing
transactions permit bids to purchase the underlying security so
long as the stabilizing bids do not exceed a specified
maximum.
●
Over-allotment
involves sales by the underwriters of shares in excess of the
number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be
either a covered short position or a naked short position. In a
covered short position, the number of shares over-allotted by the
underwriters is not greater than the number of shares that they may
purchase in the over-allotment option. In a naked short position,
the number of shares involved is greater than the number of shares
in the over-allotment option. The underwriters may close out any
covered short position by either exercising their over-allotment
option and/or purchasing shares in the open market.
●
Syndicate covering
transactions involve purchases of shares of the common stock in the
open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of
shares to close out the short position, the underwriters will
consider, among other things, the price of shares available for
purchase in the open market as compared to the price at which it
may purchase shares through the over-allotment option. If the
underwriters sell more shares than could be covered by the
over-allotment option, a naked short position, the position can
only be closed out by buying shares in the open market. A naked
short position is more likely to be created if the underwriters are
concerned that there could be downward pressure on the price of the
shares in the open market after pricing that could adversely affect
investors who purchase in the offering.
●
Penalty bids permit
the representative to reclaim a selling concession from a syndicate
member when the common stock originally sold by the syndicate
member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These
stabilizing transactions, syndicate covering transactions and
penalty bids may have the effect of raising or maintaining the
market price of our common stock and warrants or
preventing or retarding a decline in the market price of the common
stock and warrants. As a result, the price of our
common stock and warrants may be higher than the price
that might otherwise exist in the open market. Neither we nor the
underwriters make any representation or prediction as to the
direction or magnitude of any effect that the transactions
described above may have on the price of the common stock and
warrants. In addition, neither we nor the underwriters make
any representations that the underwriters will engage in these
stabilizing transactions or that any transaction, once commenced,
will not be discontinued without notice.
Listing
and Transfer and Warrant Agent
We
intend to apply to list our common stock on the Nasdaq Capital
Market under the trading symbol NDRA. The transfer agent of our
common stock is Corporate Stock Transfer, Inc., 3200 Cherry Creek
Dr. South, Suite 430, Denver, CO 80209. Its telephone number is
(303) 282-4800.
We will act as the
warrant agent for the warrants.
Electronic
Distribution
This
prospectus in electronic format may be made available on websites
or through other online services maintained by the underwriter, or
by its affiliates. Other than this prospectus in electronic format,
the information on the underwriter’s website and any
information contained in any other website maintained by the
underwriter is not part of this prospectus or the registration
statement of which this prospectus forms a part, has not been
approved and/or endorsed by us or the underwriter in its capacity
as underwriter, and should not be relied upon by
investors.
Other
From
time to time, certain of the underwriters and/or their affiliates
have provided, and may in the future provide, various investment
banking and other financial services for us for which services they
have received and, may in the future receive, customary fees. In
the course of their businesses, the underwriters and their
affiliates may actively trade our securities or loans for their own
account or for the accounts of customers, and, accordingly, the
underwriters and their affiliates may at any time hold long or
short positions in such securities or loans. Except for services
provided in connection with this offering, no underwriter has
provided any investment banking or other financial services to us
during the 180-day period preceding the date of this prospectus and
we do not expect to retain any underwriter to perform any
investment banking or other financial services for at least 90 days
after the date of this prospectus.
NOTICE
TO INVESTORS
Notice
to Investors in the United Kingdom
In
relation to each Member State of the European Economic Area which
has implemented the Prospectus Directive, each a Relevant Member
State, an offer to the public of any securities which are the
subject of the offering contemplated by this prospectus may not be
made in that Relevant Member State except that an offer to the
public in that Relevant Member State of any such securities may be
made at any time under the following exemptions under the
Prospectus Directive, if they have been implemented in that
Relevant Member State:
(a)
to legal entities
which are authorized or regulated to operate in the financial
markets or, if not so authorized or regulated, whose corporate
purpose is solely to invest in securities;
(b)
to any legal entity
which has two or more of (1) an average of at least 250 employees
during the last financial year; (2) a total balance sheet of more
than €43,000,000 and (3) an annual net turnover of more than
€50,000,000, as shown in its last annual or consolidated
accounts;
(c)
by the underwriter
to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive); or
(d)
in any other
circumstances falling within Article 3(2) of the Prospectus
Directive, provided that no such offer of these securities shall
result in a requirement for the publication by the issuer or the
underwriter of a prospectus pursuant to Article 3 of the Prospectus
Directive.
For the
purposes of this provision, the expression an “offer to the
public” in relation to any of the securities in any Relevant
Member State means the communication in any form and by any means
of sufficient information on the terms of the offer and any such
securities to be offered so as to enable an investor to decide to
purchase any such securities, as the same may be varied in that
Member State by any measure implementing the Prospectus Directive
in that Member State and the expression “Prospectus
Directive” means Directive 2003/71/EC and includes any
relevant implementing measure in each Relevant Member
State.
Each
underwriter has represented, warranted and agreed
that:
(a)
it has only
communicated or caused to be communicated and will only communicate
or cause to be communicated any invitation or inducement to engage
in investment activity (within the meaning of section 21 of the
Financial Services and Markets Act 2000 (the FSMA)) received by it
in connection with the issue or sale of any of the securities in
circumstances in which section 21(1) of the FSMA does not apply to
the issuer; and
(b)
it has complied
with and will comply with all applicable provisions of the FSMA
with respect to anything done by it in relation to the securities
in, from or otherwise involving the United Kingdom.
European
Economic Area
In
particular, this document does not constitute an approved
prospectus in accordance with European Commission’s
Regulation on Prospectuses no. 809/2004 and no such prospectus is
to be prepared and approved in connection with this offering.
Accordingly, in relation to each Member State of the European
Economic Area which has implemented the Prospectus Directive (being
the Directive of the European Parliament and of the Council
2003/71/EC and including any relevant implementing measure in each
Relevant Member State) (each, a Relevant Member State), with effect
from and including the date on which the Prospectus Directive is
implemented in that Relevant Member State (the Relevant
Implementation Date) an offer of securities to the public may not
be made in that Relevant Member State prior to the publication of a
prospectus in relation to such securities which has been approved
by the competent authority in that Relevant Member State or, where
appropriate, approved in another Relevant Member State and notified
to the competent authority in that Relevant Member State, all in
accordance with the Prospectus Directive, except that it may, with
effect from and including the Relevant Implementation Date, make an
offer of securities to the public in that Relevant Member State at
any time:
●
to legal entities
which are authorized or regulated to operate in the financial
markets or, if not so authorized or regulated, whose corporate
purpose is solely to invest in securities;
●
to any legal entity
which has two or more of (1) an average of at least 250 employees
during the last financial year; (2) a total balance sheet of more
than €43,000,000; and (3) an annual net turnover of more than
€50,000,000, as shown in the last annual or consolidated
accounts; or
●
in any other
circumstances which do not require the publication by the Issuer of
a prospectus pursuant to Article 3 of the Prospectus
Directive.
For the
purposes of this provision, the expression an “offer of
securities to the public” in relation to any of the
securities in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms of
the offer and the securities to be offered so as to enable an
investor to decide to purchase or subscribe for the securities, as
the same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State. For
these purposes the shares of our common stock and
warrants offered hereby are
“securities.”
Notice to Prospective Investors in
Canada
The shares of common stock may be sold only to
purchasers purchasing, or deemed to be purchasing, as principal
that are accredited investors, as defined in National Instrument
45-106
Prospectus
Exemptions
or subsection
73.3(1) of the
Securities
Act
(Ontario), and are
permitted clients, as defined in National Instrument
31-103
Registration Requirements,
Exemptions and Ongoing Registrant Obligations
. Any resale of the shares of common stock must be
made in accordance with an exemption from, or in a transaction not
subject to, the prospectus requirements of applicable securities
laws.
Securities
legislation in certain provinces or territories of Canada may
provide a purchaser with remedies for rescission or damages if this
prospectus (including any amendment thereto) contains a
misrepresentation, provided that the remedies for rescission or
damages are exercised by the purchaser within the time limit
prescribed by the securities legislation of the purchaser’s
province or territory. The purchaser should refer to any applicable
provisions of the securities legislation of the purchaser’s
province or territory for particulars of these rights or consult
with a legal advisor.
LEGAL MATTERS
The
validity of the shares of our common stock and
warrants offered hereby will be passed upon for us by
K&L Gates LLP, Charlotte, North Carolina.
Faegre Baker Daniels LLP, Minneapolis,
Minnesota
,
has acted as counsel for the
underwriters in connection with certain legal matters related to
this offering.
EXPERTS
The
financial statements of
ENDRA
Life Sciences
Inc.
as of December 31, 2015
and December 31, 2014 included in this prospectus have been audited
by RBSM LLP, independent registered public accounting firm. We have
included these financial statements in this prospectus in reliance
upon the report of RBSM LLP, given on their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE
INFORMATION
We have
filed with the SEC a registration statement on Form S-1, including
exhibits, under the Securities Act that registers the shares of our
common stock to be sold in this offering. This prospectus does not
contain all the information contained in the registration statement
and the exhibits filed as part of the registration statement. For
further information with respect to us and our common stock, we
refer you to the registration statement and the exhibits filed as
part of the registration statement. Statements contained in this
prospectus as to the contents of any contract or other document are
not necessarily complete. If a contract or document has been filed
as an exhibit to the registration statement, we refer you to the
copies of the contract or document that has been filed. Each
statement in this prospectus relating to a contract or document
filed as an exhibit is qualified in all respects by the filed
exhibit.
Upon
the consummation of this offering, we will file annual, quarterly
and current reports, proxy statements and other information with
the SEC under the Exchange Act. You can read our SEC filings,
including the registration statement, at the SEC’s website at
www.sec.gov.
You may
read and copy this information at the SEC’s Public Reference
Room at 100 F Street, N.E., Washington D.C. 20549, at prescribed
rates. You may obtain information regarding the operation of the
public reference room by calling the SEC at
1-800-SEC-0330.
The SEC
also maintains a website (http://www.sec.gov) that contains
reports, proxy and information statements and other information
regarding issuers that file electronically with the
SEC.
Our
website can be accessed at www.endrainc.com. The information
contained on, or that may be obtained from, our website is not, and
shall not be deemed to be, a part of this prospectus.
The
representations, warranties and covenants made by us in any
agreement that is filed as an exhibit to the registration statement
of which this prospectus is a part were made solely for the benefit
of the parties to such agreement, including, in some cases, for the
purpose of allocating risk among the parties to such agreements,
and should not be deemed to be a representation, warranty or
covenant to you. Moreover, such representations, warranties or
covenants were made as of an earlier date. Accordingly, such
representations, warranties and covenants should not be relied on
as accurately representing the current state of our
affairs.
This
prospectus includes statistical and other industry and market data
that we obtained from industry publications and research, surveys
and studies conducted by third parties. Industry publications and
third-party research, surveys and studies generally indicate that
they have gathered their information from sources they believe to
be reliable, although they do not guarantee the accuracy or
completeness of such information. While we believe that these
industry publications and third-party research, surveys and studies
are reliable, we have not independently verified such
data.
ENDRA
Life
Sciences
Inc.
INDEX TO FINANCIAL
STATEMENTS
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Balance sheets as
of December 31, 2015 and 2014
|
F-3
|
|
Statements of
operations for the years ended December 31, 2015 and
2014
|
F-4
|
|
Statement of
stockholders’ equity for the years ended December 31, 2015
and 2014
|
F-5
|
|
Statements of cash
flows for the years ended December 31, 2015 and 2014
|
F-6
|
|
Notes
to the unaudited financial statements
|
F-7
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Stockholders of
Endra
Life
Sciences
Inc.
We have
audited the accompanying balance sheets of Endra
Life Sciences
Inc.
(the “Company”) as of December 31, 2015 and 2014 and
the related statements of operations, stockholders’ equity
and cash flows for each of the years in the two-year period ended
December 31, 2015. The Company’s management is responsible
for these financial statements. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor
were we engaged to perform an audit of the Company’s internal
control over financial reporting. Our audit included consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements,
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Endra
Life
Sciences
Inc. as of December 31, 2015 and
2014 and the results of its operations and cash flows for each of
the years in the two-year period ended December 31, 2015 in
conformity with accounting principles generally accepted in the
United States of America.
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has suffered losses from
operations, which raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in
regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
As
described in Note 3, the financial statements for the year ended
December 31, 2015 have been restated. We audited the adjustments
described in Note 3 that were applied to restate 2015 financial
statements. In our opinion, such adjustments are appropriate and
have been properly applied.
RBSM LLP
Henderson,
Nevada
July
15, 2016 (Except for the effect of the restatement discussed in
Note 3 to the financial statements, for which the date is August 4,
2016.)
ENDRA
LIFE SCIENCES
INC.
BALANCE
SHEETS
|
|
|
|
|
Assets
|
|
|
|
Assets
|
|
|
|
Cash
|
$
19,128
|
$
156,442
|
|
Other current
asset
|
8,486
|
8,986
|
|
Total Current
Assets
|
27,614
|
165,428
|
|
Other
Assets
|
|
|
|
Fixed assets,
net
|
274,826
|
307,518
|
|
Total
Assets
|
$
302,440
|
$
472,946
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts payable
and accrued liabilities
|
$
230,316
|
$
111,296
|
|
Total Current
Liabilities
|
230,316
|
111,296
|
|
Total
Liabilities
|
230,316
|
111,296
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
Preferred stock,
$0.0001 par value; 10,000,000 shares authorized; no shares issued
or outstanding
|
--
|
--
|
|
Common stock,
$0.0001 par value; 50,000,000 shares authorized; 2,528,311 and
2,002,336 shares issued and outstanding
|
253
|
200
|
|
Additional paid in
capital
|
9,948,151
|
8,060,032
|
|
Stock
payable
|
45,000
|
9,000
|
|
Accumulated
deficit
|
(9,921,280
)
|
(7,707,582
)
|
|
Total
Stockholders’ Equity
|
72,124
|
361,650
|
|
Total
Liabilities and Stockholders’ Equity
|
$
302,440
|
$
472,946
|
The
accompanying notes are an integral part of these financial
statements.
ENDRA
LIFE SCIENCES
INC.
STATEMENTS
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
1,410,064
|
$
559,355
|
|
|
|
|
|
Cost of Goods
Sold
|
610,297
|
310,327
|
|
|
|
|
|
Gross
Profit
|
799,767
|
249,028
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
Research and
development
|
1,038,878
|
873,167
|
|
Sales and
marketing
|
50,635
|
56,298
|
|
General and
administrative
|
1,213,318
|
896,926
|
|
Total operating
expenses
|
2,302,831
|
1,826,391
|
|
|
|
|
|
Operating
loss
|
(1,503,064
)
|
(1,577,363
)
|
|
|
|
|
|
Other
Expenses
|
|
|
|
Loss on warrant
exercise
|
(711,343
)
|
--
|
|
Loss on notes
conversion
|
--
|
(639,178
)
|
|
Other income
(expense)
|
709
|
(15,519
)
|
|
Total other income
(expense)
|
(710,634
)
|
(654,697
)
|
|
|
|
|
|
Net Loss before
Taxes
|
(2,213,698
)
|
(2,232,060
)
|
|
|
|
|
|
Provision for
income taxes
|
--
|
--
|
|
|
|
|
|
Net
Loss
|
$
(2,213,698
)
|
$
(2,232,060
)
|
|
|
|
|
|
Net
loss per share – basic and diluted
|
$
(0.95
)
|
$
(1.38
)
|
|
|
|
|
|
Weighted
average common shares – basic and diluted
|
2,320,045
|
1,612,569
|
The
accompanying notes are an integral part of these financial
statements.
ENDRA
LIFE SCIENCES
INC.
STATEMENT
OF STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
Additional Paid
in Capital
|
|
|
|
|
Balance
as of December 31, 2013
|
1,050,469
|
$
105
|
$
5,281,355
|
$
-
|
$
(5,475,522
)
|
$
(194,062
)
|
|
Common stock
issued for cash
|
611,900
|
61
|
1,750,954
|
-
|
-
|
1,751,015
|
|
Common stock
issued to placement agent
|
68,182
|
7
|
(7
)
|
-
|
-
|
-
|
|
Common stock
issued for notes conversion
|
271,785
|
27
|
777,237
|
-
|
-
|
777,264
|
|
Common stock
to be issued for services
|
-
|
-
|
-
|
9,000
|
-
|
9,000
|
|
Fair value of
vested stock options
|
-
|
-
|
250,493
|
-
|
-
|
250,493
|
|
Net
loss
|
-
|
-
|
-
|
-
|
(2,232,060
)
|
(2,232,060
)
|
|
Balance
as of December 31, 2014
|
2,002,336
|
$
200
|
$
8,060,032
|
$
9,000
|
$
(7,707,582
)
|
$
361,650
|
|
Common stock
issued for cash
|
87,415
|
9
|
249,991
|
-
|
-
|
250,000
|
|
Common stock
issued for exercise of warrants
|
412,045
|
41
|
589,183
|
-
|
-
|
589,224
|
|
Common stock
issued for accrued salaries - related parties
|
26,515
|
3
|
63,765
|
-
|
-
|
63,768
|
|
Common stock
to be issued for services
|
-
|
-
|
-
|
36,000
|
-
|
36,000
|
|
Additional
warrants issued during exchange
|
-
|
-
|
686,343
|
-
|
-
|
686,343
|
|
Loss on
exercise of warrant
|
-
|
-
|
25,000
|
-
|
-
|
25,000
|
|
Fair value of
vested stock options
|
-
|
-
|
273,837
|
-
|
-
|
273,837
|
|
Net
loss
|
-
|
-
|
-
|
-
|
(2,213,698
)
|
(2,213,698
)
|
|
Balance
as of December 31, 2015 (restated)
|
2,528,311
|
$
253
|
$
9,948,151
|
$
45,000
|
$
(9,921,280
)
|
$
72,124
|
The
accompanying notes are an integral part of these financial
statements.
ENDRA
LIFE
SCIENCES
INC.
STATEMENTS
OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities
|
|
|
|
Net
loss
|
$
(2,213,698
)
|
$
(2,232,060
)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation and
amortization
|
62,655
|
37,242
|
|
Common stock issued
for services
|
309,837
|
259,493
|
|
Additional warrants
issued during exchange
|
686,343
|
-
|
|
Loss on warrant
exercise
|
25,000
|
-
|
|
Loss on common
stock issued for note conversion
|
-
|
639,178
|
|
Changes in
operating assets and liabilities:
|
|
|
|
(Increase)/Decrease
in other asset
|
500
|
(5,986
)
|
|
Increase in
accounts payable and accrued liabilities
|
182,788
|
(86,096
)
|
|
Net cash used in
operating activities
|
(946,575
)
|
(1,388,229
)
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
Purchases of fixed
assets
|
(29,963
)
|
(284,371
)
|
|
Net cash used in
investing activities
|
(29,963
)
|
(284,371
)
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
Proceeds from
issuance of common stock
|
839,224
|
1,751,015
|
|
Net cash provided
by financing activities
|
839,224
|
1,751,015
|
|
|
|
|
|
Net
Increase/(Decrease) in cash
|
(137,314
)
|
78,415
|
|
|
|
|
|
Cash, beginning of
period
|
156,442
|
78,027
|
|
|
|
|
|
Cash,
end of period
|
$
19,128
|
$
156,442
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
Interest
paid
|
$
-
|
$
-
|
|
Income
tax paid
|
$
-
|
$
-
|
|
|
|
|
|
Supplemental
disclosures of non-cash Items:
|
|
|
|
Common shares
issued for notes conversion
|
$
-
|
$
777,264
|
|
Common shares
issued for accrued salaries - related parties
|
$
63,768
|
$
-
|
The
accompanying notes are an integral part of these financial
statements.
ENDRA
LIFE
SCIENCES
INC.
NOTES
TO FINANCIAL STATEMENTS
For the
years ended December 31, 2015 (restated) and December 31,
2014
Note
1 – Nature of the Business
Endra
Life
Sciences
Inc. (“Endra” or the
“Company”) was incorporated on July 18, 2007 as a
Delaware corporation.
Endra
has developed a medical imaging technology based on the
thermoacoustic effect that significantly improves the sensitivity
and specificity of clinical ultrasound.
Note
2 – Summary of Significant Accounting Policies
The
significant accounting policies applied in the annual financial
statements of the Company as of December 31, 2015 and 2014 are
applied consistently in these financial statements.
Basis of Presentation
The
accompanying financial statements have been prepared in accordance
with the U.S. generally accepted accounting
principles.
Use of Estimates
The
preparation of the financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and disclosure of
contingent liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
Management makes
estimates that affect certain accounts including deferred income
tax assets, accrued expenses, fair value of equity instruments and
reserves for any other commitments or contingencies. Any
adjustments applied to estimates are recognized in the period in
which such adjustments are determined.
Cash and Cash Equivalents
The
Company considers all cash on hand and in banks, including accounts
in book overdraft positions, certificates of deposit and other
highly-liquid investments with maturities of three months or less,
when purchased, to be cash and cash equivalents. As of December 31,
2015 and 2014 the Company had no cash equivalents.
Capitalization of Fixed Assets
The
Company capitalizes expenditures related to property and equipment,
subject to a minimum rule, that have a useful life greater than one
year for: (1) assets purchased; (2) existing assets that are
replaced, improved or the useful lives have been extended; or (3)
all land, regardless of cost. Acquisitions of new assets,
additions, replacements and improvements (other than land) costing
less than the minimum rule in addition to maintenance and repair
costs, including any planned major maintenance activities, are
expensed as incurred.
Capitalization of Intangible Assets
The
Company records the purchase of intangible assets not purchased in
a business combination in accordance with the ASC Topic
350.
Revenue Recognition
The
Company’s recognizes revenue in accordance with the
requirements of ASC 605-10-599, which directs that it should
recognize revenue when (1) persuasive evidence of an arrangement
exists (contracts); (2) delivery has occurred; (3) the
seller’s price is fixed or determinable (per the
customer’s contract); and (4) collectability is reasonably
assured (based upon our credit policy). For products sold to end
users revenue is recognized when title has passed to the customer
and collectability is reasonably assured; and no further efforts
are required. Future revenue from anticipated new products will
follow this same policy.
For our preclinical
NEXUS product line, our distributors have no rights of return or
price protection, or similar rights. For our TAEUS product line, we
expect to arrange similar distributor agreements and terms and
conditions with distributors for our clinical products, as we have
for our preclinical products.
Advertising Expense
The
cost of advertising is expensed as
incurred. Advertising expense for the year ended December
31, 2015 were approximately $12,894. Advertising expense for
the year ended December 31, 2014 were approximately
$7,223.
Income Taxes
The
Company utilizes ASC 740, “Income Taxes,” which
requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on
the difference between the tax basis of assets and liabilities and
their financial reporting amounts based on enacted tax laws and
statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. A valuation
allowance is recorded when it is “more likely-than-not”
that a deferred tax asset will not be realized.
The
Company generated a deferred tax asset through net operating loss
carry-forwards. However, a valuation allowance of 100% has been
established due to the uncertainty of the Company’s
realization of the net operating loss carry forward prior to its
expiration.
Research and Development Costs
The
Company follows ASC 730-10, “Research and Development”.
Research and development costs are charged to the statement of
operations as incurred. During the years ended December 31, 2015
and December 31, 2014 the Company incurred $1,038,878 and $873,167
of expenses related to research and development costs,
respectively.
Net Earnings (Loss) Per Common Share
The
Company computes earnings per share under ASC Subtopic 260-10,
Earnings Per Share (“ASC 260-10”). Basic earnings
(loss) per share is computed by dividing the net income (loss)
attributable to the common stockholders (the numerator) by the
weighted average number of shares of common stock outstanding (the
denominator) during the reporting periods. Diluted loss per
share is computed by increasing the denominator by the weighted
average number of additional shares that could have been
outstanding from securities convertible into common stock (using
the “treasury stock” method), unless their effect on
net loss per share is anti-dilutive. There were 1,332,921 and
1,180,970 potentially dilutive shares, which include outstanding
common stock options and warrants, for the years ended December 31,
2015 and 2014.
The
potential shares, which are excluded from the determination of
basic and diluted net loss per share as their effect is
anti-dilutive, are as follows:
|
|
|
|
|
Options to purchase
common stock
|
499,012
|
301,165
|
|
Warrants to
purchase common stock
|
833,909
|
879,805
|
|
Potential
equivalent shares excluded
|
1,332,921
|
1,180,970
|
Fair Value Measurements
Disclosures about
fair value of financial instruments require disclosure of the fair
value information, whether or not recognized in our consolidated
balance sheet, where it is practicable to estimate that value. As
of December 31, 2014, the amounts reported for cash, accrued
liabilities and accrued interest approximated fair value because of
their short maturities.
In
accordance with ASC Topic 820, “Fair Value Measurements and
Disclosures,” we measure certain financial instruments at
fair value on a recurring basis. ASC Topic 820 defines fair value,
established a framework for measuring fair value in accordance with
accounting principles generally accepted in the United States, and
expands disclosures about fair value measurements.
Fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. ASC Topic 820
established a three-tier fair value hierarchy, which prioritizes
the inputs used in measuring fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (level 1 measurements) and the
lowest priority to unobservable inputs (level 3 measurements).
These tiers include:
|
|
●
|
Level
1, defined as observable inputs such as quoted prices for identical
instruments in active markets;
|
|
|
|
|
|
|
●
|
Level
2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable such as quoted
prices for similar instruments in active markets or quoted prices
for identical or similar instruments in markets that are not
active; and
|
|
|
|
|
|
|
●
|
Level
3, defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own
assumptions, such as valuations derived from valuation techniques
in which one or more significant inputs or significant value
drivers are unobservable.
|
Share-based Compensation
The
Company’s 2016 Omnibus Incentive Plan, which
h
as been
approved by its board
of directors, permits the grant of share options and shares to its
employees and consultants for up to an estimated
1,318,182
shares of common
stock. The Company records share-based compensation in accordance
with the provisions of the Share-based Compensation Topic of the
FASB Codification. The guidance requires the use of option-pricing
models that require the input of highly subjective assumptions,
including the option’s expected life and the price volatility
of the underlying stock. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option
valuation model, and the resulting charge is expensed using the
straight-line attribution method over the vesting period. The
Company has elected to use the calculated value method to account
for the options it issued in 2014. A nonpublic entity that is
unable to estimate the expected volatility of the price of its
underlying share may measure awards based on a “calculated
value,” which substitutes the volatility of appropriate
public companies (representative of the company’s size and
industry) as a bench mark for the volatility of the entity’s
own share price. Currently, there is no active market for the
company’s common shares. The Company has used the historical
closing values of these companies to estimate volatility, which was
calculated to be 90%.
Stock
compensation expense recognized during the period is based on the
value of share-based awards that were expected to vest during the
period adjusted for estimated forfeitures. The estimated fair value
of grants of stock options and warrants to non-employees of the
Company is charged to expense, if applicable, in the financial
statements. These options vest in the same manner as the employee
options granted under each of the option plans as described
above.
Beneficial Conversion Feature
If the
conversion features of conventional convertible debt provides for a
rate of conversion that is below market value, this feature is
characterized as a beneficial conversion feature
(“BCF”). A BCF is recorded by the Company as a debt
discount pursuant to ASC Topic 470-20 “Debt with Conversion
and Other Options.” In those circumstances, the convertible
debt is recorded net of the discount related to the BCF and the
Company amortizes the discount to interest expense over the life of
the debt using the effective interest method.
Debt Discount
The
Company determines if the convertible debenture should be accounted
for as liability or equity under ASC 480, Liabilities —
Distinguishing Liabilities from Equity. ASC 480, applies to certain
contracts involving a company’s own equity, and requires that
issuers classify the following freestanding financial instruments
as liabilities. Mandatorily redeemable financial instruments,
obligations that require or may require repurchase of the
issuer’s equity shares by transferring assets (e.g., written
put options and forward purchase contracts), and certain
obligations where at inception the monetary value of the obligation
is based solely or predominantly on:
●
A fixed monetary
amount known at inception, for example, a payable settleable with a
variable number of the issuer’s equity shares with an
issuance date fair value equal to a fixed dollar
amount;
●
Variations in
something other than the fair value of the issuer’s equity
shares, for example, a financial instrument indexed to the S&P
500 and settleable with a variable number of the issuer’s
equity shares; or
●
Variations
inversely related to changes in the fair value of the
issuer’s equity shares, for example, a written put that could
be net share settled.
If the
entity determined the instrument meets the guidance under ASC 480
the instrument is accounted for as a liability with a respective
debt discount. The Company records debt discounts in connection
with raising funds through the issuance of promissory notes (see
Note 8). These costs are amortized to non-cash interest expense
over the life of the debt. If a conversion of the underlying debt
occurs, a proportionate share of the unamortized amounts is
immediately expensed.
Going Concern
The
Company’s financial statements are prepared using U.S. GAAP
applicable to a going concern, which contemplates the realization
of assets and liquidation of liabilities in the normal course of
business. The Company has limited operating history and had a
cumulative net loss from inception to December 31, 2015 of
$9,921,280. The Company has a working deficit of $202,702 as of
December 31, 2015. The Company has not yet established an ongoing
source of revenue sufficient to cover its operating costs and to
allow it to continue as a going concern. The accompanying financial
statements for the period ended December 31, 2015, have been
prepared assuming the Company will continue as a going concern. The
Company believes its cash resources are insufficient to meet its
anticipated needs during the next twelve months. The Company will
require additional financing to fund its future planned operations,
including research and development and commercialization of its
products.
The
ability of the Company to continue as a going concern is dependent
on the Company obtaining adequate capital to fund operating losses
until it establishes a revenue stream and becomes profitable.
Management’s plans to continue as a going concern include
raising additional capital through borrowing and sales of common
stock. However, management cannot provide any assurances that the
Company will be successful in accomplishing any of its plans. If
the Company is not able to obtain the necessary additional
financing on a timely basis, the Company will be forced to delay or
scale down some or all of its development activities or perhaps
even cease the operation of its business. The ability of the
Company to continue as a going concern is dependent upon its
ability to successfully secure other sources of financing and
attain profitable operations. The accompanying financial statements
do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
Reclassifications
Certain
reclassifications have been made to the 2015 financial statement
amounts and disclosures. A portion of wages and related expenses
for the years ended December 31, 2015 and 2014 of $665,501 and
$607,823, respectively, have been reclassified in the financial
statements from general and administrative to research and
development expenses. In addition, accrued salaried of $78,565 were
reclassified from stock payable to accrued
liabilities.
Note
3 – Restatement
Due to additional accrued salary and
reclassification of accrued salary from stock payable to accrued
liabilities,
the Company has restated its balance sheet,
statement of operations, statement of stockholders’ equity
and statement of cash flows for the year ended December 31, 2015 to
account for the following:
|
|
1)
|
Increase of accrued
liabilities of $144,629; and
|
|
|
2)
|
Reduction of stock
payable by $78,565.
|
A
summary of the effect of the restatements is as
follows:
|
|
As Previously Reported (1)
|
|
|
|
Balance
Sheet – December 31, 2015
|
|
|
|
|
Accounts
payable and accrued liabilities
|
$
85,687
|
$
144,629
|
$
230,316
|
|
Total
liabilities
|
$
85,687
|
$
144,629
|
$
230,316
|
|
Stock
payable
|
$
123,565
|
$
(78,565
)
|
$
45,000
|
|
Accumulated
deficit
|
$
(9,855,216
)
|
$
(66,064
)
|
$
(9,921,280
)
|
|
Total
stockholders’ equity
|
$
216,753
|
$
(144,629
)
|
$
72,124
|
|
|
|
|
|
|
Statement
of Operations - For the Year Ended December 31, 2015
|
|
|
|
|
General
and administrative
|
$
1,147,254
|
$
66,064
|
$
1,213,318
|
|
Net
loss
|
$
(2,147,634
)
|
$
(66,064
)
|
$
(2,213,698
)
|
|
|
|
|
|
|
Statement
of Cash Flows - For the Year Ended December 31, 2015
|
|
|
|
|
Net
loss
|
$
(2,147,634
)
|
$
(66,064
)
|
$
(2,213,698
)
|
|
Decrease/(Increase)
in accounts payable and accrued liabilities
|
$
116,723
|
$
(66,064
)
|
$
182,788
|
(1)
Certain reclassifications have been
made to the 2015 financial statement amounts and disclosures. A
portion of wages and related expenses for the years ended December
31, 2015 and 2014 have been reclassified in the financial
statements from general and administrative to research and
development expenses.
Note
4 – Fixed Assets
As of
December 31, 2015 and 2014, fixed assets consisted of the
following:
|
|
|
|
|
Computer equipment and fixtures
|
$
476,470
|
$
499,307
|
|
Accumulated depreciation
|
(201,644
)
|
(191,789
)
|
|
Fixed assets,
net
|
$
274,826
|
$
307,518
|
Depreciation and
amortization expense for the years ended December 31, 2015 and 2014
was $62,655 and $37,242, respectively.
Note
5 – Current Liabilities
As of
December 31, 2015 and December 31, 2014, current liabilities
consisted of the following:
|
|
|
|
|
Accounts
payable
|
$
74,840
|
$
25,195
|
|
Accrued
payroll
|
144,629
|
63,768
|
|
Accrued employee
benefits
|
10,847
|
22,333
|
|
Total
|
$
230,316
|
$
111,296
|
During
the period ended December 31, 2015 the Company issued 26,515 shares
of common stock as payment for accrued and unpaid wages to two
officers of the Company.
During
the year ended December 31, 2015, the Company issued 10% promissory
notes in the aggregate principal amount of $32,000.
As of December 31, 2015, the notes and
accrued interest of $3,200 were paid in full.
Note
6 – Capital Stock
At
December 31, 2015, the authorized capital of the Company consists
of 60,000,000
shares of
capital stock, consisting of 50,000,000 shares of common stock with
a par value of $0.0001
per share, and 10,000,000 shares
of preferred stock with a par value of $0.0001
per share.
On
December 8, 2014, the Company’s board of directors approved
the Second Amended and Restated 2013 Stock Incentive Plan, and the
Company reserved 1,318,182 shares of Common Stock
thereunder.
Effective January
22, 2015 ENDRA’s board of directors approved a 1 for 22
reverse stock split, which has been retroactively
stated in the accompanying financial statements As well the
board of directors authorized the elimination of the authorized but
unissued Series A Preferred Stock.
During
the year ended December 31, 2014, we issued 951,867 shares of
common stock, including 611,900 shares of common stock issued in
exchange for $1,751,015, 68,182 shares of common stock issued to
placement agent, and 271,785 shares issued for note conversions
valued at $777,264. There was $9,000 stock to be issued for
services during the year ended December 31, 2014.
During
the year ended December 31, 2015, we issued 525,975 shares of
common stock, including 87,415 shares of common stock issued in
exchange for $250,000, 26,515 shares of common stock issued for
accrued salaries of $63,768, and 412,045 shares issued for warrants
valued at $589,224. There was $114,565 stock to be issued during
the year ended December 31, 2014, including $36,000 for services
and $78,565 for accrued salaried to related parties.
As of
December 31, 2015 and 2014, there were 2,528,311 and 2,002,336
shares of Common Stock issued and outstanding, and no Preferred
Stock outstanding for either period.
Note
7 – Stock Options and Warrants
As of
December 31, 2015, the Company granted options to purchase 499,012
shares of common stock with exercise of $2.86 per share to
employees of the Company. The stock options vest between one and
three years. The fair value of these options was determined to be
$977,312 using the Black-Scholes-Merton option-pricing model based
on the following assumptions: (i) volatility rate of 90%, (ii)
discount rate of 0%, (iii) zero expected dividend yield, and (iv)
expected life of 5 years.
Stock-based
compensation expense related to vested options was $273,837 and
$250,493 during the years ended December 31, 2015 and 2014,
respectively. The Company determined the value of share-based
compensation using the Black-Scholes fair value option-pricing
model. A summary of option activity under the Company option plans
as of December 31, 2015, and changes during the period then ended
is presented below:
|
|
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contractual Term
|
|
Balance outstanding
at December 31, 2014
|
301,165
|
$
2.86
|
3.62
|
|
Granted
|
197,847
|
2.84
|
4.51
|
|
Exercised
|
-
|
-
|
-
|
|
Forfeited
|
-
|
-
|
-
|
|
Expired
|
-
|
-
|
-
|
|
Balance outstanding
at December 31, 2015
|
499,012
|
$
2.85
|
3.36
|
|
Exercisable at
December 31, 2015
|
413,907
|
$
2.85
|
3.13
|
As of
December 31, 2015, the Company granted warrants to purchase
2,307,155 shares of common stock with exercise prices ranging from
$1.43 to $6.60 per share to employees of the Company and
consultants. The warrants generally vest immediately. The fair
value of these warrants was determined to be $686,343 using the
Black-Scholes-Merton option-pricing model based on the following
assumptions: (i) volatility rate of 90%, (ii) discount rate of 0%,
(iii) zero expected dividend yield, and (iv) expected life of 5
years. 480,227 warrants valued at $686,343 were issued during
warrant exchange program for exercised warrants. The Company
incurred a loss on warrant exercise of $25,000 during the year
ended December 31, 2015.
The
following table summarizes all stock warrant activity for the year
ended December 31, 2015:
|
|
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contractual Term
|
|
Balance outstanding
at December 31, 2014
|
879,805
|
$
1.82
|
1.52
|
|
Granted
|
502,082
|
5.21
|
3.81
|
|
Exercised
|
(412,046
)
|
1.49
|
0.05
|
|
Forfeited
|
-
|
-
|
-
|
|
Expired
|
(135,932
)
|
1.43
|
-
|
|
Balance outstanding
at December 31, 2015
|
833,909
|
$
4.08
|
2.87
|
|
Exercisable at
December 31, 2015
|
599,527
|
$
4.08
|
2.87
|
Between
July 31, 2013 and April 11, 2014, the Company issued (i) warrants
with an exercise price of $1.43 covering a total of
764,877
(
adjusted for the
Company’s 2015 reverse stock split
) shares of common stock and (ii) warrants with an
exercise price of $5.72 covering a total of
87,421
(adjusted for the Company’s 2015 reverse
stock split) shares of common stock. In 2015 in order to bring in
funds for working capital purposes, the Company issued 412,045
warrants under an exchange program to holders who exercised their
warrants. The warrants issued under the exchange program have an
exercise price of $5.72 (subject to a onetime downward adjustment
with a floor of $2.86 in the event the Company consummates an
equity financing resulting in gross proceeds of at least $1 million
with a per share valuation below $5.72), a term of five years, and
allow for cashless exercise after the Company has completed an
initial public offering. Stock-based compensation expense related
to exchange warrants was $686,343 during the year ended December
31, 2015 for the new warrants issued under this exchange program.
The Company determined the value of share-based compensation using
the Black-Scholes fair value option-pricing
model.
Note
8 – Material Contracts
On
September 30, 2015 the Company received a fully executed Purchase
Order from the University of Illinois at Urbana-Champaign for the
purchase of a Nexus 128 CT Scanner. The purchase price was $275,000
and was delivered during 2015.
During
September 2015 the Company received a fully executed Purchase Order
from a non-US based distributor for the purchase of a Nexus 128 CT
Scanner. The purchase price is $255,000 and was delivered during
2015.
Note
9 - Income Taxes
Deferred income
taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets
as of December 31, 2015 and 2014 are summarized below.
|
|
|
|
|
Net operating loss
carryforward
|
$
(2,393,190
)
|
$
(2,601,744
)
|
|
Stock based
compensation
|
217,321
|
241,857
|
|
Fair value of
options
|
85,168
|
93,105
|
|
Total deferred tax
assets
|
(2,090,701
)
|
(2,266,782
)
|
|
Valuation
allowance
|
2,090,701
|
2,266,78
|
|
Net deferred tax
asset
|
-
|
-
|
In
assessing the potential realization of deferred tax assets,
management considers whether it is more likely than not that some
portion or all of the deferred tax assets will be realized. The
ultimate realization of deferred tax assets is dependent upon the
Company attaining future taxable income during the periods in which
those temporary differences become deductible. As of December 31,
2015 and 2014, management was unable to determine if it is more
likely than not that the Company’s deferred tax assets will
be realized, and has therefore recorded an appropriate valuation
allowance against deferred tax assets at such dates.
No
federal tax provision has been provided for the years ended
December 31, 2015 and 2014 due to the losses incurred during such
periods. Reconciled below is the difference between the income tax
rate computed by applying the U.S. federal statutory rate and the
effective tax rate for the years ended December 31, 2015 and
2014.
|
|
|
|
|
U.S federal
statutory income tax
|
-34.00
%
|
-34.00
%
|
|
State tax, net of
federal tax benefit
|
-5.80
%
|
-5.80
%
|
|
Stock based
compensation
|
0.00
%
|
0.00
%
|
|
Change in valuation
allowance
|
39.80
%
|
39.80
%
|
|
Effective tax
rate
|
0.00
%
|
0.00
%
|
At
December 31, 2015, the Company has available net operating loss
carryforwards for federal and state income tax purposes of
approximately $7.6 million and $6.4 million, respectively, which,
if not utilized earlier, expire through 2036.
Note
10 – Commitments & Contingencies
From
time to time the Company may become a party to litigation in the
normal course of business. Management believes that there are no
current legal matters that would have a material effect on the
Company’s financial position or results of
operations.
On
November 11, 2007, the Company entered into an at-will employment
agreement with its Chief Operating Officer. The employment
agreement requires annual base salary payments of $200,000 per
year, with a bonus potential of 20% of the then current base
salary. In addition, the executive has been granted an option to
purchase 103,000 shares of Company's common stock exercisable at
$2.86 per share, vesting in 3 equal annual installments on each
anniversary of its three year term. The agreement also provides for
severance compensation if terminated other than for cause (as
defined) of 6 months of the then applicable base salary if the CEO
has been employed at least 6 months, and compensation equal to 12
months of the then applicable base salary if employed over 12
months.
On
August 28, 2014, the Company entered into a services agreement with
StoryCorp Consulting dba Wells Compliance Group for financial
reporting and compliance services. David R. Wells is the owner of
this firm and is the Company’s Interim Chief Financial
Officer. The services agreement calls for payments of $5,000, and
accrues an additional $3,000 per month in fees to be paid by common
stock at the time of a public offering. The accrued balance due
under the cash portion as of December 31, 2015 and December 31,
2014 was $7,500 and $0, respectively, and the accrued balance due
under the stock portion was $45,000 and $9,000, respectively. The
Company can cancel the contract at any time without
notice.
Effective January
1, 2015, we entered into office lease agreement with Green Court,
LLC, a Michigan limited liability company, for approximately 3,657
rentable square feet of space, for the initial monthly rent of
$5,986, which commenced on January 1, 2015 for an initial term of
60 months. Under the terms of the lease the Company has an option
on the same space for an additional 60 month term. Future minimum
payments under this lease are as follows:
|
2016
|
$
73,476
|
|
2017
|
75,302
|
|
2018
|
77,190
|
|
2019
|
79,125
|
|
2020
|
81,460
|
|
Total
|
$
386,553
|
On
April 16, 2015, the Company entered into an at-will employment
agreement with its Chief Executive Officer. The employment
agreement requires annual base salary payments of $250,000 per year
with a bonus potential of 50% of the then current base salary. In
addition, the executive has been granted an option to purchase
124,248 shares of Company's common stock at exercisable at $2.86
per share, vesting in 3 equal annual installments on each
anniversary of its three year term. The agreement also provides for
severance compensation if terminated other than for cause (as
defined) of 6 months of the then applicable base salary if the CEO
has been employed at least 6 months, and compensation equal to 12
months of the then applicable base salary if employed over 12
months.
Note
11 – Subsequent Events
On
January 29, 2016 the Company received a fully executed Purchase
Order from United Well (ENDRA's Chinese Distributor) for the
purchase of two (2) Nexus 128 CT Scanners. The purchase price is
$500,000 and the systems are scheduled for delivery during the
second half of 2016. In accordance with the Company’s revenue
recognition policy, it has determined that persuasive evidence of
an arrangement exists, the price is fixed or determinable per the
customer’s contract and collectability is reasonably assured.
Accordingly, the Company expects to recognize the revenue from this
sale upon shipment of the completed units to its customer which is
when title to the unit passes.
Subsequent
to December 31, 2015, the Company issued 3,497 shares of common
stock for warrants valued at $5,000. The Company also agreed to
issue $69,910 shares of its common stock, including $9,000 for
services and $60,910 for accrued salaries to related
parties.
On
April 22, 2016 the Company entered into convertible promissory
notes with approximately 60 investors for a total amount of
$1,199,448 (“April 2016 Notes”). The April 2016
Notes mature one year from the issue date, accrue interest at the
rate of 8% per annum and are payable at maturity, are secured by
all assets of the Company, now owned or hereafter acquired, and
automatically convert into the same security issued by the Company,
on the same terms, including price, upon a qualified financing in
the amount of $3.0 million or more. Separately, upon any individual
noteholder’s election, such noteholder’s convertible
promissory note is convertible into shares of the Company’s
common stock, and upon the election of noteholders holding a
majority of the outstanding principal amount of the convertible
promissory notes, all outstanding April 2016 Notes are convertible
into shares of the Company’s common stock, in each case at a
conversion price of $0.40 per share, or 2,998,624 shares of the
Company’s common stock. While we believe this offering will
constitute a qualified financing as described above, because the
conversion price is significantly lower than the expected public
offering price of the common stock sold in this offering, we have
assumed that the noteholders will convert all of the outstanding
principal and accrued interest on the convertible promissory notes
into shares of common stock of the Company at the lower conversion
price immediately prior to the completion of the
offering.
ENDRA
LIFE
SCIENCES
INC.
FINANCIAL
STATEMENTS
Table
of Contents
Condensed Balance
Sheets
as of
September
30, 2016 and December 31, 2015
(unaudited)
|
F-2
|
|
Condensed
Statements of
Operations for the
Three and Nine Months Ended September
30, 2016
and 2015 (unaudited)
|
F-3
|
|
Condensed
Statements of
Cash Flows
for the Nine Months Ended September
30, 2016 and 2015
(unaudited)
|
F-4
|
|
Notes
to the unaudited condensed financial statements
|
F-5
|
ENDRA
LIFE
SCIENCES
INC.
CONDENSED
BALANCE SHEETS
|
|
|
|
|
Assets
|
|
|
|
Assets
|
|
|
|
Cash
|
$
75,543
|
$
19,128
|
|
Inventory
|
177,852
|
-
|
|
Other current
asset
|
9,797
|
8,486
|
|
Total Current
Assets
|
263,192
|
27,614
|
|
Other
Assets
|
|
|
|
Fixed assets,
net
|
236,384
|
274,826
|
|
Total
Assets
|
$
499,576
|
$
302,440
|
|
|
|
|
|
Liabilities
and Stockholders’ (Deficit) Equity
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts payable
and accrued liabilities
|
$
296,966
|
$
230,316
|
|
Notes
payable
|
50,000
|
-
|
|
Convertible notes
payable, net of discount
|
561,812
|
-
|
|
Total Current
Liabilities
|
908,778
|
230,316
|
|
Total
Liabilities
|
908,778
|
230,316
|
|
|
|
|
|
Stockholders’
(Deficit) Equity
|
|
|
|
Preferred stock,
$0.0001 par value; 10,000,000 shares authorized; no shares issued
or outstanding
|
-
|
-
|
|
Common stock,
$0.0001 par value; 50,000,000 shares authorized; 2,531,808 and
2,528,311 shares issued and outstanding
|
253
|
253
|
|
Stock
payable
|
72,000
|
45,000
|
|
Additional paid in
capital
|
11,518,145
|
9,948,151
|
|
Accumulated
deficit
|
(11,999,600
)
|
(9,921,281
)
|
|
Total
Stockholders’ (Deficit) Equity
|
(409,202
)
|
72,123
|
|
Total
Liabilities and Stockholders’ (Deficit)
Equity
|
$
499,576
|
$
302,440
|
The
accompanying notes are an integral part of these unaudited
condensed financial statements.
ENDRA
INC.
CONDENSED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
-
|
$
326,085
|
$
-
|
$
1,155,065
|
|
|
|
|
|
|
|
Cost of Goods
Sold
|
-
|
265,056
|
-
|
466,073
|
|
|
|
|
|
|
|
Gross
Profit
|
$
-
|
$
61,029
|
$
-
|
$
688,992
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
Research and
development
|
139,540
|
265,025
|
338,417
|
768,215
|
|
Sales and
marketing
|
16,040
|
20,743
|
26,197
|
41,422
|
|
General and
administrative
|
448,116
|
392,346
|
1,100,093
|
912,619
|
|
Total operating
expenses
|
603,696
|
678,113
|
1,464,707
|
1,722,256
|
|
|
|
|
|
|
|
Operating
loss
|
(603,696
)
|
(617,085
)
|
(1,464,707
)
|
(1,033,264
)
|
|
|
|
|
|
|
|
Other
Expenses
|
|
|
|
|
|
Loss on warrant
exercise
|
-
|
-
|
(5,823
)
|
-
|
|
Other income
(expense)
|
(372,789
)
|
3,991
|
(607,789
)
|
(707,316
)
|
|
Total other
expenses
|
(372,789
)
|
3,991
|
(613,612
)
|
(707,316
)
|
|
|
|
|
|
|
|
Loss from
operations before taxes
|
(976,484
)
|
(613,093
)
|
(2,078,320
)
|
(1,740,580
)
|
|
|
|
|
|
|
|
Provision for
income taxes
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Net
Loss
|
$
(976,484
)
|
$
(613,093
)
|
$
(2,078,320
)
|
$
(1,740,580
)
|
|
|
|
|
|
|
|
Net
loss per share – basic and diluted
|
$
(0.39
)
|
$
(0.25
)
|
$
(0.82
)
|
$
(0.77
)
|
|
|
|
|
|
|
Weighted
average common shares – basic and
diluted
|
2,531,808
|
2,458,090
|
2,531,566
|
2,250,011
|
The
accompanying notes are an integral part of these unaudited
condensed financial statements.
ENDRA
INC.
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities
|
|
|
|
Net
loss
|
$
(2,078,320
)
|
$
(1,740,580
)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
Depreciation and
amortization
|
38,442
|
49,686
|
|
Common stock and
options issued for services
|
199,723
|
25,444
|
|
Additional warrants
issued during exchange
|
5,823
|
686,343
|
|
Interest on
discount of convertible debt
|
561,812
|
-
|
|
Loss on warrant
exercise
|
-
|
25,000
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Increase in
accounts receivable
|
-
|
(125,000
)
|
|
Increase in
inventory
|
(177,852
)
|
-
|
|
Increase in other
asset
|
(1,311
)
|
500
|
|
Increase in
accounts payable and accrued liabilities
|
66,650
|
99,396
|
|
Net cash used in
operating activities
|
(1,385,033
)
|
(979,211
)
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
Purchases of fixed
assets
|
-
|
(29,963
)
|
|
Net cash used in
investing activities
|
-
|
(29,963
)
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
Proceeds from
issuance of common stock
|
5,000
|
955,617
|
|
Proceeds from notes
payable
|
50,000
|
-
|
|
Proceeds from
convertible notes
|
1,386,448
|
-
|
|
Net cash provided
by financing activities
|
1,441,448
|
955,617
|
|
|
|
|
|
Net
Increase/(Decrease) in cash
|
56,415
|
(53,557
)
|
|
|
|
|
|
Cash, beginning of
period
|
19,128
|
156,442
|
|
|
|
|
|
Cash,
end of period
|
$
75,543
|
$
102,885
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
Interest
paid
|
$
-
|
$
-
|
|
Income
tax paid
|
$
-
|
$
-
|
|
Discount
on convertible notes
|
$
1,386,448
|
$
-
|
The
accompanying notes are an integral part of these unaudited
condensed financial statements.
ENDRA
LIFE
SCIENCES
INC.
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
For
the
nine
months ended
September 30, 2016 and 2015
Note
1 – Nature of the Business
ENDRA
Life
Sciences
Inc. (“ENDRA”
or the “Company”) was incorporated on July 18, 2007 as
a Delaware corporation.
ENDRA
has developed a medical imaging technology based on the
thermoacoustic effect that significantly improves the sensitivity
and specificity of clinical ultrasound.
.
Note
2 – Summary of Significant Accounting Policies
The
significant accounting policies applied in the annual financial
statements of the Company as of December 31, 2015 are applied
consistently in these financial statements.
Basis of Presentation
The
accompanying condensed financial statements are unaudited. The
unaudited interim financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States ("GAAP") and pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Certain
information and note disclosures normally included in annual
financial statements prepared in accordance with GAAP have been
condensed or omitted pursuant to those rules and regulations,
although the Company believes that the disclosures made are
adequate to make the information not misleading
In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine
month period ended
September
30, 2016 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2016.
The
condensed balance sheet as of December 31, 2015 has been derived
from the audited financial statements at that date but do not
include all disclosures required by the accounting principles
generally accepted in the United States of America.
Use of Estimates
The
preparation of the financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, and disclosure of
contingent liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
Management makes
estimates that affect certain accounts including deferred income
tax assets, accrued expenses, fair value of equity instruments and
reserves for any other commitments or contingencies. Any
adjustments applied to estimates are recognized in the period in
which such adjustments are determined.
Cash and Cash Equivalents
The Company considers all
cash on hand and in banks, including accounts in book overdraft
positions, certificates of deposit and other highly-liquid
investments with maturities of
three
months or less, when
purchased, to be cash and cash equivalents. As of
September
30, 2016 and December 31,
2015 the Company had no cash equivalents.
Capitalization of Fixed Assets
The
Company capitalizes expenditures related to property and equipment,
subject to a minimum rule, that have a useful life greater than one
year for: (1) assets purchased; (2) existing assets that are
replaced, improved or the useful lives have been extended; or (3)
all land, regardless of cost. Acquisitions of new assets,
additions, replacements and improvements (other than land) costing
less than the minimum rule in addition to maintenance and repair
costs, including any planned major maintenance activities, are
expensed as incurred.
Capitalization of Intangible Assets
The
Company records the purchase of intangible assets not purchased in
a business combination in accordance with the ASC Topic
350.
Inventory
The
Company’s inventory is stated at the lower of cost or
estimated realizable value, with cost primarily determined on a
weighted-average cost basis on the first-in, first-out
(“FIFO”) method.
Revenue Recognition
The
Company
recognizes revenue in accordance with the requirements of ASC
605-10-599, which directs that it should recognize revenue when (1)
persuasive evidence of an arrangement exists (contracts); (2)
delivery has occurred; (3) the seller’s price is fixed or
determinable (per the customer’s contract); and (4)
collectability is reasonably assured (based upon our credit
policy). For products sold to end users revenue is recognized when
title has passed to the customer and collectability is reasonably
assured; and no further efforts are required. Future revenue from
anticipated new products will follow this same policy.
Advertising Expense
The cost
of advertising is expensed as
incurred. Advertising expense for the nine
months ended
September
30, 2016 were
approximately $3,641. Advertising expense for the
three and nine months ended September 30,
2015 were approximately $690 and $3,641,
respectively.
I
ncome Taxes
The
Company utilizes ASC 740, “Income Taxes,” which
requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on
the difference between the tax basis of assets and liabilities and
their financial reporting amounts based on enacted tax laws and
statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. A valuation
allowance is recorded when it is “more likely-than-not”
that a deferred tax asset will not be realized.
The
Company generated a deferred tax asset through net operating loss
carry-forwards. However, a valuation allowance of 100% has been
established due to the uncertainty of the Company’s
realization of the net operating loss carry forward prior to its
expiration.
Research and Development Costs
The
Company follows ASC 730-10, “Research and Development”.
Research and development costs are charged to the statement of
operations as incurred. During the
nine months ended
September 30, 2016 and 2015 the Company incurred
$338,417 and $768,215 of expenses related
to research and development costs, respectively. During the three
months ended September 30, 2016 and 2015 the Company
incurred $139,540 and $265,025 of
expenses related to research and development costs,
respectively.
Net Earnings (Loss) Per Common Share
The
Company computes earnings per share under ASC Subtopic 260-10,
Earnings Per Share (“ASC 260-10”). Basic earnings
(loss) per share is computed by dividing the net income (loss)
attributable to the common stockholders (the numerator) by the
weighted average number of shares of common stock outstanding (the
denominator) during the reporting periods. Diluted loss per
share is computed by increasing the denominator by the weighted
average number of additional shares that could have been
outstanding from securities convertible into common stock (using
the “treasury stock” method), unless their effect on
net loss per share is anti-dilutive. There were
4,642,651
and 1,332,921
potentially dilutive shares, which include outstanding common stock
options, warrants, and convertible notes, as of
September
30, 2016 and
December 31, 2015.
The
potential shares, which are excluded from the determination of
basic and diluted net loss per share as their effect is
anti-dilutive, are as follows:
|
|
|
|
|
Options to
purchase common stock
|
531,584
|
499,012
|
|
Warrants to
purchase common stock
|
534,842
|
833,909
|
|
|
3,576,225
|
-
|
Potential equivalent shares excluded
|
4,642,651
|
1,332,921
|
Fair Value Measurements
Disclosures about fair value of financial instruments require
disclosure of the fair value information, whether or not recognized
in our balance sheet, where it is practicable to estimate that
value. As of
September
30, 2016 and December 31,
2015, the amounts reported for cash, accrued liabilities and
accrued interest approximated fair value because of their short
maturities.
In
accordance with ASC Topic 820, “Fair Value Measurements and
Disclosures,” we measure certain financial instruments at
fair value on a recurring basis. ASC Topic 820 defines fair value,
established a framework for measuring fair value in accordance with
accounting principles generally accepted in the United States, and
expands disclosures about fair value measurements.
Fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. ASC Topic 820
established a three-tier fair value hierarchy, which prioritizes
the inputs used in measuring fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (level 1 measurements) and the
lowest priority to unobservable inputs (level 3 measurements).
These tiers include:
|
|
●
|
Level
1, defined as observable inputs such as quoted prices for identical
instruments in active markets;
|
|
|
|
|
|
|
●
|
Level
2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable such as quoted
prices for similar instruments in active markets or quoted prices
for identical or similar instruments in markets that are not
active; and
|
|
|
|
|
|
|
●
|
Level
3, defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own
assumptions, such as valuations derived from valuation techniques
in which one or more significant inputs or significant value
drivers are unobservable.
|
Share-based Compensation
The
Company’s Second Amended and Restated 2013 Stock Incentive
Plan (the “Plan”), which is approved by its board of
directors, permits the grant of share options and shares to its
employees and consultants for up to 1,318,182 shares of common
stock. The Company records share-based compensation in accordance
with the provisions of the Share-based Compensation Topic of the
FASB Codification. The guidance requires the use of option-pricing
models that require the input of highly subjective assumptions,
including the option’s expected life and the price volatility
of the underlying stock. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option
valuation model, and the resulting charge is expensed using the
straight-line attribution method over the vesting period. The
Company has elected to use the calculated value method to account
for the options it issued in 2016 and 2015. A nonpublic entity that
is unable to estimate the expected volatility of the price of its
underlying share may measure awards based on a “calculated
value,” which substitutes the volatility of appropriate
public companies (representative of the company’s size and
industry) as a bench mark for the volatility of the entity’s
own share price. Currently, there is no active market for the
company’s common shares. The Company has used the historical
closing values of these companies to estimate volatility, which was
calculated to be 90%.
Stock
compensation expense recognized during the period is based on the
value of share-based awards that were expected to vest during the
period adjusted for estimated forfeitures. The estimated fair value
of grants of stock options and warrants to non-employees of the
Company is charged to expense, if applicable, in the financial
statements. These options vest in the same manner as the employee
options granted under each of the option plans as described
above.
Going Concern
The
Company’s financial statements are prepared using U.S. GAAP
applicable to a going concern, which contemplates the realization
of assets and liquidation of liabilities in the normal course of
business. The Company has limited operating history and had a
cumulative net loss from inception to
September
30, 2016 of
$
11,999,600
.
The Company has a working capital
deficit
of
$
645,586
as of
September 30, 2016. The Company
has not yet established an ongoing source of revenue sufficient to
cover its operating costs and to allow it to continue as a going
concern. The accompanying condensed financial statements for the
period ended September
30, 2016, have been prepared assuming the Company will continue as
a going concern. The Company believes its cash resources are
insufficient to meet its anticipated needs during the next twelve
months. The Company will require additional financing to fund its
future planned operations, including research and development and
commercialization of its products.
The
ability of the Company to continue as a going concern is dependent
on the Company obtaining adequate capital to fund operating losses
until it establishes a revenue stream and becomes profitable.
Management’s plans to continue as a going concern include
raising additional capital through borrowing and sales of common
stock. However, management cannot provide any assurances that the
Company will be successful in accomplishing any of its plans. If
the Company is not able to obtain the necessary additional
financing on a timely basis, the Company will be forced to delay or
scale down some or all of its development activities or perhaps
even cease the operation of its business. The ability of the
Company to continue as a going concern is dependent upon its
ability to successfully secure other sources of financing and
attain profitable operations. The accompanying financial statements
do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
Note
3 – Fixed Assets
As of
September
30, 2016 and December 31, 2015, fixed assets consisted of the
following:
|
|
|
|
|
Computer equipment
and fixtures
|
$
476,470
|
$
476,470
|
|
Accumulated
depreciation
|
(240,086
)
|
(201,644
)
|
|
Fixed
assets, net
|
$
236,384
|
$
274,826
|
Depreciation
expense for the
nine
months ended
September
30, 2016
and
September
30, 2015 was
$38,442
and
$49,686
,
respectively. Depreciation expense for the three months ended
September
30, 2016 and
September
30, 2015 was $
12,926
and $
15,328
,
respectively.
Note
3 – Current Liabilities
As of
September
30, 2016 and
December 31, 2015, current liabilities consisted of the
following:
|
|
|
|
|
Accounts
payable
|
$
127,306
|
$
74,840
|
|
Accrued
payroll
|
105,258
|
144,629
|
|
Accrued employee
benefits
|
20,361
|
10,847
|
|
Accrued
interest
|
44,041
|
-
|
|
Note
payable
|
50,000
|
-
|
|
Convertible notes,
net of discount
|
561,812
|
-
|
|
Total
|
$
908,778
|
$
230,316
|
On January 28, 2016 the
Company entered into promissory notes with three investors for a
total amount of $50,000. The notes mature one year from the
issue date, accrue no interest and are payable at
maturity,
On April 22, 2016 the Company entered
into convertible promissory notes with approximately 60 investors
for a total amount of
$1,386,448
(“April 2016 Notes”). The April 2016 Notes mature
one year from the issue date, accrue interest at the rate of 8% per
annum and are payable at maturity, are secured by all assets of the
Company, now owned or hereafter acquired, and automatically convert
into the same security issued by the Company, on the same terms,
including price, upon a qualified financing in the amount of $3.0
million or more. Separately, upon any individual noteholder’s
election, such noteholder’s convertible promissory note is
convertible into shares of the Company’s common stock, and
upon the election of noteholders holding a majority of the
outstanding principal amount of the convertible promissory notes,
all outstanding April 2016 Notes are convertible into shares of the
Company’s common stock, in each case at a conversion price of
$0.40 per share, or 3,576,225 shares of
the Company’s common stock. In connection with the issuance
of these notes, the Company recorded a debt discount at an initial
aggregate value of $
1,386,448
.
$
561,812
was amortized during the
nine
months ended
September
30, 2016, resulting in a debt discount balance of
$824,637
as of
September
30, 2016
.
Note
4 – Capital Stock
At
September 30, 2016, the authorized capital of the
Company consists of 60,000,000
shares of capital stock,
consisting of 50,000,000 shares of common stock with a par value of
$0.0001
per share, and
10,000,000 shares of preferred stock with a par value of
$0.0001
per
share.
During
the nine months ended September 30, 2016,
we issued 3,497 shares of common stock for warrants exercised for
$5,000. There was $27,000 stock to be issued during
the nine months ended September 30, 2016
for services. There were $72,000 stock payable as of
September 30, 2016.
As of
September 30, 2016, there were 2,531,808 shares of
Common Stock issued and outstanding, and no Preferred Stock
outstanding for either period.
Note
5 – Stock Options and Warrants
During
the nine months ended September 30, 2016,
the Company granted options to purchase 34,617 shares of common
stock with an exercise price of $2.86 per share to employees of the
Company. The stock options vest immediately. The fair value of
these options was determined to be $172,273 using the
Black-Scholes-Merton option-pricing model based on the following
assumptions: (i) volatility rate of 90%, (ii) discount rate of 0%,
(iii) zero expected dividend yield, and (iv) expected life of 5
years. A summary of option activity under the Company option plans
as of September 30, 2016, and changes during the
period then ended is presented below:
|
|
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contractual Term
|
|
Balance outstanding
at December 31, 2015
|
499,012
|
$
2.86
|
3.62
|
|
Granted
|
34,617
|
2.86
|
4.26
|
|
Exercised
|
-
|
-
|
-
|
|
Forfeited
|
-
|
-
|
-
|
|
Cancelled or
expired
|
(2,045
)
|
2.86
|
-
|
|
Balance outstanding
at September 30, 2016
|
531,584
|
$
2.86
|
2.72
|
|
Exercisable at
September 30, 2016
|
557,843
|
$
2.86
|
2.52
|
During
the nine months ended September 30, 2016,
the Company granted warrants to purchase 3,497 shares of common
stock with an exercise price of $5.72 per share during the warrant
exchange program for exercised warrants. The warrants vest
immediately. The fair value of these warrants was determined to be
$5,823 using the Black-Scholes-Merton option-pricing model based on
the following assumptions: (i) volatility rate of 90%, (ii)
discount rate of 0%, (iii) zero expected dividend yield, and (iv)
expected life of 5 years.
The
following table summarizes all stock warrant activity for the
nine months ended September 30,
2016:
|
|
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
|
|
Balance outstanding
at December 31, 2015
|
837,406
|
$
4.08
|
2.87
|
|
Granted
|
3,497
|
5.72
|
4.31
|
|
Exercised
|
(3,497
)
|
1.43
|
-
|
|
Forfeited
|
-
|
-
|
-
|
|
Expired
|
(302,564
)
|
1.75
|
-
|
|
Balance outstanding
at September 30, 2016
|
534,842
|
$
5.41
|
3.56
|
|
Exercisable at
September 30, 2016
|
543,842
|
$
5.41
|
3.56
|
Note
7 – Commitments & Contingencies
From
time to time the Company may become a party to litigation in the
normal course of business. Management believes that there are no
current legal matters that would have a material effect on the
Company’s financial position or results of
operations.
On
November 11, 2007, the Company entered into an at-will employment
agreement with its Chief Operating Officer. The employment
agreement requires annual base salary payments of $200,000 per
year, with a bonus potential of 20% of the then current base
salary. In addition,
the executive has
been granted an option to purchase 103,000 shares of Company's
common stock exercisable at $2.86 per share, vesting in 3 equal
annual installments on each anniversary of its three year term. The
agreement also provides for severance compensation if terminated
other than for cause (as defined) of 6 months of the then
applicable base salary if the CEO has been employed at least 6
months, and compensation equal to 12 months of the then applicable
base salary if employed over 12 months.
On
August 28, 2014, the Company entered into a services agreement with
StoryCorp Consulting dba Wells Compliance Group for financial
reporting and compliance services. David R. Wells is the owner of
this firm and is the Company’s Interim Chief Financial
Officer. The services agreement calls for payments of $5,000, and
accrues an additional $3,000 per month in fees to be paid by common
stock at the time of a public offering. The accrued balance due
under the cash portion as of September 30, 2016 and
December 31, 2015 was $25,000 and $10,000 respectively, and the
accrued balance due under the stock portion was
$72,000 and $45,000, respectively. The Company can
cancel the contract at any time without notice.
Effective
January 1, 2015, we entered into an office lease
agreement with Green Court, LLC, a Michigan limited liability
company, for approximately 3,657 rentable square feet of space, for
the initial monthly rent of $5,986, which commenced on January 1,
2015 for an initial term of 60 months. Under the terms of the lease
the Company has an option on the same space for an additional 60
month term. Future minimum payments under this lease are as
follows:
2016
$17,958
2017
75,302
2018
77,190
2019
79,125
2020
81,460
Total
$331,035
On
April 16, 2015, the Company entered into an at-will employment
agreement with its Chief Executive Officer. The employment
agreement requires annual base salary payments of $250,000 per year
with a bonus potential of 50% of the then current base salary. In
addition, the executive has been granted an option to purchase
124,248 shares of Company's common stock exercisable at $2.86 per
share, vesting in 3 equal annual installments on each anniversary
of its three year term. The agreement also provides for severance
compensation if terminated other than for cause (as defined) of 6
months of the then applicable base salary if the CEO has been
employed at least 6 months, and compensation equal to 12 months of
the then applicable base salary if employed over 12
months.
Note
8 – Subsequent Events
None.
Shares of Common Stock
Warrants to Purchase up to Shares of Common
Stock
PROSPECTUS
Dougherty
& Company
Until
, 2016, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the
dealers’ obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table sets forth the costs and expenses, other than the
underwriting discount, payable by us in connection with the sale
and distribution of the securities being registered. All amounts
are estimated except the SEC registration fee, the FINRA filing fee
and the initial listing fee for The Nasdaq Capital
Market.
|
SEC
Filing Fee
|
$
1,159
|
|
FINRA
Fee
|
$
1,990
|
|
Underwriter’s
Legal Fees and Expenses
|
$
100,000
|
|
Nasdaq
Fee
|
$
50,000
|
|
Printing
Expenses
|
$
35,000
|
|
Accounting
Fees and Expenses
|
$
50,000
|
|
Legal
Fees and Expenses
|
$
250,000
|
|
Transfer
Agent and Registrar Expenses
|
$
10,000
|
|
Miscellaneous
|
$
101,851
|
|
|
|
|
Total
|
$
600,000
|
ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The
following summary is qualified in its entirety by reference to the
complete text of any statutes referred to below and the Fourth
Amended and Restated Certificate of Incorporation of
ENDRA Life Sciences Inc.
, a
Delaware corporation.
Section
145 of the General Corporation Law of the State of Delaware (the
“DGCL”) permits a Delaware corporation to indemnify any
person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of
the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys’ fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with such action,
suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe
the person’s conduct was unlawful.
In the
case of an action by or in the right of the corporation, Section
145 of the DGCL permits a Delaware corporation to indemnify any
person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by reason of
the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys’ fees)
actually and reasonably incurred by the person in connection with
such action, suit or proceeding if the person acted in good faith
and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation and 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 that the Court of Chancery or such
other court shall deem proper.
Section
145 of the DGCL also permits a Delaware corporation to 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 Section 145 of
the DGCL.
Article
NINTH of our Fourth Amended and Restated Certificate of
Incorporation states that our directors shall not be personally
liable to us or to our stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any
provision of law imposing such liability. Under Section 102(b)(7)
of the DGCL, the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of
fiduciary duty can be limited or eliminated except (i) for any
breach of the director’s duty of loyalty to the corporation
or its stockholders; (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the DGCL (relating to unlawful
payment of dividend or unlawful stock purchase or redemption); or
(iv) for any transaction from which the director derived an
improper personal benefit.
Article
EIGHTH of our Fourth Amended and Restated Certificate of
Incorporation provides that we shall indemnify (and advance
expenses to) our officers and directors to the full extent
permitted by the DGCL.
Effective upon the
closing of this offering, we will have directors’ and
officers’ liability insurance insuring our directors and
officers against liability for acts or omissions in their
capacities as directors or officers, subject to certain exclusions.
Such insurance also insures us against losses which we may incur in
indemnifying our officers and directors.
As
permitted by the DGCL, prior to the closing of the offering we plan
to enter into indemnification agreements with each of our directors
and executive officers that require us to indemnify such persons
against various actions including, but not limited to, third-party
actions where such director or executive officer, by reason of his
or her corporate status, is a party or is threatened to be made a
party to an action, or by reason of anything done or not done by
such director in any such capacity. We intend to indemnify
directors and executive officers against all costs, judgments,
penalties, fines, liabilities, amounts paid in settlement by or on
behalf of such directors or executive officers and for any expenses
actually and reasonably incurred by such directors or executive
officers in connection with such action, if such directors or
executive officers acted in good faith and in a manner they
reasonably believed to be in or not opposed to our best interests,
and with respect to any criminal proceeding, had no reasonable
cause to believe their conduct was unlawful. We also intend to
advance to our directors and executive officers expenses (including
attorney’s fees) incurred by or on behalf of such directors
and executive officers in advance of the final disposition of any
action after our receipt of a statement or statements from
directors or executive officers requesting such payment or payments
from time to time, provided that such statement or statements are
preceded or accompanied by a written undertaking, by or on behalf
of such directors or executive officers, to repay such amount if it
shall ultimately be determined that they are not entitled to be
indemnified against such expenses by us.
The
indemnification agreements will also set forth certain procedures
that will apply in the event of a claim for indemnification or
advancement of expenses, including, among others, provisions about
submitting a written request to us that includes such documentation
and information as is reasonably available to the director or
executive officer and is reasonably necessary to determine
entitlement to indemnification and provisions. Prior to the closing of this offering we
plan to enter into an underwriting agreement, which will provide
that the underwriters are obligated, under some circumstances, to
indemnify our directors, officers and controlling persons against
specified liabilities.
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES
During
the past three years, we issued the following securities without
registration under the Securities Act of 1933, as amended (the
“Securities Act”).
Stock, Warrants and Convertible Notes
From
July 2013 through April 2014, we issued 961,563 shares of our
common stock at a price of $2.86 per share, for gross proceeds of
$2,750,015. The shares were sold to 64 investors.
From
July 2013 through April 2014, we issued warrants to purchase 87,421
shares of common stock at an exercise price of $5.72 and warrants
to purchase 764,877 shares of common stock at an exercise price of
$1.43 per share.
In
September 2014, we issued to certain accredited investors an
aggregate of 271,785 shares of our common stock at a price of $2.86
per share in exchange for the cancellation of outstanding principal
and accrued interest on senior promissory notes issued in July 2013
and for the cancellation of certain ten-year warrants issued to
these same investors. In addition, as consideration for its
consulting services, we issued to Dala, LLC (i) 68,182 shares of
our common stock and (ii) a warrant to purchase 68,182 shares of
common stock at an exercise price of $2.86 per share, exercisable
upon consummation of a change-in-control transaction or an initial
public offering of our common stock.
In
January 2015, we issued 87,415 shares of our common stock at a
price of $2.86 per share, for gross proceeds of $250,000, to 3
accredited investors. Additionally, we issued warrants to purchase
21,855 shares of common stock at an exercise price of $2.86 per
share.
From
May 2015 through January 2016, pursuant to a warrant exercise
program, we issued 415,542 shares of our common stock at a price of
$1.43 per share, for aggregate gross proceeds of $594,224 in
connection with the exercise of outstanding warrants held by 41
accredited investors. As an inducement to exercise their warrants,
we issued to the investors exercising their warrants new warrants
to purchase 415,542 shares of common stock at an exercise price of
$5.72 per share in connection with a warrant exercise
program.
On June
23, 2015, we issued an aggregate of 26,515 shares of common stock
to two Company employees to satisfy accrued, but unpaid salary
obligations to the two employees.
In
January 2016, we issued promissory notes in the aggregate principal
amount of $50,000 to three accredited investors.
In
April and May 2016, we issued convertible promissory notes in the
aggregate principal amount of $1,199,448 to 62 accredited
investors.
In July
2016 we issued convertible promissory notes in the aggregate
principal amount of $186,389 to three accredited
investors.
The
offers, sales and issuances of the securities described above were
deemed to be exempt from registration under the Securities Act of
1933 in reliance on the exemption provided by Section 4(a)(2) of
the Securities Act. Each of the recipients of securities in these
transactions was an accredited investor and there was no form of
general solicitation or general advertising relating to the
offer.
Stock Options
In
November 2013, we granted options to purchase an aggregate of
232,019 shares of our common stock under our Amended and Restated
2013 Stock Incentive Plan at an exercise price of $2.86 per share,
to our executive officers, employees, certain advisors and members
of our Board of Directors. 197,329 options have a term of five
years and vests immediately or over 3 years in 3 equal
installments, remaining options were fully vested on the date of
issuance.
In May
2014, we granted to each member of our Board of Directors, as
consideration for their agreement to serve on the Board of
Directors, stock options to purchase an aggregate of 69,146 shares
of our common stock at an exercise price of $2.86 per share. The
options have a term of five years and were fully vested on the date
of issuance.
In May
2015, we granted stock options to purchase an aggregate of 3,409
shares of our common stock under our Second Amended and Restated
2013 Stock Incentive Plan at an exercise price of $2.86 per share,
to two employees. Each option has a term of five years and vests
over three years in three equal installments.
In July
2015, we granted stock options to purchase 124,248 shares of our
common stock under our Second Amended and Restated 2013 Stock
Incentive Plan at an exercise price of $2.86 per share, to a
Company employee. The options have a term of five years and vest
over three years in three equal installments. We also granted stock
options to purchase 12,500shares of our common stock under our
Second Amended and Restated 2013 Stock Incentive Plan, which
options have an exercise price of $2.86 per share to a new member
of our Board of Directors.
In July
2015, we granted stock options to purchase 57,690 shares of common
stock under our Second Amended and Restated 2013 Stock Incentive
Plan at an exercise price of $2.86 per share, to each existing
independent member of our Board of Directors. Each option has a
term of five years and was fully vested on the date of
issuance.
In
January 2016, we granted stock options to purchase 34,617 shares of
common stock under our Second Amended and Restated 2013 Stock
Incentive Plan at an exercise price of $2.86 per share, to each
existing independent member of our Board of Directors and to each
member of our Scientific Advisory Board. Each option has a term of
five years and was fully vested on the date of
issuance.
All of
the stock options described above were granted in reliance upon an
available exemption from the registration requirements of the
Securities Act, including those contained in Rule 701 promulgated
under Section 3(b) of the Securities Act. Among other things, we
relied on the fact that, under Rule 701, companies that are not
subject to the reporting requirements of Section 13 or Section
15(d) of the Exchange Act are exempt from registration under the
Securities Act with respect to certain offers and sales of
securities pursuant to “compensatory benefit plans” as
defined under that rule. We believe that all of the options
described above were issued pursuant qualifying “compensatory
benefit plans”.
ITEM
16. EXHIBITS
|
Exhibit No.
|
|
Description of Document
|
|
1.1
|
|
Form
of Underwriting Agreement*
|
|
3.1
|
|
Third
Amended and Restated Certificate of Incorporation of the
Registrant, as currently in effect
|
|
3.2
|
|
Bylaws
of the Registrant, as currently in effect
|
|
3.3
|
|
Fourth
Amended and Restated Certificate of Incorporation of the
Registrant, to be in effect upon completion of this
offering*
|
|
3.4
|
|
Amended
and Restated Bylaws of the Registrant, to be in effect upon
completion of this offering*
|
|
3.5
|
|
Certificate of
Amendment to Certificate of Incorporation of the Registrant, as
currently in effect
|
|
4.1
|
|
Specimen
Certificate representing shares of common stock of the
Registrant
|
|
4.2
|
|
Form
of Warrant*
|
|
4.3
|
|
Form of
Underwriter's Warrant*
|
|
4.4
|
|
Form
of Warrant to Purchase Common Stock issued to the placement agent
in the Registrant’s 2014 private placement
offering
|
|
4.5
|
|
Form
of Warrant to Purchase Common Stock issued pursuant to 2013-2014
Bridge Financing
|
|
4.6
|
|
Form
of Warrant to Purchase Common Stock issued pursuant to 2015 Warrant
Exercise Program
|
|
4.7
|
|
Form
of Senior Promissory Note issued pursuant to Securities Purchase
Agreement dated July 10, 2013
|
|
4.8
|
|
Form
of Convertible Promissory Note
|
|
4.9
|
|
Form
of Promissory Note issued by the Registrant to certain members of
the Board of Directors
|
|
5.1
|
|
Opinion
of K&L Gates LLP*
|
|
10.1
|
|
ENDRA
Life Sciences Inc. Second Amended and Restated 2013 Stock Incentive
Plan†
|
|
|
|
Form
of Non-Qualified Stock Option Award under Second Amended and
Restated 2013 Stock Incentive Plan†
|
|
10.3
|
|
Form
of Incentive Stock Option Agreement under Second Amended and
Restated 2013 Stock Incentive Plan†
|
|
10.4
|
|
ENDRA Life Sciences Inc. 2016 Omnibus
Incentive Plan, to be in effect upon completion of this
offering *†
|
|
10.5
|
|
Form
of Stock Option Award under 2016 Omnibus Incentive
Plan*†
|
|
10.6
|
|
Form
of Restricted Stock Unit Award under 2016 Omnibus Incentive
Plan*†
|
|
10.7
|
|
Non-Employee
Director Compensation Policy, to be in effect upon completion of
this offering†
|
|
10.8
|
|
Form
of Indemnification Agreement by and between the Registrant and each
of its directors and executive officers
|
|
10.9
|
|
Form
of Amended and Restated Employment Agreement, by and between the
Registrant and Francois Michelon, to be in effect upon completion
of this offering†
|
|
10.10
|
|
Form
of Amended and Restated Employment Agreement, by and between the
Registrant and Michael Thornton, to be in effect upon completion of
this offering†
|
|
10.11
|
|
Consulting
Agreement, dated July 23, 2014, by and between the Registrant and
StoryCorp Consulting
†
|
|
10.12
|
|
Form of Securities Purchase Agreement, dated July 10, 2013,
by and between the Registrant and the purchasers named
therein
|
|
10.13
|
|
Form of Securities Purchase Agreement, dated July 10, 2013,
by and between the Registrant and the purchasers named
therein
|
|
10.14
|
|
Form
of Exchange Agreement, dated September 26, 2014, between the
Registrant and certain security holders
|
|
10.15
|
|
Form
of Subscription Agreement between the Registrant and investors in
the Registrant’s 2013 private placement offering
|
|
10.16
|
|
Form
of Subscription Agreement between the Registrant and investors in
the Registrant’s 2014 private placement offering
|
|
10.17
|
|
Collaboration
Research Agreement, dated April 22, 2016, by and between the
Registrant and General Electric Company
|
|
10.18
|
|
Gross
Lease, dated January 1, 2015, between the Registrant and Green
Court LLC
|
|
10.19
|
|
Sublicense
Agreement, dated August 2, 2007, by and between the Registrant and
Optosonics, Inc.
|
|
10.20
|
|
Amendment
to Sublicense Agreement, dated January 18, 2011, by and between the
Registrant and Optosonics, Inc.
|
|
23.1
|
|
Consent
of RBSM LLP, Independent Registered Public Accounting
Firm
|
|
23.2
|
|
Consent
of K&L Gates LLP (included in Exhibit 5.1)*
|
|
24.1
|
|
Power
of Attorney (included on the signature page of this Registration
Statement)
|
|
|
|
*To
be filed by amendment.
†Indicates
management compensatory plan, contract or arrangement.
|
ITEM
17. UNDERTAKINGS
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
(i) To
include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To
reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the “Calculation of Registration Fee” table in the
effective registration statement;
(iii) To
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That,
for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To
remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the
termination of the offering.
(4) That,
for the purpose of determining liability of the registrant under
the Securities Act to any purchaser in the initial distribution of
the securities: The undersigned registrant undertakes that in a
primary offering of securities of the undersigned registrant
pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser,
if the securities are offered or sold to such purchaser by means of
any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer
or sell such securities to such purchaser: (i) any preliminary
prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424; (ii) any
free writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the
undersigned registrant; (iii) the portion of any other free writing
prospectus relating to the offering containing material information
about the undersigned registrant or its securities provided by or
on behalf of the undersigned registrant; and (iv) any other
communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
(5) To
provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and
registered in such names as required by the underwriters to permit
prompt delivery to each purchaser.
(6) For
purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus as filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(7) For
the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(8) Insofar
as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
Pursuant to the
requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Ann
Arbor, State of Michigan, on this 18th day of
November, 2016.
|
|
ENDRA
Life Sciences Inc.
/s/
Francois
Michelon
Francois
Michelon
Chief
Executive Officer and Director
(Principal
Executive Officer)
|
POWER
OF ATTORNEY
Each
person whose signature appears below constitutes and appoints
Francois Michelon
and Michael
Thornton and each of them, his true and lawful attorney-in-fact and
agent, each with full power of substitution and resubstitution,
severally, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, any
subsequent registration statements pursuant to Rule 462 of the
Securities Act of 1933, as amended, and to file the same, with all
exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, or any of them or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
This power of attorney may be executed in
counterparts.
Pursuant to the
requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the
capacities and on the dates indicated.
|
Dated:
November 18, 2016
|
/s/
Francois
Michelon
Francois
Michelon
Chief
Executive Officer and Director
(Principal
Executive Officer)
|
|
Dated:
November 18, 2016
|
/s/
David
R.
Wells
David
R. Wells
Interim
Chief Financial Officer
(Principal
Financial and Accounting Officer)
|
|
Dated:
November 18, 2016
|
/s/
Anthony
DiGiandomenico
Anthony
DiGiandomenico, Director
|
|
Dated:
November 18, 2016
|
/s/
Sanjiv
Gambhir, M.D.,
Ph.D
Sanjiv
Gambhir, M.D., Ph.D, Director
|
|
Dated:
November 18, 2016
|
/s/
Michael
Harsh
Michael
Harsh, Director
|
|
Dated:
November 18, 2016
|
/s/
Alexander
Tokman
Alexander Tokman,
Director
|
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ENDRA INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Endra Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “
General Corporation Law
”),
DOES HEREBY CERTIFY:
1
. That the name of this corporation is Endra Inc., and that this corporation was originally incorporated pursuant to the General Corporation Law on July 18, 2007 (the “
Original Certificate of Incorporation
”).
2
. The Original Certificate of Incorporation was amended and restated pursuant to an Amended and Restated Certificate of Incorporation, which was filed with the Secretary of State of the State of Delaware on December 27, 2007 (the “
First
Amended and Restated Certificate of Incorporation
”).
3
. The First Amended and Restated Certificate of Incorporation was further amended and restated pursuant to a Second Amended and Restated Certificate of Incorporation, which was filed with the Secretary of State of the State of Delaware on November
12, 2008 (the “
Second Amended and Restated Certificate of Incorporation
”).
4.
That the Board of Directors duly adopted resolutions proposing to amend and restate the Second Amended and Restated Certificate of Incorporation of this corporation, declaring said amendment and restatement to be advisable and in the best interests
of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment and restatement is as follows:
RESOLVED
, that the Second Amended and Restated Certificate of Incorporation of this corporation be further amended and restated in its entirety to read as follows:
FIRST
: The name of this corporation is: Endra Inc. (the “
Corporation
”).
SECOND
: The address of the Corporation’s registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, 19801. The name of its registered agent at such address is The Corporation Trust Company.
THIRD
: 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 General Corporation Law.
FOURTH
: The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 45,000,000 shares of Common Stock, $0.0001 par value per share (“
Common Stock
”) and (ii) 34,861,927 shares of Preferred Stock, $0.0001 par value
per share (“
Preferred Stock
”).
The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.
A.
COMMON STOCK
1.
General
. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of
the holders of the Preferred Stock set forth herein.
2.
Voting
. The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in
lieu of meetings). The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of the Third Amended and Restated Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock
of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.
B.
SERIES A PREFERRED STOCK
4,528,594 shares of the authorized and unissued Preferred Stock of the Corporation are hereby designated “
Series A-1 Preferred Stock
” with the rights, preferences, powers, privileges and restrictions, qualifications and limitations set forth herein. 333,333 shares of the authorized and unissued Preferred
Stock of the Corporation are hereby designated “
Series A-2 Preferred Stock
” with the rights, preferences, powers, privileges and restrictions, qualifications and limitations set forth herein. 30,000,000 shares of the authorized and unissued Preferred Stock of the Corporation are hereby designated “
Series A-3 Preferred Stock
” with the rights, preferences, powers, privileges and restrictions, qualifications and
limitations set forth herein. The Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series A-3 Preferred Stock, together are hereby designated as “
Series A Preferred Stock
”. The “
Series A-1 Original Issue Price
” shall mean $0.74923913 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A-1
Preferred Stock. The “
Series A-2 Original Issue Price
” shall mean $0.90 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A-2 Preferred Stock. The “
Series A-3 Original Issue Price
” shall mean $0.30 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination
or other similar recapitalization with respect to the Series A-2 Preferred Stock. The Series A-1 Original Issue Price and Series A-2 Original Issue Price, together are hereby designated as the “
Original Issue Price
”.
1.
Dividends
. The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other
than dividends on shares of Common Stock payable in shares of Common Stock) unless the holders of the Series A Preferred Stock then outstanding shall first receive or simultaneously receive, a dividend on each outstanding share of Series A Preferred Stock in an amount at least equal to (i) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per share of Series A Preferred Stock as would equal the product of (A) the dividend payable on each share
of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock and (B) the number of shares of Common Stock issuable upon conversion of a share of Series A Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (ii) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Series A Preferred Stock determined by (A) dividing
the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (B) multiplying such fraction by an amount equal to the applicable Original Issue Price (as defined below); provided that, if the Corporation declares, pays or sets aside, on the same
date, a dividend on shares of more than one class or series of capital stock of the Corporation, the dividend payable to the holders of Series A Preferred Stock pursuant to this
Section 1
shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest dividend.
2.
Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales
.
2.1
Payments to Holders of Series A Preferred Stock
. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the
holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the greater of (i) the applicable Original Issue Price, plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of Series A Preferred Stock been
converted into Common Stock pursuant to
Section 4
immediately prior to such liquidation, dissolution or winding up (the amount payable pursuant to this sentence is hereinafter referred to as the “
Series A Liquidation Amount
”). If upon any such liquidation, dissolution or winding up of the Corporation, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders
of shares of Series A Preferred Stock the full amount to which they shall be entitled under this
Subsection 2.1
, the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
2.2
Payments to Holders of Common Stock
. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after the payment
of all preferential amounts required to be paid to the holders of shares of Series A Preferred Stock, the remaining assets of the Corporation available for distribution to its stockholders shall be distributed among the holders of shares of Common Stock, pro rata based on the number of shares held by each such holder.
2.3
Deemed Liquidation Events
.
2.3.1
Definition
. Each of the following events shall be considered a “
Deemed Liquidation Event
” unless the holders
of a majority of the outstanding shares of Series A Preferred Stock elect otherwise by written notice sent to the Corporation at least ten (10) days prior to the effective date of any such event:
(a)
a merger or consolidation in which
(i)
the Corporation is a constituent party or
(ii)
a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation,
except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation,
at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation (
provided that
, for the purpose of this
Subsection 2.3.1
, all shares of Common Stock issuable
upon exercise of Options (as defined below) outstanding immediately prior to such merger or consolidation or upon conversion of Convertible Securities (as defined below) outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of Common Stock are converted or exchanged); or
(b)
the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries
taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.
2.3.2
Effecting a Deemed Liquidation Event
.
(a)
The Corporation shall not have the power to effect a Deemed Liquidation Event referred to in
Subsection 2.3.1(a)(i)
unless the agreement or plan of merger or consolidation for such transaction (the “
Merger
Agreement
”) provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with
Subsections 2.1
and
2.2
.
(b)
In the event of a Deemed Liquidation Event referred to in
Subsection 2.3.1(a)(ii)
or
2.3.1(b)
, if the Corporation does not effect a dissolution of the Corporation
under the General Corporation Law within 90 days after such Deemed Liquidation Event, then (i) the Corporation shall send a written notice to each holder of Series A Preferred Stock no later than the 90
th
day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following
clause (ii)
to require the redemption
of such shares of Series A Preferred Stock, and (ii) if the holders of a majority of the then outstanding shares of Series A Preferred Stock so request in a written instrument delivered to the Corporation not later than 120 days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors
of the Corporation), together with any other assets of the Corporation available for distribution to its stockholders (the “
Available Proceeds
”), to the extent legally available therefor, on the 150th day after such Deemed Liquidation Event, to redeem all outstanding shares of Series A Preferred Stock at a price per share equal to the Series A Liquidation Amount. Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding sentence,
if the Available Proceeds are not sufficient to redeem all outstanding shares of Series A Preferred Stock, the Corporation shall redeem a pro rata portion of each holder’s shares of Series A Preferred Stock to the fullest extent of such Available Proceeds, based on the respective amounts which would otherwise be payable in respect of the shares to be redeemed if the Available Proceeds were sufficient to redeem all such shares, and shall redeem the remaining shares to have been redeemed as soon as practicable
after the Corporation has funds legally available therefor. Written notice of redemption (the “
Redemption Notice
”) shall be sent to each holder of record of Series A Preferred Stock not less than 15 days prior to the date of redemption (the “
Redemption Date
”). The Redemption Notice shall state: (i) the number of shares of Series A Preferred Stock held by the holder that the Corporation shall redeem on the Redemption
Date specified in the Redemption Notice; (ii) the Redemption Date and the redemption price (the “Redemption Price”); (iii) the date upon which the holder’s right to convert such shares terminates (as determined in accordance with
Subsection 4.1
); and (iv) that the holder is to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares of Series A Preferred Stock
to be redeemed. On or before the Redemption Date, each holder of shares of Series A Preferred Stock to be redeemed on such Redemption Date, unless such holder has exercised his, her or its right to convert such shares as provided in
Section 4
, shall surrender the certificate or certificates representing such shares (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably
acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof. In the event less than all of the shares of Series A Preferred
Stock represented by a certificate are redeemed, a new certificate representing the unredeemed shares of Series A Preferred Stock shall promptly be issued to such holder. If the Redemption Notice shall have been duly given, and if on the Redemption Date the Redemption Price payable upon redemption of the shares of Series A Preferred Stock to be redeemed on such Redemption Date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor, then notwithstanding that
the certificates evidencing any of the shares of Series A Preferred Stock so called for redemption shall not have been surrendered, all rights with respect to such shares shall forthwith after the Redemption Date terminate, except only the right of the holders to receive the Redemption Price without interest upon surrender of their certificate or certificates therefor. Prior to the distribution or redemption provided for in this
Subsection 2.3.2(b)
, the Corporation
shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in connection with such Deemed Liquidation Event or in the ordinary course of business.
2.3.3
Amount Deemed Paid or Distributed
. The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such merger, consolidation,
sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation.
2.3.4
Allocation of Escrow
. In the event of a Deemed Liquidation Event pursuant to Subsection 2.3.1, if any portion of the consideration payable to the stockholders
of the Corporation is placed into escrow and/or is payable to the stockholders of the Corporation subject to contingencies, the agreement memorializing such Deemed Liquidation Event shall provide that (a) the portion of such consideration that is not placed in escrow and not subject to any contingencies (the “
Initial Consideration
”) shall be allocated among the holders of capital stock of the Corporation in accordance with
Subsections
2.1
and
2.2
as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event and (b) any additional consideration which becomes payable to the stockholders of the Corporation upon release from escrow or satisfaction of contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with
Subsections 2.1
and
2.2
after
taking into account the previous payment of the Initial Consideration as part of the same transaction.
3.
Voting
.
3.1
General
. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation
(or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Series A Preferred Stock
shall vote together with the holders of Common Stock as a single class.
3.2
Election of Directors
. The holders of record of the shares of Common Stock and Preferred Stock, exclusively and voting together as a single class, shall be
entitled to elect the directors of the Corporation. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director.
3.3
Series A Preferred Stock Protective Provisions
. At any time when shares of Series A Preferred Stock are outstanding, the Corporation shall not, either directly
or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of a majority of the then outstanding shares of Series A Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class:
(a)
liquidate, dissolve or wind-up the business and affairs of the Corporation, effect any Deemed Liquidation Event, or consent to any of the foregoing;
(b)
amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation;
(c)
create, or authorize the creation of, or issue or obligate itself to issue shares of, any additional class or series of capital stock, or increase the authorized number of shares of Series A Preferred Stock or increase the authorized number of shares
of any additional class or series of capital stock;
(d)
purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of capital stock of the Corporation other than (i) redemptions of or dividends or distributions on the Series
A Preferred Stock as expressly authorized herein, (ii) dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and (iii) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof or (iv) as approved by the
Board of Directors;
(e)
create, or authorize the creation of, or issue, or authorize the issuance of any debt security, or permit any subsidiary to take any such action with respect to any debt security, unless such debt security has received the prior approval of the Board
of Directors; or
(f)
create, or hold capital stock in, any subsidiary that is not wholly owned (either directly or through one or more other subsidiaries) by the Corporation, or sell, transfer or otherwise dispose of any capital stock of any direct or indirect subsidiary
of the Corporation, or permit any direct or indirect subsidiary to sell, lease, transfer, exclusively license or otherwise dispose (in a single transaction or series of related transactions) of all or substantially all of the assets of such subsidiary.
4.
Optional Conversion
. The holders of the Series A Preferred Stock shall have conversion rights as follows (the “
Conversion
Rights
”):
4.1
Right to Convert
.
4.1.1
Conversion Ratio
. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and
without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the applicable Original Issue Price by the applicable Conversion Price (as defined below) in effect at the time of conversion. The “
Series A-1 Conversion Price
” shall initially be equal to $0.74923913. The “
Series A-2 Conversion Price
” shall
initially be equal to $0.40. The “
Series A-3 Conversion Price
” shall initially be equal to $0.30. Together and Series A-1 Conversion Price, the Series A-2 Conversion Price and the Series A-3 Conversion Price are referred to herein as the “
Conversion Price
”. Such initial Conversion Prices, and the rate at which shares of Series A Preferred Stock may be converted into shares of Common Stock, shall be subject to
adjustment as provided below.
4.1.2
Termination of Conversion Rights
. In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion
Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Series A Preferred Stock.
4.2
Fractional Shares
. No fractional shares of Common Stock shall be issued upon conversion of the Series A Preferred Stock. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable
upon such conversion.
4.3
Mechanics of Conversion
.
4.3.1
Notice of Conversion
. In order for a holder of Series A Preferred Stock to voluntarily convert shares of Series A Preferred Stock into shares of Common Stock,
such holder shall surrender the certificate or certificates for such shares of Series A Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Series A Preferred Stock
(or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Series A Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent. Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to
be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such certificates (or lost certificate affidavit and agreement)
and notice shall be the time of conversion (the “
Conversion Time
”), and the shares of Common Stock issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time, issue and deliver to such holder of Series A Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common
Stock issuable upon such conversion in accordance with the provisions hereof, a certificate for the number (if any) of the shares of Series A Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, and cash as provided in
Subsection 4.2
in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and payment of any declared but unpaid dividends on the shares of Series A Preferred Stock converted.
4.3.2
Reservation of Shares
. The Corporation shall at all times when the Series A Preferred Stock shall be outstanding, reserve and keep available out of its authorized
but unissued capital stock, for the purpose of effecting the conversion of the Series A Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series A Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock, the Corporation shall take such corporate action
as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Third Amended and Restated Certificate of Incorporation. Before taking any action which would cause an adjustment reducing the applicable Conversion Price below the then par value of the shares of Common Stock issuable upon conversion
of the Series A Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price.
4.3.3
Effect of Conversion
. All shares of Series A Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed
to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in
Subsection 4.2
and to receive payment of any dividends declared but unpaid thereon. Any shares of Series A Preferred Stock so converted
shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series A Preferred Stock accordingly.
4.3.4
No Further Adjustment
. Upon any such conversion, no adjustment to the applicable Conversion Price shall be made for any declared but unpaid dividends on
the Series A Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.
4.3.5
Taxes
. The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common
Stock upon conversion of shares of Series A Preferred Stock pursuant to this
Section 4
. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of Series A Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
4.4
Adjustments to Conversion Price for Diluting Issues
.
4.4.1
Special Definitions
. For purposes of this Article Fourth, the following definitions shall apply:
(a)
“
Option
” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.
(b)
“
Series A-1 Original Issue Date
” shall mean the date on which the first share of Series A-1 Preferred Stock was issued.
(c)
“
Series A-2 Original Issue Date
” shall mean the date on which the first share of Series A-2 Preferred Stock was issued.
(d)
“
Series A-3 Original Issue Date
” shall mean the date on which the first share of Series A-3 Preferred Stock was issued.
(e)
“
Original Issue Date
” shall mean the Series A-1 Original Issue Date, Series A-2 Original Issue Date and the Series A-3 Original Issue Date.
(f)
“
Convertible Securities
” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.
(g)
“
Additional Shares of Common Stock
” shall mean all shares of Common Stock issued (or, pursuant to
Subsection 4.4.3
below, deemed to be issued) by the
Corporation after the applicable Original Issue Date, other than (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (clauses (1) and (2), collectively, “
Exempted Securities
”):
(i)
shares of Common Stock, Options or Convertible Securities issued as a dividend or distribution on Preferred Stock;
(ii)
shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by
Subsection 4.5
,
4.6
,
4.7
or
4.8
;
(iii)
shares of Common Stock or Options issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries pursuant to the Company’s 2007 Stock Incentive Plan or any other plan, agreement or arrangement approved by the Board of Directors of the Corporation;
(iv)
shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security;
(v)
shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board of Directors of the Corporation;
(vi)
shares of Common Stock, Options or Convertible Securities issued to suppliers or third party service providers in connection with the provision of goods or services pursuant to transactions approved by the Board of Directors of the Corporation;
(vii)
shares of Common Stock, Options or Convertible Securities issued pursuant to the acquisition of another corporation by the Corporation by merger, purchase of substantially all of the assets or other reorganization or to a joint venture, partnership or license agreement, provided, that such issuances are approved by the Board of Directors;
(viii)
shares of Common Stock, Options or Convertible Securities issued in connection with sponsored research, collaboration, technology license, development, marketing or other similar agreements or strategic partnerships approved by the Board of Directors; or
(ix)
up to an aggregate of 30,000,000 shares of Series A-3 Preferred Stock on terms and subject to conditions approved by the Board of Directors of the Corporation; or
(x)
Warrants to purchase up to an aggregate of 15,000,000 shares of Series A-3 Preferred Stock (and any shares issued upon conversion thereof).
4.4.2
No Adjustment of Conversion Price
. No adjustment in the Conversion Price shall be made as the result of the issuance or deemed issuance of Additional Shares
of Common Stock if the Corporation receives written notice from the holders of at least a majority of the then outstanding shares of Series A Preferred Stock (on an as-converted into Common Stock basis) agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.
4.4.3
Deemed Issue of Additional Shares of Common Stock
.
(a)
If the Corporation at any time or from time to time after the applicable Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record
date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.
(b)
If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Conversion Price pursuant to the terms of
Subsection 4.4.4
, are revised as a result of an amendment
to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon
such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such applicable Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant
to this clause (b) shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (i) the Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between
the original adjustment date and such readjustment date.
(c)
If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Conversion Price pursuant to the terms of
Subsection
4.4.4
(either because the consideration per share (determined pursuant to
Subsection 4.4.5
) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Conversion Price then in effect, or because such Option or Convertible Security was issued before the Original Issue Date), are revised after the Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or
Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted,
and the Additional Shares of Common Stock subject thereto (determined in the manner provided in
Subsection 4.4.3(a)
) shall be deemed to have been issued effective upon such increase or decrease becoming effective.
(d)
Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Conversion
Price pursuant to the terms of
Subsection 4.4.4
, the Conversion Price shall be readjusted to such Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.
(e)
If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the
time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Conversion Price provided for in this
Subsection 4.4.3
shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this
Subsection
4.4.
3). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the Conversion Price that would result under the terms of this
Subsection 4.4.3
at the time of such issuance
or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Conversion Price that such issuance or amendment took place at the time such calculation can first be made.
4.4.4
Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock
. In the event the Corporation shall at any time after the Original Issue
Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4.4.3
), without consideration or for a consideration per share less than the applicable Conversion Price in effect immediately prior to such issue, then the Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:
CP
2
= CP
1
* (A + B) + (A + C).
For purposes of the foregoing formula, the following definitions shall apply:
(a)
“CP
2
” shall mean the Conversion Price in effect immediately after such issue of Additional Shares of Common Stock
(b)
“CP
1
” shall mean the Conversion Price in effect immediately prior to such issue of Additional Shares of Common Stock;
(c)
“A” shall mean the number of shares of Common Stock outstanding immediately prior to such issue of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding
immediately prior to such issue or upon conversion or exchange of Convertible Securities (including the Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue);
(d)
“B” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP
1
(determined
by dividing the aggregate consideration received by the Corporation in respect of such issue by CP
1
); and
(e)
“C” shall mean the number of such Additional Shares of Common Stock issued in such transaction.
For purposes hereof, the number of shares of Common Stock deemed issuable upon conversion or exchange of such outstanding Convertible Securities and Options shall be determined without giving effect to any adjustments to the conversion or exchange price or conversion or exchange rate of such Convertible Securities and Options resulting from the issuance
of Additional Shares of Common Stock that is the subject of this calculation.
4.4.5
Determination of Consideration
. For purposes of this
Subsection 4.4
, the consideration received by the Corporation
for the issue of any Additional Shares of Common Stock shall be computed as follows:
(a)
Cash and Property
: Such consideration shall:
(i)
insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;
(ii)
insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and
(iii)
in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in
clauses (i)
and
(ii)
above, as determined in good faith by
the Board of Directors of the Corporation.
(b)
Options and Convertible Securities
. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to
Subsection
4.4.3
, relating to Options and Convertible Securities, shall be determined by dividing
(i)
the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of
such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by
(ii)
the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities.
4.4.6
Multiple Closing Dates
. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction
or a series of related transactions and that would result in an adjustment to the Conversion Price pursuant to the terms of
Subsection 4.4.4
, and such issuance dates occur within a period of no more than 90 days from the first such issuance to the final such issuance, then, upon the final such issuance, the Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect
to any additional adjustments as a result of any such subsequent issuances within such period).
4.5
Adjustment for Stock Splits and Combinations
. If the Corporation shall at any time or from time to time after the applicable Original Issue Date effect a subdivision
of the outstanding Common Stock, the applicable Conversion Price in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the applicable Original Issue Date combine the outstanding shares of Common Stock, the applicable
Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.
4.6
Adjustment for Certain Dividends and Distributions
. In the event the Corporation at any time or from time to time after the applicable Original Issue Date
shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the applicable Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying applicable Conversion Price then
in effect by a fraction:
(1)
the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and
(2)
the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment
of such dividend or distribution.
Notwithstanding the foregoing, (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the applicable Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the applicable Conversion Price shall be
adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (b) that no such adjustment shall be made if the holders of Series A Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Series A Preferred Stock had been converted into Common Stock on the date of such event.
4.7
Adjustments for Other Dividends and Distributions
. In the event the Corporation at any time or from time to time after the applicable Original Issue Date shall
make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provision of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of Series A Preferred Stock shall receive, simultaneously with the distribution to the holders
of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Series A Preferred Stock had been converted into Common Stock on the date of such event.
4.8
Adjustment for Merger or Reorganization, etc
. Subject to the provisions of
Subsection 2.3
, if there shall occur
any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Series A Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by
Subsections 4.6
or
4.7
), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of
Series A Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of Series A Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in
such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be made in the application of the provisions in this
Section 4
with respect to the rights and interests thereafter of the holders of the Series A Preferred Stock, to the end that the provisions set forth in this
Section 4
(including provisions with respect to changes in and other adjustments of the applicable
Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Series A Preferred Stock.
4.9
Certificate as to Adjustments
. Upon the occurrence of each adjustment or readjustment of the applicable Conversion Price pursuant to this
Section
4
, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than 10 days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Series A Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Series A Preferred Stock (but in any event not later than 10 days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the applicable Conversion Price then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of Series A
Preferred Stock.
4.10
Notice of Record Date
. In the event:
(a)
the Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion of the Series A Preferred Stock) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or
(b)
of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation Event; or
(c)
of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,
then, and in each such case, the Corporation will send or cause to be sent to the holders of the Series A Preferred Stock a notice specifying, as the case may be, (1) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon the conversion of the Series A Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation,
merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Series A Preferred Stock and the Common Stock. Such notice shall be sent at least 10 days prior to the record date or effective date for the event specified in such notice.
5.
Mandatory Conversion
.
5.1
Trigger Events
. Upon either (a) the closing of the sale of shares of Common Stock to the public at a price of at least $1.50 per share (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Common Stock), in a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $20,000,000 of gross proceeds to the Corporation or (b) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of a majority of the then outstanding shares of Series
A Preferred Stock (the time of such closing or the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the “
Mandatory Conversion Time
”), (i) all outstanding shares of Series A Preferred Stock shall automatically be converted into shares of Common Stock, at the then effective conversion rate and (ii) such shares may not be reissued by the Corporation.
5.2
Procedural Requirements
. All holders of record of shares of Series A Preferred Stock shall be sent written notice of the Mandatory Conversion Time and the
place designated for mandatory conversion of all such shares of Series A Preferred Stock pursuant to this
Section 5
. Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon receipt of such notice, each holder of shares of Series A Preferred Stock shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate
affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered
holder or by his, her or its attorney duly authorized in writing. All rights with respect to the Series A Preferred Stock converted pursuant to
Subsection 5.1
, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate at the Mandatory Conversion Time (notwithstanding the failure of the holder or holders thereof to surrender the certificates for such shares at or prior to such time), except only the rights
of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the next sentence of this
Subsection 5.2
. As soon as practicable after the Mandatory Conversion Time and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for Series A Preferred Stock, the Corporation shall issue and deliver to such holder, or to his,
her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof, together with cash as provided in
Subsection 4.2
in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the shares of Series A Preferred Stock converted. Such converted Series A Preferred Stock shall be retired
and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series A Preferred Stock accordingly.
6.
Redeemed or Otherwise Acquired Shares
. Any shares of Series A Preferred Stock that are redeemed or otherwise acquired by the Corporation or any of its subsidiaries
shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Series A Preferred Stock following redemption.
7.
Waiver
. Any of the rights, powers, preferences and other terms of the Series A Preferred Stock set forth herein may be waived on behalf of all holders of Series
A Preferred Stock by the affirmative written consent or vote of the holders of a majority of the shares of Series A Preferred Stock then outstanding.
8.
Notices
. Any notice required or permitted by the provisions of this Article Fourth to be given to a holder of shares of Series A Preferred Stock shall be mailed,
postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission.
FIFTH:
In furtherance of and not in limitation of powers conferred by statute, it is further provided:
1. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
2. Election of directors need not be by written ballot.
3. The Board of Directors is expressly authorized to adopt, amend, alter or repeal the By-Laws of the Corporation.
SIXTH:
Except to the extent that the General Corporation Law of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, notwithstanding any provision of law imposing such liability. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment.
SEVENTH:
The Corporation shall provide indemnification as follows:
1.
Actions, Suits and Proceedings Other than by or in the Right of the Corporation
. The Corporation shall indemnify each person who was or is a party or threatened
to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership,
joint venture, trust or other enterprise (including any employee benefit plan) (all such persons being referred to hereafter as an “
Indemnitee
”), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with such action, suit or proceeding and any appeal therefrom,
if Indemnitee acted in good faith and in a manner which Indemnitee 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 his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere
or its equivalent, shall not, of itself, create a presumption
that Indemnitee did not act in good faith and in a manner which Indemnitee 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 his or her conduct was unlawful.
2.
Actions or Suits by or in the Right of the Corporation
. The Corporation shall indemnify any Indemnitee who was or is a party to or 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 Indemnitee is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit
plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys’ fees) and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with such action, suit or proceeding and any appeal therefrom, if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that
no indemnification shall be made under this Section 2 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Corporation, unless, and only to the extent, that the Court of Chancery of Delaware shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses (including attorneys’ fees) which the Court of Chancery
of Delaware shall deem proper.
3.
Indemnification for Expenses of Successful Party
. Notwithstanding any other provisions of this Article, to the extent that an Indemnitee has been successful,
on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article SEVENTH, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, Indemnitee shall be indemnified against all expenses (including attorneys’ fees) actually and reasonably incurred by or on behalf of Indemnitee in connection therewith.
4.
Notification and Defense of Claim
. As a condition precedent to an Indemnitee’s right to be indemnified, such Indemnitee must notify the Corporation in
writing as soon as practicable of any action, suit, proceeding or investigation involving such Indemnitee for which indemnity will or could be sought. With respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to Indemnitee. After notice from the Corporation to Indemnitee of its election so to assume
such defense, the Corporation shall not be liable to Indemnitee for any legal or other expenses subsequently incurred by Indemnitee in connection with such action, suit, proceeding or investigation, other than as provided below in this Section 4. Indemnitee shall have the right to employ his or her own counsel in connection with such action, suit, proceeding or investigation, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be
at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by the Corporation, (ii) counsel to Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and Indemnitee in the conduct of the defense of such action, suit, proceeding or investigation or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, suit, proceeding or investigation,
in each of which cases the fees and expenses of counsel for Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article. The Corporation shall not be entitled, without the consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. The Corporation shall not be required to indemnify Indemnitee under this
Article SEVENTH for any amounts paid in settlement of any action, suit, proceeding or investigation effected without its written consent. The Corporation shall not settle any action, suit, proceeding or investigation in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee’s written consent. Neither the Corporation nor Indemnitee will unreasonably withhold or delay its consent to any proposed settlement.
5.
Advance of Expenses
. Subject to the provisions of Section 6 of this Article SEVENTH, in the event of any action, suit, proceeding or investigation of which
the Corporation receives notice under this Article, any expenses (including attorneys’ fees) incurred by or on behalf of an Indemnitee in defending an action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter;
provided
,
however
, that the payment of such expenses incurred by or on behalf of Indemnitee in advance of the
final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article; and further provided that no such advancement of expenses shall be made under this Article SEVENTH if it is determined (in the manner described in Section 6) that (i) Indemnitee did not act in good faith and in a manner
he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation, or (ii) with respect to any criminal action or proceeding, Indemnitee had reasonable cause to believe his or her conduct was unlawful. Such undertaking shall be accepted without reference to the financial ability of Indemnitee to make such repayment.
6.
Procedure for Indemnification
. In order to obtain indemnification or advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article SEVENTH, an Indemnitee
shall submit to the Corporation a written request. Any such advancement of expenses shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of Indemnitee, unless (i) the Corporation has assumed the defense pursuant to Section 4 of this Article SEVENTH (and none of the circumstances described in Section 4 of this Article SEVENTH that would nonetheless entitle the Indemnitee to indemnification for the fees and expenses of separate counsel have occurred) or
(ii) the Corporation determines within such 60-day period that Indemnitee did not meet the applicable standard of conduct set forth in Section 1, 2 or 5 of this Article SEVENTH, as the case may be. Any such indemnification, unless ordered by a court, shall be made with respect to requests under Section 1 or 2 only as authorized in the specific case upon a determination by the Corporation that the indemnification of Indemnitee is proper because Indemnitee has met the applicable standard of conduct set forth in
Section 1 or 2, as the case may be. Such determination shall be made in each instance (a) by a majority vote of the directors of the Corporation consisting of persons who are not at that time parties to the action, suit or proceeding in question (“
disinterested directors
”), whether or not a quorum, (b) by a committee of disinterested directors designated by majority vote of disinterested directors, whether or not a quorum, (c) if there are no disinterested directors,
or if the disinterested directors so direct, by independent legal counsel (who may, to the extent permitted by law, be regular legal counsel to the Corporation) in a written opinion, or (d) by the stockholders of the Corporation.
7.
Remedies
. The right to indemnification or advancement of expenses as granted by this Article shall be enforceable by Indemnitee in any court of competent jurisdiction.
Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 6 of this Article SEVENTH that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee’s
expenses (including attorneys’ fees) reasonably incurred in connection with successfully establishing Indemnitee’s right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation.
8.
Limitations
. Notwithstanding anything to the contrary in this Article, except as set forth in Section 7 of this Article SEVENTH, the Corporation shall not indemnify
an Indemnitee pursuant to this Article SEVENTH in connection with a proceeding (or part thereof) initiated by such Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation. Notwithstanding anything to the contrary in this Article, the Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is reimbursed from the proceeds of insurance, and in the event the Corporation makes any indemnification payments to an Indemnitee and such Indemnitee is subsequently
reimbursed from the proceeds of insurance, Indemnitee shall promptly refund such indemnification payments to the Corporation to the extent of such insurance reimbursement.
9.
Subsequent Amendment
. No amendment, termination or repeal of this Article or of the relevant provisions of the General Corporation Law of Delaware or any other
applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal.
10.
Other Rights
. The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which an Indemnitee
seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action in Indemnitee’s official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of Indemnitee. Nothing contained
in this Article shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification rights and procedures different from those set forth in this Article. In addition, the Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or
less than, those set forth in this Article.
11.
Partial Indemnification
. If an Indemnitee is entitled under any provision of this Article to indemnification by the Corporation for some or a portion of the
expenses (including attorneys’ fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with any action, suit, proceeding or investigation and any appeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify Indemnitee for the portion of such expenses (including attorneys’ fees), judgments, fines or amounts paid in settlement to which Indemnitee is entitled.
12.
Insurance
. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) against any expense, liability or loss incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of Delaware.
13.
Savings Clause
. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each Indemnitee as to any expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law.
14.
Definitions
. Terms used herein and defined in Section 145(h) and Section 145(i) of the General Corporation Law of Delaware shall have the respective meanings
assigned to such terms in such Section 145(h) and Section 145(i).
EIGHTH:
The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Third Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Third Amended and Restated Certificate of Incorporation, and all rights conferred
upon stockholders herein are granted subject to this reservation.
* * *
3.
That the foregoing amendment and restatement was approved by the holders of the requisite number of shares of this corporation in accordance with Section 228 of the General Corporation Law.
4.
That this Third Amended and Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of this corporation’s Amended and Restated Certificate of Incorporation, has been duly adopted in accordance
with Sections 242 and 245 of the General Corporation Law.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF
, this Third Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this 21st day of December, 2012.
ENDRA INC.
By:
/s/ David Steinberg
Name: David Steinberg
Title: Chief Executive Officer
BY-LAWS
OF
ENDRA
LIFE SCIENCES INC.
TABLE
OF CONTENTS
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Page
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ARTICLE I
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STOCKHOLDERS
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1.1
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Place of Meetings
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1
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1.2
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Annual Meeting
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1
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1.3
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Special Meetings
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1
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1.4
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Notice of Meetings
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1
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1.5
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Voting List
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1
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1.6
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Quorum
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2
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1.7
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Adjournments
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2
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1.8
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Voting and Proxies
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2
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1.9
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Action at Meeting
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3
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1.10
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Conduct of Meetings
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3
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1.11
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Action without Meeting
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4
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ARTICLE II
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DIRECTORS
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2.1
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General Powers
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5
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2.2
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Number, Election and Qualification
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5
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2.3
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Chairman of the Board; Vice Chairman of the Board
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5
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2.4
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Tenure
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5
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2.5
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Quorum
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5
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2.6
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Action at Meeting
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5
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2.7
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Removal
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5
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2.8
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Vacancies
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6
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2.9
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Resignation
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6
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2.10
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Regular Meetings
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6
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2.11
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Special Meetings
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6
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2.12
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Notice of Special Meetings
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6
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2.13
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Meetings by Conference Communications Equipment
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6
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2.14
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Action by Consent
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7
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2.15
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Committees
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7
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2.16
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Compensation of Directors
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7
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ARTICLE III
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OFFICERS
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3.1
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Titles
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7
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3.2
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Election
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8
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3.3
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Qualification
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8
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3.4
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Tenure
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8
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3.5
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Resignation and Removal
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8
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3.6
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Vacancies
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8
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3.7
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President; Chief Executive Officer
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8
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3.8
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Vice Presidents
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8
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3.9
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Secretary and Assistant Secretaries
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9
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3.10
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Treasurer and Assistant Treasurers
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9
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3.11
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Salaries
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9
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3.12
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Delegation of Authority
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9
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ARTICLE IV
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CAPITAL STOCK
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4.1
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Issuance of Stock
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10
|
|
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4.2
|
Stock Certificates; Uncertificated Shares
|
10
|
|
|
4.3
|
Transfers
|
11
|
|
|
4.4
|
Lost, Stolen or Destroyed Certificates
|
11
|
|
|
4.5
|
Record Date
|
11
|
|
|
4.6
|
Regulations
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12
|
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ARTICLE V
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|
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GENERAL PROVISIONS
|
|
|
|
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5.1
|
Fiscal Year
|
12
|
|
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5.2
|
Corporate Seal
|
12
|
|
|
5.3
|
Waiver of Notice
|
12
|
|
|
5.4
|
Voting of Securities
|
12
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|
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5.5
|
Evidence of Authority
|
12
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|
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5.6
|
Certificate of Incorporation
|
12
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5.7
|
Severability
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12
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5.8
|
Pronouns
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13
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ARTICLE VI
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AMENDMENTS
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6.1
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By the Board of Directors
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13
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6.2
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By the Stockholders
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13
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ARTICLE I
1.1
Place of
Meetings
. All meetings of
stockholders shall be held at such place as may be designated from
time to time by the Board of Directors, the Chairman of the Board,
the Chief Executive Officer or the President or, if not so
designated, at the principal office of the corporation. The Board
of Directors may, in its sole discretion, determine that a meeting
shall not be held at any place, but may instead be held solely by
means of remote communication in a manner consistent with the
General Corporation Law of the State of Delaware.
1.2
Annual
Meeting
. The annual
meeting of stockholders for the election of directors and for the
transaction of such other business as may properly be brought
before the meeting shall be held on a date and at a time designated
by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President (which date shall not be a legal
holiday in the place where the meeting is to be held).
1.3
Special
Meetings
. Special meetings
of stockholders for any purpose or purposes may be called at any
time by only the Board of Directors, the Chairman of the Board, the
Chief Executive Officer or the President, and may not be called by
any other person or persons. The Board of Directors may postpone or
reschedule any previously scheduled special meeting of
stockholders. Business transacted at any special meeting of
stockholders shall be limited to matters relating to the purpose or
purposes stated in the notice of meeting.
1.4
Notice of
Meetings
. Except as
otherwise provided by law, notice of each meeting of stockholders,
whether annual or special, 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. Without limiting the manner by
which notice otherwise may be given to stockholders, any notice
shall be effective if given by a form of electronic transmission
consented to (in a manner consistent with the General Corporation
Law of the State of Delaware) by the stockholder to whom the notice
is given. The notices of all meetings shall state the place, if
any, date and time of the meeting and the means of remote
communications, if any, by which stockholders and proxyholders may
be deemed to be present in person and vote at such meeting. The
notice of a special meeting shall state, in addition, the purpose
or purposes for which the meeting is called. If notice is given by
mail, such notice shall be deemed given when deposited in the
United States mail, postage prepaid, directed to the stockholder at
such stockholder’s address as it appears on the records of
the corporation. If notice is given by electronic transmission,
such notice shall be deemed given at the time specified in Section
232 of the General Corporation Law of the State of
Delaware.
1.5
Voting List
. The Secretary
shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote
at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the
meeting, for a period of at least 10 days prior to the meeting: (a)
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 (b) during ordinary business hours,
at the principal place of business of the corporation. If the
meeting is to be held at a physical location (and not solely by
means of remote communication), then the list shall be produced and
kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. If
the meeting is to be held solely by means of remote communication,
then the list shall also be open to the examination of any
stockholder during the whole time of the meeting on a reasonably
accessible electronic network, and the information required to
access such list shall be provided with the notice of the meeting.
The list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of
shares held by each of them.
1.6
Quorum
. Except as
otherwise provided by law, the Certificate of Incorporation or
these By-laws, the holders of a majority in voting power of the
shares of the capital stock of the corporation issued and
outstanding and entitled to vote at the meeting, present in person,
present by means of remote communication in a manner, if any,
authorized by the Board of Directors in its sole discretion, or
represented by proxy, shall constitute a quorum for the transaction
of business; provided, however, that where a separate vote by a
class or classes or series of capital stock is required by law or
the Certificate of Incorporation, the holders of a majority in
voting power of the shares of such class or classes or series of
the capital stock of the corporation issued and outstanding and
entitled to vote on such matter, present in person, present by
means of remote communication in a manner, if any, authorized by
the Board of Directors in its sole discretion, or represented by
proxy, shall constitute a quorum entitled to take action with
respect to the vote on such matter. A quorum, once established at a
meeting, shall not be broken by the withdrawal of enough votes to
leave less than a quorum.
1.7
Adjournments
.
Any meeting of stockholders may be adjourned from time to time to
any other time and to any other place at which a meeting of
stockholders may be held under these By-laws by the chairman of the
meeting or by the stockholders present or represented at the
meeting and entitled to vote, although less than a quorum. It shall
not be necessary to notify any stockholder of any adjournment of
less than 30 days if the time and place, if any, of the adjourned
meeting, and the means of remote communication, if any, by which
stockholders and proxyholders may be deemed to be present in person
and vote at such adjourned meeting, are announced at the meeting at
which adjournment is taken, unless after the adjournment a new
record date is fixed for the adjourned meeting. At the adjourned
meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8
Voting and
Proxies
. Each stockholder
shall have one vote for each share of stock entitled to vote held
of record by such stockholder and a proportionate vote for each
fractional share so held, unless otherwise provided by law or the
Certificate of Incorporation. Each stockholder of record entitled
to vote at a meeting of stockholders, or to express consent or
dissent to corporate action without a meeting, may vote or express
such consent or dissent in person (including by means of remote
communications, if any, by which stockholders may be deemed to be
present in person and vote at such meeting) or may authorize
another person or persons to vote or act for such stockholder by a
proxy executed or transmitted in a manner permitted by the General
Corporation Law of the State of Delaware by the stockholder or such
stockholder’s authorized agent and delivered (including by
electronic transmission) to the Secretary of the corporation. No
such proxy shall be voted or acted upon after three years from the
date of its execution, unless the proxy expressly provides for a
longer period.
1.9
Action at
Meeting
. When a quorum is
present at any meeting, any matter other than the election of
directors to be voted upon by the stockholders at such meeting
shall be decided by the vote of the holders of shares of stock
having a majority in voting power of the votes cast by the holders
of all of the shares of stock present or represented at the meeting
and voting affirmatively or negatively on such matter (or if there
are two or more classes or series of stock entitled to vote as
separate classes, then in the case of each such class or series,
the holders of a majority in voting power of the shares of stock of
that class or series present or represented at the meeting and
voting affirmatively or negatively on such matter), except when a
different vote is required by law, the Certificate of Incorporation
or these By-laws. When a quorum is present at any meeting, any
election by stockholders of directors shall be determined by a
plurality of the votes cast by the stockholders entitled to vote on
the election.
1.10
Conduct of
Meetings
.
(a)
Chairman
of Meeting
. Meetings of
stockholders shall be presided over by the Chairman of the Board,
if any, or in the Chairman’s absence by the Vice Chairman of
the Board, if any, or in the Vice Chairman’s absence by the
Chief Executive Officer, or in the Chief Executive Officer’s
absence, by the President, or in the President’s absence by a
Vice President, or in the absence of all of the foregoing persons
by a chairman designated by the Board of Directors, or in the
absence of such designation by a chairman chosen by vote of the
stockholders at the meeting. The Secretary shall act as secretary
of the meeting, but in the Secretary’s absence the chairman
of the meeting may appoint any person to act as secretary of the
meeting.
(b)
Rules,
Regulations and Procedures
. The Board of
Directors may adopt by resolution such rules, regulations and
procedures for the conduct of any meeting of stockholders of the
corporation as it shall deem appropriate including, without
limitation, such guidelines and procedures as it may deem
appropriate regarding the participation by means of remote
communication of stockholders and proxyholders not physically
present at a meeting. Except to the extent inconsistent with such
rules, regulations and procedures as adopted by the Board of
Directors, the chairman of any meeting of stockholders shall have
the right and authority to prescribe such rules, regulations and
procedures and to do all such acts as, in the judgment of such
chairman, are appropriate for the proper conduct of the meeting.
Such rules, regulations or procedures, whether adopted by the Board
of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment
of an agenda or order of business for the meeting; (ii) rules and
procedures for maintaining order at the meeting and the safety of
those present; (iii) limitations on attendance at or participation
in the meeting to stockholders of record of the corporation, their
duly authorized and constituted proxies or such other persons as
shall be determined; (iv) restrictions on entry to the meeting
after the time fixed for the commencement thereof; and (v)
limitations on the time allotted to questions or comments by
participants. Unless and to the extent determined by the Board of
Directors or the chairman of the meeting, meetings of stockholders
shall not be required to be held in accordance with the rules of
parliamentary procedure.
1.11
Action without
Meeting
.
(a)
Taking
of Action by Consent
. Any action
required or permitted to be taken at any annual or special meeting
of stockholders of the corporation may be taken without a meeting,
without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote on such action were
present and voted. Except as otherwise provided by the Certificate
of Incorporation, stockholders may act by written consent to elect
directors; provided, however, that, if such consent is less than
unanimous, such action by written consent may be in lieu of holding
an annual meeting only if all of the directorships to which
directors could be elected at an annual meeting held at the
effective time of such action are vacant and are filled by such
action.
(b)
Electronic
Transmission of Consents
. A telegram,
cablegram or other electronic transmission consenting to an action
to be taken and transmitted by a stockholder or proxyholder, or by
a person or persons authorized to act for a stockholder or
proxyholder, shall be deemed to be written, signed and dated for
the purposes of this section, provided that any such telegram,
cablegram or other electronic transmission sets forth or is
delivered with information from which the corporation can determine
(i) that the telegram, cablegram or other electronic transmission
was transmitted by the stockholder or proxyholder or by a person or
persons authorized to act for the stockholder or proxyholder and
(ii) the date on which such stockholder or proxyholder or
authorized person or persons transmitted such telegram, cablegram
or electronic transmission. The date on which such telegram,
cablegram or electronic transmission is transmitted shall be deemed
to be the date on which such consent was signed. No consent given
by telegram, cablegram or other electronic transmission shall be
deemed to have been delivered until such consent is reproduced in
paper form and until such paper form shall be delivered to the
corporation by delivery to its registered office in the State of
Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to a
corporation’s registered office shall be made by hand or by
certified or registered mail, return receipt requested.
Notwithstanding the foregoing limitations on delivery, consents
given by telegram, cablegram or other electronic transmission may
be otherwise delivered to the principal place of business of the
corporation or to an officer or agent of the corporation having
custody of the book in which proceedings of meetings of
stockholders are recorded if, to the extent and in the manner
provided by resolution of the Board of Directors. Any copy,
facsimile or other reliable reproduction of a consent in writing
may be substituted or used in lieu of the original writing for any
and all purposes for which the original writing could be used,
provided that such copy, facsimile or other reproduction shall be a
complete reproduction of the entire original writing.
(c)
Notice
of Taking of Corporate Action
. Prompt notice of
the taking of corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who
have not consented in writing and who, if the action had been taken
at a meeting, would have been entitled to notice of the meeting if
the record date for such meeting had been the date that written
consents signed by a sufficient number of holders to take the
action were delivered to the corporation.
ARTICLE II
2.1
General
Powers
. The business and
affairs of the corporation shall be managed by or under the
direction of a Board of Directors, who may exercise all of the
powers of the corporation except as otherwise provided by law or
the Certificate of Incorporation.
2.2
Number, Election and
Qualification
. Subject to the
rights of holders of any series of Preferred Stock to elect
directors, the number of directors of the corporation shall be
established from time to time by the stockholders or the Board of
Directors. The directors shall be elected at the annual meeting of
stockholders by such stockholders as have the right to vote on such
election. Election of directors need not be by written ballot.
Directors need not be stockholders of the corporation.
2.3
Chairman of the Board; Vice Chairman
of the Board
. The Board of
Directors may appoint from its members a Chairman of the Board and
a Vice Chairman of the Board, neither of whom need be an employee
or officer of the corporation. If the Board of Directors appoints a
Chairman of the Board, such Chairman shall perform such duties and
possess such powers as are assigned by the Board of Directors and,
if the Chairman of the Board is also designated as the
corporation’s Chief Executive Officer, shall have the powers
and duties of the Chief Executive Officer prescribed in Section 3.7
of these By-laws. If the Board of Directors appoints a Vice
Chairman of the Board, such Vice Chairman shall perform such duties
and possess such powers as are assigned by the Board of Directors.
Unless otherwise provided by the Board of Directors, the Chairman
of the Board or, in the Chairman’s absence, the Vice Chairman
of the Board, if any, shall preside at all meetings of the Board of
Directors.
2.4
Tenure
. Each director
shall hold office until the next annual meeting of stockholders and
until a successor is elected and qualified, or until such
director’s earlier death, resignation or
removal.
2.5
Quorum
. The greater of
(a) a majority of the directors at any time in office and (b)
one-third of the number of directors fixed pursuant to Section 2.2
of these By-laws shall constitute a quorum of the Board of
Directors. If at any meeting of the Board of Directors there shall
be less than such a quorum, a majority of the directors present may
adjourn the meeting from time to time without further notice other
than announcement at the meeting, until a quorum shall be
present.
2.6
Action at
Meeting
. Every act or
decision done or made by a majority of the directors present at a
meeting of the Board of Directors duly held at which a quorum is
present shall be regarded as the act of the Board of Directors,
unless a greater number is required by law or by the Certificate of
Incorporation.
2.7
Removal
. Except as
otherwise provided by the General Corporation Law of the State of
Delaware, any one or more or all of the directors of the
corporation may be removed, with or without cause, by the holders
of a majority of the shares then entitled to vote at an election of
directors, except that the directors elected by the holders of a
particular class or series of stock may be removed without cause
only by vote of the holders of a majority of the outstanding shares
of such class or series.
2.8
Vacancies
. Subject to the
rights of holders of any series of Preferred Stock to elect
directors, unless and until filled by the stockholders, any vacancy
or newly-created directorship on the Board of Directors, however
occurring, may be filled by vote of a majority of the directors
then in office, although less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected for
the unexpired term of such director’s predecessor in office,
and a director chosen to fill a position resulting from a
newly-created directorship shall hold office until the next annual
meeting of stockholders and until a successor is elected and
qualified, or until such director’s earlier death,
resignation or removal.
2.9
Resignation
. Any director may
resign by delivering a resignation in writing or by electronic
transmission to the corporation at its principal office or to the
Chairman of the Board, the Chief Executive Officer, the President
or the Secretary. Such resignation shall be effective upon delivery
unless it is specified to be effective at some later time or upon
the happening of some later event.
2.10
Regular
Meetings
. Regular meetings
of the Board of Directors may be held without notice at such time
and place as shall be determined from time to time by the Board of
Directors; provided that any director who is absent when such a
determination is made shall be given notice of the determination. A
regular meeting of the Board of Directors may be held without
notice immediately after and at the same place as the annual
meeting of stockholders.
2.11
Special
Meetings
. Special meetings
of the Board of Directors may be held at any time and place
designated in a call by the Chairman of the Board, the Chief
Executive Officer, the President, two or more directors, or by one
director in the event that there is only a single director in
office.
2.12
Notice of Special
Meetings
. Notice of the
date, place, if any, and time of any special meeting of directors
shall be given to each director by the Secretary or by the officer
or one of the directors calling the meeting. Notice shall be duly
given to each director (a) in person or by telephone at least 24
hours in advance of the meeting, (b) by sending written notice by
reputable overnight courier, telecopy, facsimile or electronic
transmission, or delivering written notice by hand, to such
director’s last known business, home or electronic
transmission address at least 48 hours in advance of the meeting,
or (c) by sending written notice by first-class mail to such
director’s last known business or home address at least 72
hours in advance of the meeting. A notice or waiver of notice of a
meeting of the Board of Directors need not specify the purposes of
the meeting.
2.13
Meetings by Conference Communications
Equipment
. Directors may
participate in meetings of the Board of Directors or any committee
thereof by means of conference telephone or other communications
equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall
constitute presence in person at such meeting.
2.14
Action by
Consent
. Any action
required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a
meeting, if all members of the Board of Directors or committee, as
the case may be, consent to the action in writing or by electronic
transmission, and the written consents or electronic transmissions
are filed with the minutes of proceedings of the Board of Directors
or committee. 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.
2.15
Committees
. The Board of
Directors may designate one or more committees, each committee to
consist of one or more of the directors of the corporation with
such lawfully delegable powers and duties as the Board of Directors
thereby confers, to serve at the pleasure of the Board of
Directors. 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 of the committee 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 and subject to
the provisions of law, 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 which may require
it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the
Board of Directors may otherwise determine, any committee may make
rules for the conduct of its business, but unless otherwise
provided by the directors or in such rules, its business shall be
conducted as nearly as possible in the same manner as is provided
in these By-laws for the Board of Directors. Except as otherwise
provided in the Certificate of Incorporation, these By-laws, or the
resolution 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.
2.16
Compensation of
Directors
. Directors may be
paid such compensation for their services and such reimbursement
for expenses of attendance at meetings as the Board of Directors
may from time to time determine. No such payment shall preclude any
director from serving the corporation or any of its parent or
subsidiary entities in any other capacity and receiving
compensation for such service.
ARTICLE III
3.1
Titles
. The officers of
the corporation shall consist of a Chief Executive Officer, a
President, a Secretary, a Treasurer and such other officers with
such other titles as the Board of Directors shall determine,
including one or more Vice Presidents, Assistant Treasurers and
Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2
Election
. The Chief
Executive Officer, President, Treasurer and Secretary shall be
elected annually by the Board of Directors at its first meeting
following the annual meeting of stockholders. Other officers may be
appointed by the Board of Directors at such meeting or at any other
meeting.
3.3
Qualification
.
No officer need be a stockholder. Any two or more offices may be
held by the same person.
3.4
Tenure
. Except as
otherwise provided by law, by the Certificate of Incorporation or
by these By-laws, each officer shall hold office until such
officer’s successor is elected and qualified, unless a
different term is specified in the resolution electing or
appointing such officer, or until such officer’s earlier
death, resignation or removal.
3.5
Resignation and
Removal
. Any officer may
resign by delivering a written resignation to the corporation at
its principal office or to the Chief Executive Officer, the
President or the Secretary. Such resignation shall be effective
upon receipt unless it is specified to be effective at some later
time or upon the happening of some later event. Any officer may be
removed at any time, with or without cause, by vote of a majority
of the directors then in office. Except as the Board of Directors
may otherwise determine, no officer who resigns or is removed shall
have any right to any compensation as an officer for any period
following such officer’s resignation or removal, or any right
to damages on account of such removal, whether such officer’s
compensation be by the month or by the year or otherwise, unless
such compensation is expressly provided for in a duly authorized
written agreement with the corporation.
3.6
Vacancies
. The Board of
Directors may fill any vacancy occurring in any office for any
reason and may, in its discretion, leave unfilled for such period
as it may determine any offices other than those of Chief Executive
Officer, President, Treasurer and Secretary. Each such successor
shall hold office for the unexpired term of such officer’s
predecessor and until a successor is elected and qualified, or
until such officer’s earlier death, resignation or
removal.
3.7
President; Chief Executive
Officer
. Unless the Board
of Directors has designated another person as the
corporation’s Chief Executive Officer, the President shall be
the Chief Executive Officer of the corporation. The Chief Executive
Officer shall have general charge and supervision of the business
of the corporation subject to the direction of the Board of
Directors, and shall perform all duties and have all powers that
are commonly incident to the office of chief executive or that are
delegated to such officer by the Board of Directors. The President
shall perform such other duties and shall have such other powers as
the Board of Directors or the Chief Executive Officer (if the
President is not the Chief Executive Officer) may from time to time
prescribe. In the event of the absence, inability or refusal to act
of the Chief Executive Officer or the President (if the President
is not the Chief Executive Officer), the Vice President (or if
there shall be more than one, the Vice Presidents in the order
determined by the Board of Directors) shall perform the duties of
the Chief Executive Officer and when so performing such duties
shall have all the powers of and be subject to all the restrictions
upon the Chief Executive Officer.
3.8
Vice
Presidents
. Each Vice
President shall perform such duties and possess such powers as the
Board of Directors or the Chief Executive Officer may from time to
time prescribe. The Board of Directors may assign to any Vice
President the title of Executive Vice President, Senior Vice
President or any other title selected by the Board of
Directors.
3.9
Secretary and Assistant
Secretaries
. The Secretary
shall perform such duties and shall have such powers as the Board
of Directors or the Chief Executive Officer may from time to time
prescribe. In addition, the Secretary shall perform such duties and
have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of
Directors, to attend all meetings of stockholders and the Board of
Directors and keep a record of the proceedings, to maintain a stock
ledger and prepare lists of stockholders and their addresses as
required, to be custodian of corporate records and the corporate
seal and to affix and attest to the same on documents.
Any
Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the Chief Executive Officer or
the Secretary may from time to time prescribe. In the event of the
absence, inability or refusal to act of the Secretary, the
Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the
Secretary.
In the
absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the chairman of the meeting shall
designate a temporary secretary to keep a record of the
meeting.
3.10
Treasurer and Assistant
Treasurers
. The Treasurer
shall perform such duties and shall have such powers as may from
time to time be assigned by the Board of Directors or the Chief
Executive Officer. In addition, the Treasurer shall perform such
duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep
and be responsible for all funds and securities of the corporation,
to deposit funds of the corporation in depositories selected in
accordance with these By-laws, to disburse such funds as ordered by
the Board of Directors, to make proper accounts of such funds, and
to render as required by the Board of Directors statements of all
such transactions and of the financial condition of the
corporation.
The
Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the Chief Executive Officer or
the Treasurer may from time to time prescribe. In the event of the
absence, inability or refusal to act of the Treasurer, the
Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the
Treasurer.
3.11
Salaries
. Officers of the
corporation shall be entitled to such salaries, compensation or
reimbursement as shall be fixed or allowed from time to time by the
Board of Directors.
3.12
Delegation of
Authority
. The Board of
Directors may from time to time delegate the powers or duties of
any officer to any other officer or agent, notwithstanding any
provision hereof.
ARTICLE IV
4.1
Issuance of
Stock
. Subject to the
provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the
corporation or the whole or any part of any shares of the
authorized capital stock of the corporation held in the
corporation’s treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such
manner, for such lawful consideration and on such terms as the
Board of Directors may determine.
4.2
Stock Certificates; Uncertificated
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. Every holder of stock of the corporation
represented by certificates shall be entitled to have a
certificate, in such form as may be prescribed by law and by the
Board of Directors, representing the number of shares held by such
holder registered in certificate form. Each such certificate shall
be signed in a manner that complies with Section 158 of the General
Corporation Law of the State of Delaware.
Each
certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of
Incorporation, these By-laws, applicable securities laws or any
agreement among any number of stockholders or among such holders
and the corporation shall have conspicuously noted on the face or
back of the certificate either the full text of the restriction or
a statement of the existence of such restriction.
If the
corporation shall be authorized to issue more than one class of
stock or more than one series of any class, 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 shall be set forth in full or summarized on the face
or back of each certificate representing shares of such class or
series of stock, provided that in lieu of the foregoing
requirements there may be set forth on the face or back of each
certificate representing shares of such class or series of stock a
statement that the corporation will furnish without charge to each
stockholder who so requests a copy of the full text of 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 corporation shall send to the registered owner thereof a
written notice containing the information required to be set forth
or stated on certificates pursuant to Sections 151, 202(a) or
218(a) of the General Corporation Law of the State of Delaware or,
with respect to Section 151 of General Corporation Law of the State
of Delaware, 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.
4.3
Transfers
. Shares of stock
of the corporation shall be transferable in the manner prescribed
by law and in these By-laws. Transfers of shares of stock of the
corporation shall be made only on the books of the corporation or
by transfer agents designated to transfer shares of stock of the
corporation. Subject to applicable law, shares of stock represented
by certificates shall be transferred only on the books of the
corporation by the surrender to the corporation or its transfer
agent of the certificate representing such shares properly endorsed
or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the
authenticity of signature as the corporation or its transfer agent
may reasonably require. Except as may be otherwise required by law,
by the Certificate of Incorporation or by these By-laws, the
corporation shall be entitled to treat the record holder of stock
as shown on its books as the owner of such stock for all purposes,
including the payment of dividends and the right to vote with
respect to such stock, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on
the books of the corporation in accordance with the requirements of
these By-laws.
4.4
Lost, Stolen or Destroyed
Certificates
. The corporation
may issue a new certificate of stock in place of any previously
issued certificate alleged to have been lost, stolen or destroyed,
upon such terms and conditions as the Board of Directors may
prescribe, including the presentation of reasonable evidence of
such loss, theft or destruction and the giving of such indemnity
and posting of such bond as the Board of Directors may require for
the protection of the corporation or any transfer agent or
registrar.
4.5
Record Date
. The Board of
Directors may fix in advance a date as a record date for the
determination of the stockholders entitled to notice of or to vote
at any meeting of stockholders or to express consent (or dissent)
to corporate action without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any
rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action. Such record date
shall not precede the date on which the resolution fixing the
record date is adopted, and such record date shall not be more than
60 nor less than 10 days before the date of such meeting, nor more
than 10 days after the date of adoption of a record date for a
consent without a meeting, nor more than 60 days prior to any other
action to which such record date relates.
If no
record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which
notice is given, or, if notice is waived, at the close of business
on the day before the day on which the meeting is held. If no
record date is fixed, the record date for determining stockholders
entitled to express consent to corporate action without a meeting,
when no prior action by the Board of Directors is necessary, shall
be the day on which the first consent is properly delivered to the
corporation. If no record date is fixed, the record date for
determining stockholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts
the resolution relating to such purpose.
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 the adjourned meeting.
4.6
Regulations
. The issue,
transfer, conversion and registration of shares of stock of the
corporation shall be governed by such other regulations as the
Board of Directors may establish.
ARTICLE V
5.1
Fiscal Year
. Except as from
time to time otherwise designated by the Board of Directors, the
fiscal year of the corporation shall begin on the first day of
January of each year and end on the last day of December in each
year.
5.2
Corporate
Seal
. The corporate
seal shall be in such form as shall be approved by the Board of
Directors.
5.3
Waiver of
Notice
. Whenever notice
is required to be given by law, by the Certificate of Incorporation
or by these By-laws, a written waiver, signed by the person
entitled to notice, or a waiver by electronic transmission by the
person entitled to notice, whether before, at or after the time of
the event for which notice is to be given, shall be deemed
equivalent to notice required to be given to such person. Neither
the business nor the purpose of any meeting need be specified in
any such waiver. 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.
5.4
Voting of
Securities
. Except as the
Board of Directors may otherwise designate, the Chief Executive
Officer, the President or the Treasurer may waive notice of, vote,
or appoint any person or persons to vote, on behalf of the
corporation at, and act as, or appoint any person or persons to act
as, proxy or attorney-in-fact for this corporation (with or without
power of substitution) at, any meeting of stockholders or
securityholders of any other entity, the securities of which may be
held by this corporation.
5.5
Evidence of
Authority
. A certificate by
the Secretary, or an Assistant Secretary, or a temporary Secretary,
as to any action taken by the stockholders, directors, a committee
or any officer or representative of the corporation shall as to all
persons who rely on the certificate in good faith be conclusive
evidence of such action.
5.6
Certificate of
Incorporation
. All references in
these By-laws to the Certificate of Incorporation shall be deemed
to refer to the Certificate of Incorporation of the corporation, as
amended and in effect from time to time.
5.7
Severability
.
Any determination that any provision of these By-laws is for any
reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-laws.
5.8
Pronouns
. All pronouns used
in these By-laws shall be deemed to refer to the masculine,
feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE VI
6.1
By the Board of
Directors
. These By-laws may
be altered, amended or repealed, in whole or in part, or new
by-laws may be adopted by the Board of Directors.
6.2
By the
Stockholders
. These By-laws may
be altered, amended or repealed, in whole or in part, or new
by-laws may be adopted by the affirmative vote of the holders of a
majority of the shares of the capital stock of the corporation
issued and outstanding and entitled to vote at any annual meeting
of stockholders, or at any special meeting of stockholders,
provided notice of such alteration, amendment, repeal or adoption
of new by-laws shall have been stated in the notice of such special
meeting.
Exhibit
3.5
STATE OF
DELAWARE
CERTIFICATE OF
AMENDMENT
OF CERTIFICATE OF
INCORPORATION
The
corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware does hereby
certify:
FIRST:
That by resolution of the Board of Directors of ENDRA
Inc. (the “Board of Directors”) setting forth a
proposed amendment of the Third Amended and Restated Certificate of
Incorporation of said corporation, the Board of Directors declared
said amendment to be advisable and authorized, approved and adopted
said amendment. The resolution setting forth the proposed amendment
is as follows:
NOW,
THEREFORE, BE IT RESOLVED, that the resolution FIRST set forth in
the fourth paragraph of the Third Amended and Restated Certificate
of Incorporation be deleted in its entirety and the following new
resolution be substituted in lieu thereof:
FIRST:
“The name of the
corporation is: ENDRA Life Sciences Inc. (the “
Corporation
”).”
SECOND:
That said amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law
of the State of Delaware.
In Witness Whereof,
said corporation has caused this
certificate to be signed this ___ day of November
2016.
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ENDRA
Inc.
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By:
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/s/
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Francois Michelon,
Chief Executive Officer
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THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
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Dated:
September 22, 2014
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Warrant Number: 09222014
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WARRANT TO PURCHASE
COMMON STOCK OF
ENDRA INC.
This
certifies that ___________, or assigns (collectively, the
“
Holder
”), for
value received, is entitled to purchase, at an exercise price per
share equal to $0.13 (the “
Exercise Price
”), from
ENDRA INC.
, a Delaware
corporation (the “
Company
”), up to one million five
hundred thousand (1,500,000) fully paid and nonassessable shares of
the Company’s Common Stock (the “
Common Stock
”). This Warrant
shall be exercisable at any time from time to time from and after
the date of issuance hereof (the “
Issuance Date
”) up to and
including 5:00 p.m. (Pacific Time) on the first to occur of (i) the
second (2
nd
) anniversary of the
Issuance Date or (ii) on the closing date of a financing
transaction resulting in the Company receiving gross proceeds of at
least $5.0 million at a valuation, calculated prior to the date of
consummation of the financing, of at least $10.0 million (a
“
Qualified
Financing
”) (such earlier date being referred to
herein as the “
Expiration
Date
”), upon surrender to the Company at its principal
office (or at such other location as the Company may advise the
Holder in writing) of this Warrant properly endorsed with
(i) the Form of Subscription attached hereto duly completed
and executed and (ii) payment pursuant to Section 2 of
the aggregate Exercise Price for the number of shares for which
this Warrant is being exercised determined in accordance with the
provisions hereof. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment as provided in
Section 4 of this Warrant.
In the
event this Warrant terminates prior to the second (2
nd
) anniversary of the
Issuance Date due to the consummation of a Qualified Financing, and
the Holder hereof has not otherwise exercised this Warrant, upon
surrender of this Warrant to the Company, the Holder hereof shall
be entitled to receive an amount equal to the following
(“
Callable
Amount
”):
|
Callable Amount
|
=
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The Warrant Shares x ((the price per share of Common Stock issued
in connection with the Qualified Financing – (the total
Exercise Price under the terms of this Warrant))
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1.
Exercise; Issuance of Certificates;
Acknowledgement
. This Warrant is exercisable at the option
of the holder of record hereof, at any time or from time to time
from or after the Issuance Date up to the Expiration Date for all
or any part of the Warrant Shares (but not for a fraction of a
share), which may be purchased hereunder. The Company agrees that
the shares of Common Stock purchased under this Warrant shall be
and are deemed to be issued to the Holder hereof as the record
owner of such shares as of the close of business on the date on
which this Warrant shall have been surrendered, properly endorsed,
the completed, executed Form of Subscription delivered and payment
made for such shares. Certificates for the shares of the Common
Stock so purchased, together with any other securities or property
to which the Holder hereof is entitled upon such exercise, shall be
delivered to the Holder hereof by the Company’s transfer
agent at the Company’s expense within a reasonable time after
the rights represented by this Warrant have been so exercised. Each
certificate so delivered shall be in such denominations of the
Warrant Shares as may be requested by the Holder hereof and shall
be registered in the name of such Holder. In case of a purchase of
less than all the Warrant Shares, the Company shall execute and
deliver to Holder within a reasonable time an Acknowledgement in
the form attached hereto indicating the number of Warrant Shares
which remain subject to this Warrant, if any.
2.
Payment for Shares
. The
aggregate purchase price for Warrant Shares being purchased
hereunder may be paid either by check, cash or wire transfer of
immediately available funds.
3.
Shares to be Fully Paid; Reservation
of Shares
. The Company covenants and agrees that all shares
of Common Stock which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free
from all preemptive rights of any shareholder and free of all
taxes, liens and charges with respect to the issue thereof. The
Company further covenants and agrees that during the period within
which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved, for the
purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of
authorized but unissued shares of Common Stock, or other securities
and property, when and as required to provide for the exercise of
the rights represented by this Warrant.
4.
Adjustment of Exercise Price and
Number of Shares
. The Exercise Price and the number of
shares purchasable upon the exercise of this Warrant shall be
subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each
adjustment of the Exercise Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of shares obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment
by the number of shares purchasable pursuant hereto immediately
prior to such adjustment, and dividing the product thereof by the
Exercise Price resulting from such adjustment.
4.1
Subdivisions,
Combinations and Dividends
. In case the Company shall at any
time subdivide its outstanding shares of Common Stock into a
greater number of shares or pay a dividend in Common Stock in
respect of outstanding shares of Common Stock, the Exercise Price
in effect immediately prior to such subdivision or at the record
date of such dividend shall be proportionately reduced, and
conversely, in case the outstanding shares of the Common Stock of
the Company shall be combined into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination
shall be proportionately increased.
4.2
Reclassification
.
If any reclassification of the capital stock of the Company shall
be effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities, or other assets or property,
then, as a condition of such reclassification, lawful and adequate
provisions shall be made whereby the Holder hereof shall thereafter
have the right to purchase and receive (in lieu of the shares of
the Common Stock immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby) such shares of
stock, securities or other assets or property as may be issued or
payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby. In any
reclassification described above, appropriate provision shall be
made with respect to the rights and interests of the Holder of this
Warrant to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of
the number of shares purchasable and receivable upon the exercise
of this Warrant) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof.
4.3
Notice
of Adjustment
. Upon any adjustment of the Exercise Price or
any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant, the Company shall give written notice
thereof, by first class mail postage prepaid, addressed to the
registered Holder of this Warrant at the address of such Holder as
shown on the books of the Company. The notice shall be signed by
the Company’s chief financial officer and shall state the
Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price
upon the exercise of this Warrant, setting forth in reasonable
detail the method of calculation and the facts upon which such
calculation is based.
4.4
Other
Notices
. If at any time:
(1) the
Company shall declare any cash dividend upon its Common
Stock;
(2) there
shall be a Change of Control; or
(3) there
shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then,
in any one or more of said cases, the Company shall give, by first
class mail, postage prepaid, addressed to the Holder of this
Warrant at the address of such Holder as shown on the books of the
Company, (a) at least twenty (20) days prior written notice of the
date on which the books of the Company shall close or a record
shall be taken for such dividend or for determining rights to vote
in respect of any such Change of Control or dissolution,
liquidation or winding-up, and (b) in the case of any such Change
of Control or dissolution, liquidation or winding-up, at least
twenty (20) days prior written notice of the date when the same
shall take place; provided, however, that the Holder shall make a
best efforts attempt to respond to such notice as early as possible
after the receipt thereof. Any notice given in accordance with the
foregoing clause (a) shall also specify, in the case of any such
dividend, the date on which the holders of Common Stock shall be
entitled thereto. Any notice given in accordance with the foregoing
clause (b) shall also specify the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such Change of
Control, dissolution, liquidation, winding-up or conversion, as the
case may be.
5.
No Voting or Dividend Rights
.
Nothing contained in this Warrant shall be construed as conferring
upon the Holder hereof the right to vote or to consent to receive
notice as a shareholder of the Company or any other matters or any
rights whatsoever as a shareholder of the Company. No dividends or
interest shall be payable or accrued in respect of this Warrant or
the interest represented hereby or the shares purchasable hereunder
until, and only to the extent that, this Warrant shall have been
exercised.
6.
Warrants Transferable
. Subject
to compliance with applicable federal and state securities laws,
this Warrant and all rights hereunder may be transferred, in whole
or in part, without charge to the holder hereof (except for
transfer taxes), upon the prior written consent of the Company and,
thereafter, upon surrender of this Warrant properly endorsed and
compliance with the provisions hereof. Each taker and holder of
this Warrant, by taking or holding the same, consents and agrees
that this Warrant, when endorsed in blank, shall be deemed
negotiable, and that the holder hereof, when this Warrant shall
have been so endorsed, may be treated by the Company, at the
Company’s option, and all other persons dealing with this
Warrant as the absolute owner hereof for any purpose and as the
person entitled to exercise the rights represented by this Warrant,
or to the transfer hereof on the books of the Company and notice to
the contrary notwithstanding; but until such transfer on such
books, the Company may treat the registered owner hereof as the
owner for all purposes.
7.
Lost Warrants
. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any
such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such
mutilation upon surrender and cancellation of such Warrant, the
Company, at its expense, will make and deliver a new Warrant, of
like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant.
8.
Modification and Waiver
. Any
term of this Warrant may be amended and the observance of any term
of this Warrant may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the
written consent of the Company and the Holder hereof. Any amendment
or waiver effected in accordance with this paragraph shall be
binding upon the Company and the Holder.
9.
Notices
. All notices and other
communications from the Company to the Holder, or vice versa, shall
be deemed delivered and effective when given personally or mailed
by first-class registered or certified mail, postage prepaid, at
such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such
holder from time to time.
10.
Titles and Subtitles; Governing Law;
Venue
. 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. This Warrant is to be
construed in accordance with and governed by the internal laws of
the State of California without giving effect to any choice of law
rule that would cause the application of the laws of any
jurisdiction other than the internal laws of the State of
California to the rights and duties of the Company and the Holder.
All disputes and controversies arising out of or in connection with
this Warrant shall be resolved exclusively by the state and federal
courts located in San Mateo County in the State of California, and
each of the Company and the Holder hereto agrees to submit to the
jurisdiction of said courts and agrees that venue shall lie
exclusively with such courts.
[Signature Page Follows]
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized as of the date
first above written.
ENDRA
INC.
Name:
Michael Thornton
Title:
Chief Executive Officer
[Signature Page to Warrant to Purchase Common Stock]
5
FORM
OF SUBSCRIPTION
(To be
signed only upon exercise of Warrant)
To:
ENDRA INC.
The
undersigned, the holder of a right to purchase shares of Common
Stock of
ENDRA INC.
, a
Delaware corporation (the “
Company
”), pursuant to that
certain Warrant to Purchase Common Stock of Endra Inc.
Number
09222014
(the “
Warrant
”), dated as of
______________, 2014, hereby irrevocably elects to exercise the
purchase right represented by such Warrant for, and to purchase
thereunder, __________________________ (_________) shares of Common
Stock of the Company and herewith makes payment of
_________________________________ Dollars ($__________) therefor in
cash.
DATED:
________________
Dala,
LLC
By:
_____________________________________
Name:
___________________________________
Its:
______________________________________
ACKNOWLEDGMENT
To:
Dala, LLC,
The
undersigned hereby acknowledges that as of the date hereof,
__________________ (___________) shares of Common Stock remain
subject to the right of purchase in favor of __________________
pursuant to that certain Warrant to Purchase Common Stock of Endra
Inc. Number 09222014 dated as of September 22, 2014.
DATED:
________________
ENDRA
INC.
By:
_____________________________________
Name:
___________________________________
Title:
____________________________________
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
|
Dated:___________
|
Warrant Number: ____________
|
WARRANT TO PURCHASE
COMMON STOCK OF
ENDRA, INC.
This
certifies that __________________, or assigns (collectively, the
“
Holder
”), for
value received, is entitled to purchase, at an exercise price per
share equal to $_____ (the “
Exercise Price
”), from
ENDRA, INC.
, a Delaware
corporation (the “
Company
”), up to ____________
(_________) fully paid and nonassessable shares of the
Company’s Common Stock (the “
Common Stock
”). This Warrant
shall be exercisable at any time from time to time from and after
the date of issuance hereof (the “
Issuance Date
”) up to and
including 5:00 p.m. (Pacific Time) on the first to occur of (i) the
second (2
nd
) anniversary of the
Issuance Date or (ii) on the closing date of a financing
transaction resulting in the Company receiving gross proceeds of at
least $5.0 million at a valuation, calculated prior to the date of
consummation of the financing, of at least $10.0 million (a
“
Qualified
Financing
”) (such earlier date being referred to
herein as the “
Expiration
Date
”), upon surrender to the Company at its principal
office (or at such other location as the Company may advise the
Holder in writing) of this Warrant properly endorsed with
(i) the Form of Subscription attached hereto duly completed
and executed and (ii) payment pursuant to Section 2 of
the aggregate Exercise Price for the number of shares for which
this Warrant is being exercised determined in accordance with the
provisions hereof. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment as provided in
Section 4 of this Warrant.
In the
event this Warrant terminates prior to the second (2
nd
) anniversary of the
Issuance Date due to the consummation of a Qualified Financing, and
the Holder hereof has not otherwise exercised this Warrant, upon
surrender of this Warrant to the Company, the Holder hereof shall
be entitled to receive an amount equal to the following
(“
Callable
Amount
”):
|
Callable Amount
|
=
|
The Warrant Shares x ((the price per share of Common Stock issued
in connection with the Qualified Financing – (the total
Exercise Price under the terms of this Warrant))
|
1.
Exercise; Issuance of Certificates;
Acknowledgement
. This Warrant is exercisable at the option
of the holder of record hereof, at any time or from time to time
from or after the Issuance Date up to the Expiration Date for all
or any part of the Warrant Shares (but not for a fraction of a
share), which may be purchased hereunder. The Company agrees that
the shares of Common Stock purchased under this Warrant shall be
and are deemed to be issued to the Holder hereof as the record
owner of such shares as of the close of business on the date on
which this Warrant shall have been surrendered, properly endorsed,
the completed, executed Form of Subscription delivered and payment
made for such shares. Certificates for the shares of the Common
Stock so purchased, together with any other securities or property
to which the Holder hereof is entitled upon such exercise, shall be
delivered to the Holder hereof by the Company’s transfer
agent at the Company’s expense within a reasonable time after
the rights represented by this Warrant have been so exercised. Each
certificate so delivered shall be in such denominations of the
Warrant Shares as may be requested by the Holder hereof and shall
be registered in the name of such Holder. In case of a purchase of
less than all the Warrant Shares, the Company shall execute and
deliver to Holder within a reasonable time an Acknowledgement in
the form attached hereto indicating the number of Warrant Shares
which remain subject to this Warrant, if any.
2.
Payment for Shares
. The
aggregate purchase price for Warrant Shares being purchased
hereunder may be paid either by check, cash or wire transfer of
immediately available funds.
3.
Shares to be Fully Paid; Reservation
of Shares
. The Company covenants and agrees that all shares
of Common Stock which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free
from all preemptive rights of any shareholder and free of all
taxes, liens and charges with respect to the issue thereof. The
Company further covenants and agrees that during the period within
which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved, for the
purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of
authorized but unissued shares of Common Stock, or other securities
and property, when and as required to provide for the exercise of
the rights represented by this Warrant.
4.
Adjustment of Exercise Price and
Number of Shares
. The Exercise Price and the number of
shares purchasable upon the exercise of this Warrant shall be
subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each
adjustment of the Exercise Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of shares obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment
by the number of shares purchasable pursuant hereto immediately
prior to such adjustment, and dividing the product thereof by the
Exercise Price resulting from such adjustment.
4.1
Subdivisions,
Combinations and Dividends
. In case the Company shall at any
time subdivide its outstanding shares of Common Stock into a
greater number of shares or pay a dividend in Common Stock in
respect of outstanding shares of Common Stock, the Exercise Price
in effect immediately prior to such subdivision or at the record
date of such dividend shall be proportionately reduced, and
conversely, in case the outstanding shares of the Common Stock of
the Company shall be combined into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination
shall be proportionately increased.
4.2
Reclassification
.
If any reclassification of the capital stock of the Company shall
be effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities, or other assets or property,
then, as a condition of such reclassification, lawful and adequate
provisions shall be made whereby the Holder hereof shall thereafter
have the right to purchase and receive (in lieu of the shares of
the Common Stock immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby) such shares of
stock, securities or other assets or property as may be issued or
payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby. In any
reclassification described above, appropriate provision shall be
made with respect to the rights and interests of the Holder of this
Warrant to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of
the number of shares purchasable and receivable upon the exercise
of this Warrant) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof.
4.3
Notice
of Adjustment
. Upon any adjustment of the Exercise Price or
any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant, the Company shall give written notice
thereof, by first class mail postage prepaid, addressed to the
registered Holder of this Warrant at the address of such Holder as
shown on the books of the Company. The notice shall be signed by
the Company’s chief financial officer and shall state the
Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price
upon the exercise of this Warrant, setting forth in reasonable
detail the method of calculation and the facts upon which such
calculation is based.
4.4
Other
Notices
. If at any time:
(1) the
Company shall declare any cash dividend upon its Common
Stock;
(2) there
shall be a Change of Control; or
(3) there
shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then,
in any one or more of said cases, the Company shall give, by first
class mail, postage prepaid, addressed to the Holder of this
Warrant at the address of such Holder as shown on the books of the
Company, (a) at least twenty (20) days prior written notice of the
date on which the books of the Company shall close or a record
shall be taken for such dividend or for determining rights to vote
in respect of any such Change of Control or dissolution,
liquidation or winding-up, and (b) in the case of any such Change
of Control or dissolution, liquidation or winding-up, at least
twenty (20) days prior written notice of the date when the same
shall take place; provided, however, that the Holder shall make a
best efforts attempt to respond to such notice as early as possible
after the receipt thereof. Any notice given in accordance with the
foregoing clause (a) shall also specify, in the case of any such
dividend, the date on which the holders of Common Stock shall be
entitled thereto. Any notice given in accordance with the foregoing
clause (b) shall also specify the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such Change of
Control, dissolution, liquidation, winding-up or conversion, as the
case may be.
5.
No Voting or Dividend Rights
.
Nothing contained in this Warrant shall be construed as conferring
upon the Holder hereof the right to vote or to consent to receive
notice as a shareholder of the Company or any other matters or any
rights whatsoever as a shareholder of the Company. No dividends or
interest shall be payable or accrued in respect of this Warrant or
the interest represented hereby or the shares purchasable hereunder
until, and only to the extent that, this Warrant shall have been
exercised.
6.
Warrants Transferable
. Subject
to compliance with applicable federal and state securities laws,
this Warrant and all rights hereunder may be transferred, in whole
or in part, without charge to the holder hereof (except for
transfer taxes), upon the prior written consent of the Company and,
thereafter, upon surrender of this Warrant properly endorsed and
compliance with the provisions hereof. Each taker and holder of
this Warrant, by taking or holding the same, consents and agrees
that this Warrant, when endorsed in blank, shall be deemed
negotiable, and that the holder hereof, when this Warrant shall
have been so endorsed, may be treated by the Company, at the
Company’s option, and all other persons dealing with this
Warrant as the absolute owner hereof for any purpose and as the
person entitled to exercise the rights represented by this Warrant,
or to the transfer hereof on the books of the Company and notice to
the contrary notwithstanding; but until such transfer on such
books, the Company may treat the registered owner hereof as the
owner for all purposes.
7.
Lost Warrants
. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any
such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such
mutilation upon surrender and cancellation of such Warrant, the
Company, at its expense, will make and deliver a new Warrant, of
like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant.
8.
Modification and Waiver
. Any
term of this Warrant may be amended and the observance of any term
of this Warrant may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the
written consent of the Company and the Holder hereof. Any amendment
or waiver effected in accordance with this paragraph shall be
binding upon the Company and the Holder.
9.
Notices
. All notices and other
communications from the Company to the Holder, or vice versa, shall
be deemed delivered and effective when given personally or mailed
by first-class registered or certified mail, postage prepaid, at
such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such
holder from time to time.
10.
Titles and Subtitles; Governing Law;
Venue
. 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. This Warrant is to be
construed in accordance with and governed by the internal laws of
the State of California without giving effect to any choice of law
rule that would cause the application of the laws of any
jurisdiction other than the internal laws of the State of
California to the rights and duties of the Company and the Holder.
All disputes and controversies arising out of or in connection with
this Warrant shall be resolved exclusively by the state and federal
courts located in San Mateo County in the State of California, and
each of the Company and the Holder hereto agrees to submit to the
jurisdiction of said courts and agrees that venue shall lie
exclusively with such courts.
[Signature Page Follows]
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized as of the date
first above written.
ENDRA,
INC.
Name:
Michael Thornton
Title:
President
[Signature Page to Warrant to Purchase Common Stock]
5
FORM
OF SUBSCRIPTION
(To be
signed only upon exercise of Warrant)
To:
ENDRA, INC.
The
undersigned, the holder of a right to purchase shares of Common
Stock of
ENDRA, INC.
, a
Delaware corporation (the “
Company
”), pursuant to that
certain Warrant to Purchase Common Stock of Endra, Inc.
Number
___
(the “
Warrant
”), dated as of
______________, ____, hereby irrevocably elects to exercise the
purchase right represented by such Warrant for, and to purchase
thereunder, __________________________ (_________) shares of Common
Stock of the Company and herewith makes payment of
_________________________________ Dollars ($__________) therefor in
cash.
DATED:
________________
[NAME
OF HOLDER]
By:
Name:
Its:
ACKNOWLEDGMENT
To:
[Name of Holder]
The
undersigned hereby acknowledges that as of the date hereof,
__________________ (___________) shares of Common Stock remain
subject to the right of purchase in favor of __________________
pursuant to that certain Warrant to Purchase Common Stock of Endra,
Inc. Number ____ dated as of __________, ____.
DATED:
________________
ENDRA,
INC.
By:
Name:
Title:
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
|
Dated:
___________
|
Warrant Number: ___________
|
WARRANT TO PURCHASE
COMMON STOCK OF
ENDRA, INC.
This
certifies that ___________, or assigns (collectively, the
“
Holder
”), for
value received, is entitled to purchase, at an exercise price per
share equal to $5.72 (the “
Exercise Price
”), from
ENDRA, INC.
, a Delaware
corporation (the “
Company
”), up to ___________
(___________) fully paid and nonassessable shares (the
“
Warrant
Shares
”) of the Company’s Common Stock (the
“
Common
Stock
”). This Warrant shall be exercisable at any time
from time to time from and after the date of issuance hereof (the
“
Issuance
Date
”) up to and including 5:00 p.m. (Pacific Time) on
the fifth (5
th
) anniversary of the
Issuance Date (such date being referred to herein as the
“
Expiration
Date
”), upon surrender to the Company at its principal
office (or at such other location as the Company may advise the
Holder in writing) of this Warrant properly endorsed with
(i) the Form of Subscription attached hereto duly completed
and executed and (ii) if applicable, payment pursuant to
Section 4 of the aggregate Exercise Price for the number of
shares for which this Warrant is being exercised determined in
accordance with the provisions hereof. The Exercise Price and the
number of shares purchasable hereunder are subject to adjustment as
provided in Sections 6 and 7 of this Warrant.
1.
Exercise
. This Warrant is
exercisable at the option of the holder of record hereof, at any
time or from time to time from or after the Issuance Date up to the
Expiration Date for all or any part of the Warrant Shares (but not
for a fraction of a share), which may be purchased hereunder. The
Company agrees that the shares of Common Stock purchased under this
Warrant shall be and are deemed to be issued to the Holder hereof
as the record owner of such shares as of the close of business on
the date on which this Warrant shall have been surrendered,
properly endorsed, the completed, executed Form of Subscription
delivered and, if applicable, payment made for such shares. If at
the time of exercise hereof the Company has completed its initial
public offering, 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) =
the average closing price for each of the five trading days
immediately preceding the date on which Holder elects to exercise
this Warrant by means of a “cashless exercise,” as set
forth in the applicable Form of Subscription;
(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.
2.
Issuance of Certificate
.
Certificates for the shares of the Common Stock so purchased,
together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the
Holder hereof by the Company’s transfer agent at the
Company’s expense within a reasonable time after the rights
represented by this Warrant have been so exercised. Each
certificate so delivered shall be in such denominations of the
Warrant Shares as may be requested by the Holder hereof and shall
be registered in the name of such Holder.
3.
Acknowledgement
. In case of a
purchase of less than all the Warrant Shares, the Company shall
execute and deliver to Holder within a reasonable time an
Acknowledgement in the form attached hereto indicating the number
of Warrant Shares which remain subject to this Warrant, if
any.
4.
Payment for Shares
. Unless the
Warrant is exercised pursuant to the cashless exercise provisions
of Section 1, the aggregate purchase price for Warrant Shares being
purchased hereunder may be paid either by check, cash or wire
transfer of immediately available funds.
5.
Shares to be Fully Paid; Reservation
of Shares
. The Company covenants and agrees that all shares
of Common Stock which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free
from all preemptive rights of any shareholder and free of all
taxes, liens and charges with respect to the issue thereof. The
Company further covenants and agrees that during the period within
which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved, for the
purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of
authorized but unissued shares of Common Stock, or other securities
and property, when and as required to provide for the exercise of
the rights represented by this Warrant.
6.
Adjustment of Exercise Price Upon
First Qualified Financing
. From or after the Issuance Date
up to the Expiration Date, if the Company consummates an equity
financing transaction resulting in the Company receiving gross
proceeds of at least $1.0 million (a “
Qualified Financing
”), then the
Exercise Price of the Warrant shall immediately be adjusted to the
greater of (i) per share valuation of the Common Stock issued in
such Qualified Financing and (ii) $2.86; provided, however, in no
event shall the Exercise Price be adjusted upward. For the
avoidance of doubt, if the Company consummates a Qualified
Financing with a per share valuation of the Common Stock greater
than $5.72, no adjustment will be made to the Exercise Price and
this Section 6 shall terminate and be of no effect. The adjustment
provisions of this Section 6 shall (A) only be applicable to the
first Qualified Financing consummated by the Company (B) only apply
to the Exercise Price of the Warrant and shall have no affect on
the number of Warrant Shares.
7.
Adjustment of Exercise Price and
Number of Shares
. The Exercise Price and the number of
shares purchasable upon the exercise of this Warrant shall be
subject to adjustment from time to time upon the occurrence of
certain events described in this Section 7. Upon each
adjustment of the Exercise Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of shares obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment
by the number of shares purchasable pursuant hereto immediately
prior to such adjustment, and dividing the product thereof by the
Exercise Price resulting from such adjustment.
7.1
Subdivisions,
Combinations and Dividends
. In case the Company shall at any
time subdivide its outstanding shares of Common Stock into a
greater number of shares or pay a dividend in Common Stock in
respect of outstanding shares of Common Stock, the Exercise Price
in effect immediately prior to such subdivision or at the record
date of such dividend shall be proportionately reduced, and
conversely, in case the outstanding shares of the Common Stock of
the Company shall be combined into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination
shall be proportionately increased.
7.2
Reclassification
.
If any reclassification of the capital stock of the Company shall
be effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities, or other assets or property,
then, as a condition of such reclassification, lawful and adequate
provisions shall be made whereby the Holder hereof shall thereafter
have the right to purchase and receive (in lieu of the shares of
the Common Stock immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby) such shares of
stock, securities or other assets or property as may be issued or
payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby. In any
reclassification described above, appropriate provision shall be
made with respect to the rights and interests of the Holder of this
Warrant to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Exercise Price and of
the number of shares purchasable and receivable upon the exercise
of this Warrant) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof.
7.3
Notice
of Adjustment
. Upon any adjustment of the Exercise Price or
any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant, the Company shall give written notice
thereof, by first class mail postage prepaid, addressed to the
registered Holder of this Warrant at the address of such Holder as
shown on the books of the Company. The notice shall be signed by
the Company’s chief financial officer and shall state the
Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price
upon the exercise of this Warrant, setting forth in reasonable
detail the method of calculation and the facts upon which such
calculation is based.
7.4
Other
Notices
. If at any time:
(1) the
Company shall declare any cash dividend upon its Common
Stock;
(2) there
shall be a Change of Control; or
(3) there
shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then,
in any one or more of said cases, the Company shall give, by first
class mail, postage prepaid, addressed to the Holder of this
Warrant at the address of such Holder as shown on the books of the
Company, (a) at least twenty (20) days prior written notice of the
date on which the books of the Company shall close or a record
shall be taken for such dividend or for determining rights to vote
in respect of any such Change of Control or dissolution,
liquidation or winding-up, and (b) in the case of any such Change
of Control or dissolution, liquidation or winding-up, at least
twenty (20) days prior written notice of the date when the same
shall take place; provided, however, that the Holder shall make a
best efforts attempt to respond to such notice as early as possible
after the receipt thereof. Any notice given in accordance with the
foregoing clause (a) shall also specify, in the case of any such
dividend, the date on which the holders of Common Stock shall be
entitled thereto. Any notice given in accordance with the foregoing
clause (b) shall also specify the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such Change of
Control, dissolution, liquidation, winding-up or conversion, as the
case may be.
8.
No Voting or Dividend Rights
.
Nothing contained in this Warrant shall be construed as conferring
upon the Holder hereof the right to vote or to consent to receive
notice as a shareholder of the Company or any other matters or any
rights whatsoever as a shareholder of the Company. No dividends or
interest shall be payable or accrued in respect of this Warrant or
the interest represented hereby or the shares purchasable hereunder
until, and only to the extent that, this Warrant shall have been
exercised.
9.
Warrants Transferable
. Subject
to compliance with applicable federal and state securities laws,
this Warrant and all rights hereunder may be transferred, in whole
or in part, without charge to the holder hereof (except for
transfer taxes), upon the prior written consent of the Company and,
thereafter, upon surrender of this Warrant properly endorsed and
compliance with the provisions hereof. Each taker and holder of
this Warrant, by taking or holding the same, consents and agrees
that this Warrant, when endorsed in blank, shall be deemed
negotiable, and that the holder hereof, when this Warrant shall
have been so endorsed, may be treated by the Company, at the
Company’s option, and all other persons dealing with this
Warrant as the absolute owner hereof for any purpose and as the
person entitled to exercise the rights represented by this Warrant,
or to the transfer hereof on the books of the Company and notice to
the contrary notwithstanding; but until such transfer on such
books, the Company may treat the registered owner hereof as the
owner for all purposes.
10.
Lost Warrants
. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any
such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such
mutilation upon surrender and cancellation of such Warrant, the
Company, at its expense, will make and deliver a new Warrant, of
like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant.
11.
Modification and Waiver
. Any
term of this Warrant may be amended and the observance of any term
of this Warrant may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the
written consent of the Company and the Holder hereof. Any amendment
or waiver effected in accordance with this paragraph shall be
binding upon the Company and the Holder.
12.
Notices
. All notices and other
communications from the Company to the Holder, or vice versa, shall
be deemed delivered and effective when given personally or mailed
by first-class registered or certified mail, postage prepaid, at
such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such
holder from time to time.
13.
Titles and Subtitles; Governing Law;
Venue
. 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. This Warrant is to be
construed in accordance with and governed by the internal laws of
the State of Delaware without giving effect to any choice of law
rule that would cause the application of the laws of any
jurisdiction other than the internal laws of the State of Delaware
to the rights and duties of the Company and the Holder. All
disputes and controversies arising out of or in connection with
this Warrant shall be resolved exclusively by the state and federal
courts located in the State of Delaware, and each of the Company
and the Holder hereto agrees to submit to the jurisdiction of said
courts and agrees that venue shall lie exclusively with such
courts.
[Signature Page Follows]
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized as of the date
first above written.
ENDRA,
INC.
Name:
Michael Thornton
Title:
President
[Signature Page to Warrant to Purchase Common Stock]
6
FORM
OF SUBSCRIPTION
(To be
signed only upon exercise of Warrant)
To:
ENDRA, INC.
(1) The
undersigned, the holder of a right to purchase shares of Common
Stock of
ENDRA, INC.
, a
Delaware corporation (the “
Company
”), pursuant to that
certain Warrant to Purchase Common Stock of Endra, Inc.
Number
____________ (the
“
Warrant
”),
dated as of ____________, 2015, hereby irrevocably elects to
exercise the purchase right represented by such Warrant for, and to
purchase thereunder, __________________________ (_________) shares
of Common Stock of the Company and tenders herewith payment of the
exercise price in full.
(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 Section 1,
to exercise this Warrant with respect to the maximum number of
Warrant Shares purchasable pursuant to the cashless exercise
procedure set forth in Section 1.
(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 or by physical delivery of a certificate to:
_______________________________
_______________________________
_______________________________
(4) If
the undersigned is requesting DWAC share delivery, the undersigned
hereby makes the following representations and warranties to the
Company:
1.
I am not now, and
have not been during the preceding three months, an officer,
director, or holder of 10% or more of the outstanding shares of the
Company or in any other way an “affiliate” of the
Company (as that term is defined in Rule 144(a)(1) under the
Securities Act of 1933).
(a)
❑
I confirm that I
have been the beneficial owner of the Warrant for a period of at
least six (6) months, but less than one year; and
(b)
❑
I confirm that, to
the best of my knowledge, the Company is in compliance with the
current public information reporting requirements contained in Rule
144(c)(1).
or
(c)
❑
I confirm that I
have been the beneficial owner of the Warrant for a period of
at least one (1) year as computed in accordance with paragraph (d)
of Rule 144, and therefore am free to sell the shares without
restriction.
(5)
Accredited Investor. The undersigned is an “accredited
investor” as defined in Regulation D promulgated under the
Securities Act of 1933, as amended.
[Signature Follows
on Next Page]
Name of
Investing Entity:
Signature of Authorized Signatory of Investing
Entity
:
Name of
Authorized Signatory:
Title
of Authorized Signatory:
Date:
ACKNOWLEDGMENT
To:
____________
The
undersigned hereby acknowledges that as of the date hereof,
__________________ (___________) shares of Common Stock remain
subject to the right of purchase in favor of __________________
pursuant to that certain Warrant to Purchase Common Stock of Endra,
Inc. Number ____________ dated as of ____________,
2015.
DATED:
________________
ENDRA,
INC.
By:
Name:
Title:
ENDRA,
INC.
SENIOR
PROMISSORY NOTE
|
$____________
(“
Principal
Amount
”)
|
Dated:
___________
(“
Issuance
Date
”)
|
FOR
VALUE RECEIVED, Endra, Inc., a Delaware corporation (the
“
Company
”),
hereby promises to pay to the order of the ____________________
(“
Holder
”), or
his registered assigns, the aggregate principal amount of
___________________ (US $____________) together with interest
thereon calculated from the Issuance Date (“
Interest Commencement Date
”) in
accordance with the provisions of this Senior Promissory Note (as
amended, modified and supplemented from time to time, this
“
Note
”).
Unless
otherwise stated herein, certain capitalized terms set forth in
this Note are defined in Section 8 hereof.
1.
Payment
of Interest
. Interest shall
accrue on the unpaid principal amount of this Note at a rate equal
to ten percent (10%) per annum (the “
Interest Rate
”) beginning on the
Interest Commencement Date. Following any Event of Default,
interest on this Note shall accrue, to the extent permitted by law,
at a rate equal to the lesser of eighteen percent (18%) per annum
or the maximum rate permitted by applicable law retroactive to the
Issuance Date. Interest shall be computed on the basis of the
actual number of days elapsed and a 360-day year.
2.
Maturity
Date
. The entire
principal amount of this Note and all accrued but unpaid interest
thereon shall be due and payable in full in cash or other
immediately available funds on earlier of: (i) October 8, 2013; or
(ii) the acceleration of the maturity of this Note by the Holder
upon the occurrence and during the continuance of an Event of
Default, as defined in Section 7 below (such earlier date, the
“
Maturity
Date
”). Any overdue principal and overdue interest
together with any interest thereon, shall be due and payable upon
demand.
3.
Prepayment
.
The Company may prepay this Note in full or in part, provided that
the Company shall give the Holders at least five (5) Business
Days’ prior written notice of such repayment to the Holders;
and
provided
,
further
, that any and all such
prepayments shall be at a price equal to the sum of: (A) the
portion of the outstanding principal amount of the Note being
prepaid; and (B) all accrued and unpaid interest on such principal
amount as of the date of such prepayment.
4.
Seniority;
Additional Issuances of Debt and Equity
. Except for those
amounts due under the terms of like notes issued on the date hereof
in the total principal amount of $115,000, which notes shall rank
pari passu
with the Notes
(the “
Existing
Indebtedness
”), no indebtedness of the Company shall
rank senior to, or
pari
passu
with, this Note in right of payment, whether with
respect to interest, damages or upon liquidation or dissolution or
otherwise. Other than the Existing Indebtedness, indebtedness
permitted pursuant to Section 4(b), and any renewal, refinancing or
replacement thereof that does not exceed the aggregate amount of
the Existing Indebtedness and the borrowing availability under the
related credit or loan agreements on the date hereof, the Company
will not, and will not permit any Subsidiary to, directly or
indirectly, enter into, create, incur, assume or suffer to exist
any indebtedness of any kind, that is senior or
pari passu
in any respect to the
Company’s obligations under this Note, other than
indebtedness secured by purchase money security interests (which
will be senior only as to the underlying assets covered thereby),
indebtedness under capital lease obligations (which will be senior
only as to the assets covered thereby) and indebtedness of the
types described in Section 4(b) (collectively, “
Permitted Indebtedness
”); and the
Company will not, and will not permit any Subsidiary to, directly
or indirectly, incur any Lien on or with respect to any of its
property or assets now owned or hereafter acquired or any interest
therein or any income or profits therefrom, except to secure any
Permitted Indebtedness of the Company or its
Subsidiaries.
(a)
Notwithstanding
anything to the contrary herein, the Company and its Subsidiaries
shall be permitted to, without the consent of the Holders (i) incur
additional indebtedness,
provided
that such additional
indebtedness is either subordinate to the Existing Indebtedness and
the Note, and/or (ii) enter into a commercial bank loan up to a
maximum of $100,000, and/or an accounts receivable line (up to a
maximum of $100,000), on commercially reasonable
terms.
5.
Method
of Payments; Transfer and Replacement
.
(a)
Payment
. So long as the Holder
or any of its nominees shall be the holder of this Note, and
notwithstanding anything contained elsewhere in this Note to the
contrary, the Company will pay all sums for principal, interest, or
otherwise becoming due on this Note held by such Holder or such
nominee not later than 5:00 p.m. Pacific time, on the date such
payment is due, in immediately available funds, in accordance with
the payment instructions that the Holder may designate in writing,
without the presentation or surrender of such Note or the making of
any notation thereon. Any payment made after 5:00 p.m. Pacific
time, on a Business Day will be deemed made on the next following
Business Day. If the due date of any payment in respect of this
Note would otherwise fall on a day that is not a Business Day, such
due date shall be extended to the next succeeding Business Day, and
interest shall be payable on any principal so extended for the
period of such extension. All amounts payable under this Note shall
be paid free and clear of, and without reduction by reason of, any
deduction, set-off or counterclaim. The Company will afford the
benefits of this Section to the Holder and to each other Person to
which this Note is validly transferred in accordance with Section
5(b).
(b)
Transfer and Exchange
. Upon
surrender of this Note for registration of transfer or for exchange
to the Company at its principal office, the Company at its sole
expense will execute and deliver in exchange therefor a new Note as
requested by the Holder or transferee, which aggregate principal
amount is equal the unpaid principal amount of such Note,
registered as such Holder or transferee may request, dated so that
there will be no loss of interest on the Note and otherwise of like
tenor; provided that any portion of this Note may not be
transferred by a Holder to any Person without the prior written
consent of the Company (which consent shall not be unreasonably
withheld or delayed). The issuance of a new Note shall be made
without charge to the Holder(s) of the surrendered Note for any
issuance tax in respect thereof or other cost incurred by the
Company in connection with such issuance,
provided
that each Holder of this Note
shall pay any transfer taxes associated therewith. The Company
shall be entitled to regard the registered holder of this Note as
the holder of the Note so registered for all purposes until the
Company or its agent, as applicable, is required to record a
transfer of this Note on its register.
(c)
Replacement
. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note and, in the case of any such
loss, theft or destruction of this Note, upon receipt of an
indemnity reasonably satisfactory to the Company or, in the case of
any such mutilation, upon the surrender and cancellation of such
Note, the Company, at its expense, will execute and deliver, in
lieu thereof, a new Note of like tenor and dated the date of such
lost, stolen, destroyed or mutilated Note.
6.
Representations
and Warranties of the Company
. Except as set
forth in the Disclosure Schedules, which Disclosure Schedules shall
be deemed a part hereof and shall qualify any representation or
warranty otherwise made herein to the extent of the disclosure
contained in the corresponding section of the Disclosure Schedules,
the Company hereby makes the following representations and
warranties to the Holder:
(a)
Subsidiaries
. All of the
direct and indirect subsidiaries of the Company, if any, are set
forth on
Schedule
6(a)
(the “
Subsidiaries
”). The Company
owns, directly or indirectly, all of the capital stock or other
equity interests of each Subsidiary free and clear of any Liens,
and all of the issued and outstanding shares of capital stock of
each Subsidiary are validly issued and are fully paid,
non-assessable.
(b)
Organization and
Qualification
. The Company and each of the Subsidiaries is
an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of
its incorporation or organization, with the requisite power and
authority to own and use its properties and assets and to carry on
its business as currently conducted. Neither the Company nor any
Subsidiary is in violation nor default of any of the provisions of
its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and
the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the
case may be, could not have or reasonably be expected to result in:
(i) a material adverse effect on the legality, validity or
enforceability of this Note, (ii) a material adverse effect on the
results of operations, assets, business, prospects or condition
(financial or otherwise) of the Company and the Subsidiaries, taken
as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a
timely basis its obligations under this Note (any of (i), (ii) or
(iii), a “
Material Adverse
Effect
”), and no Proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing or seeking to
revoke, limit or curtail such power and authority or
qualification.
(c)
Authorization; Enforcement
.
The Company has the requisite corporate power and authority to
enter into and to consummate the transactions contemplated by this
Note, and otherwise to carry out its obligations hereunder. The
execution and delivery of this Note by the Company and the
consummation by it of the transactions contemplated hereby have
been duly authorized by all necessary action on the part of the
Company and no further action is required by the Company, the Board
of Directors or the Company’s stockholders in connection
herewith other than in connection with the Required Approvals. This
Note has been duly executed by the Company and, when delivered in
accordance with the terms hereof, will constitute the valid and
binding obligation of the Company enforceable against the Company
in accordance with its terms, except: (i) as limited by general
equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and
(iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
(d)
No Conflicts
. The execution,
delivery and performance by the Company of this Note and the
consummation by it of the transactions contemplated hereby do not
and will not: (i) conflict with or violate any provision of the
Company’s or any Subsidiary’s certificate or articles
of incorporation, bylaws or other organizational or charter
documents, (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default)
under, result in the creation of any Lien upon any of the
properties or assets of the Company or any Subsidiary, or give to
others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or
by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset
of the Company or a Subsidiary is bound or affected; except in the
case of each of clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material Adverse
Effect.
(e)
Filings, Consents and
Approvals
. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the
Company of this Note (collectively, the “
Required
Approvals
”).
(f)
Capitalization
. The
capitalization of the Company is as set forth on
Schedule 6(f)
, and is a true
and accurate representation of the capitalization of the Company as
of the Issuance Date, and includes, by way of example and not by
limitation, any and all capital stock held by PureTech Ventures,
LLC, a Delaware limited liability corporation (“
PureTech
”) and Enlight
Bioscience, LLC, a Delaware limited liability company
(“
Enlight
”).
No Person has any right of first refusal, preemptive right, right
of participation, or any similar right to participate in the
transactions contemplated by this Note or the Transaction
Documents. Except as set forth on
Schedule 6(f)
hereto, there
are no outstanding options, warrants, scrip rights to subscribe to,
calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable
or exchangeable for, or giving any Person, including by way of
example and not by limitation, PureTech and Enlight, any right to
subscribe for or acquire any capital stock of the Company, or
contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue
additional shares of capital stock of the Company or Common Stock
Equivalents. The execution of this Note, the Subordination
Agreement and the Transaction Documents will not obligate the
Company to issue shares of capital stock of the Company or other
securities to any Person, including by way of example and not by
limitation, PureTech and Enlight, and will not result in a right of
any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under any of such securities.
All of the outstanding shares of capital stock of the Company are
duly authorized, validly issued, fully paid and nonassessable, have
been issued in compliance with all federal and state securities
laws, and none of such outstanding shares was issued in violation
of any preemptive rights or similar rights to subscribe for or
purchase securities. There are no stockholders agreements, voting
agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party or,
to the knowledge of the Company, between or among any of the
Company’s stockholders.
(g)
Restricted Payments
. The
Company will not (i) declare or pay any dividends on, or make any
other distribution or payment on account of, or redeem, retire,
purchase or otherwise acquire, directly or indirectly, any equity
interests of any class of the Company or any Subsidiary, whether
now or hereafter outstanding, or make any other distribution in
respect thereof, either directly or indirectly, whether in cash,
property or in obligations of the Company or any of its
Subsidiaries, (ii) other than in respect to accounts payable in the
ordinary course of business, payments and prepayments of Permitted
Indebtedness, and/or listed on
Schedule 6(i)
, make any
payments of principal of or interest on, or retire, redeem,
purchase or otherwise acquire any indebtedness other than this
Note, or (iii) other than to incur Permitted Indebtedness, enter
into a loan agreement of any kind, without receiving the prior
written consent of the Holders.
(h)
Financial Statements
. Attached
as
Schedule 6(h)
is a copy of the latest balance sheet of the Company, and income
statement and statement of cash flows for the year ended December
31, 2012 (collectively, the “
Financial Statements
”). The
Financial Statements of the Company have been prepared in
accordance with generally accepted accounting principles
(“
GAAP
”)
applied on a consistent basis during the periods involved (except
(i) as may be otherwise indicated in such Financial Statements or
the notes thereto or (ii) in the case of interim Financial
Statements, to the extent they may not include footnotes or may be
condensed or summary statements), and fairly present in all
material respects the financial position of the Company and its
subsidiaries as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit
adjustments).
(i)
Liabilities
. Except as set
forth in the Financial Statements and listed on
Schedule 6(i)
hereto, the
Company has no material liabilities or obligations, contingent or
otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to June 30, 2013, (ii) non-material
obligations under contracts and non-material commitments incurred
in the ordinary course of business, (iii) liabilities and
obligations of a type or nature not required under generally
accepted accounting principles to be reflected in the Financial
Statements.
(j)
Use of Proceeds
. The Company
shall use the proceeds of the issuance of the Notes only as set
forth on
Schedule
6(j)
and not to redeem or make any payment on account of any
securities or Existing Indebtedness of the Company, nor any other
purpose that is not specifically set forth on
Schedule 6(j)
hereto.
(k)
Litigation
. There is no
action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the actual knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an
“
Action
”)
which (i) adversely affects or challenges the legality, validity or
enforceability of this Note, the Subordination Agreement or the
Transaction Documents, or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any
Action involving a claim of violation of or liability under federal
or state securities laws or a claim of breach of fiduciary
duty.
(l)
Labor Relations
. No labor
dispute exists or, to the knowledge of the Company, is imminent
with respect to any of the employees of the Company, which could
reasonably be expected to result in a Material Adverse Effect. None
of the Company’s or its Subsidiaries’ employees is a
member of a union that relates to such employee’s
relationship with the Company or such Subsidiary, and neither the
Company nor any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe
that their relationships with their employees are good. No
executive officer of the Company or any Subsidiary is owed any
moneys by the Company or any of its Subsidiaries, or is now or is
expected to be in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information
agreement or non-competition agreement, or any other contract or
agreement or any restrictive covenant in favor of any third party,
and the continued employment of each such executive officer does
not subject the Company or any of its Subsidiaries to any liability
with respect to any of the foregoing matters. The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local
and foreign laws and regulations relating to employment and
employment practices, terms and conditions of employment and wages
and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(m)
Compliance
. Neither the
Company nor any Subsidiary: (i) is in default under or in violation
of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in
violation of any judgment, decree, or order of any court,
arbitrator or other governmental authority or (iii) is or has been
in violation of any statute, rule, ordinance or regulation of any
governmental authority, including without limitation all foreign,
federal, state and local laws relating to taxes, environmental
protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as
could not have or reasonably be expected to result in a Material
Adverse Effect.
(n)
Regulatory Permits
. The
Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct
their respective businesses, except where the failure to possess
such permits could not reasonably be expected to result in a
Material Adverse Effect (“
Material Permits
”), and neither
the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any
Material Permit.
(o)
Title to Assets
. The Company
and the Subsidiaries have good and marketable title in fee simple
to all real property owned by them and good and marketable title in
all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for (i) Liens as do not materially
affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the
Company and the Subsidiaries and (ii) Liens for the payment of
federal, state or other taxes, for which appropriate reserves have
been made therefor in accordance with GAAP and the payment of which
is neither delinquent nor subject to penalties. Any real property
and facilities held under lease by the Company and the Subsidiaries
are held by them under valid, subsisting and enforceable leases
with which the Company and the Subsidiaries are in
compliance.
(p)
Intellectual Property
. The
Company and the Subsidiaries have, or have rights to use, all
patents, patent applications, trademarks, trademark applications,
service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights as necessary or
required for use in connection with their respective businesses as
listed on
Schedule
6(p)
, and which the failure to so have could have a Material
Adverse Effect (collectively, the “
Intellectual Property Rights
”).
None of, and neither the Company nor any Subsidiary has received a
notice (written or otherwise) that any of, the Intellectual
Property Rights has expired, terminated or been abandoned, or is
expected to expire or terminate or be abandoned, within two (2)
years from the Issuance Date. Neither the Company nor any
Subsidiary has received a written notice of a claim or otherwise
has any knowledge that the Intellectual Property Rights violate or
infringe upon the rights of any Person, except as could not have or
reasonably be expected to not have a Material Adverse Effect. To
the knowledge of the Company, all such Intellectual Property Rights
are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights. The Company and
its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual
properties, except where failure to do so could not, individually
or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(q)
Insurance
. The Company and the
Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which the Company
and the Subsidiaries are engaged, including, but not limited to,
directors and officers insurance coverage at least equal to the
aggregate Principal Amount. Neither the Company nor any Subsidiary
has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary
to continue its business without a significant increase in
cost.
(r)
Tax Status
. Except for matters
that would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect, the
Company and its Subsidiaries each (i) has made or filed all United
States federal, state and local income and all foreign income and
franchise tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and
other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and
declarations and (iii) has set aside on its books provision
reasonably adequate for the payment of all material taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company or of any Subsidiary
know of no basis for any such claim.
7.
Events
of Default
. If any of the
following events takes place before the Maturity Date (each, an
“
Event of
Default
”), the Holder at its option may declare all
principal and accrued and unpaid interest thereon and all other
amounts payable under this Note immediately due and payable;
provided
,
however
, that this Note shall
automatically become due and payable without any declaration in the
case of an Event of Default specified in clause (c) or (e),
below:
(a)
the Company fails
to make payment of any amount when due under this Note (a
“
Payment
Default
”);
(b)
a receiver,
liquidator or trustee of the Company or any substantial part of the
Company’s assets or properties is appointed by a court
order;
(c)
the Company is
adjudicated bankrupt or insolvent;
(d)
any of the
Company’s property is sequestered by or in consequence of a
court order and such order remains in effect for more than thirty
(30) days;
(e)
the Company files
a petition in voluntary bankruptcy or requests reorganization under
any provision of any bankruptcy, reorganization or insolvency law
or consents to the filing of any petition against it under such
law;
(f)
any petition
against the Company is filed (and not dismissed or withdrawn within
60 days) under bankruptcy, receivership or insolvency
law;
(g)
the Company makes
a formal or informal general assignment for the benefit of its
creditors, or admits in writing its inability to pay debts
generally when they become due, or consents to the appointment of a
receiver or liquidator of the Company or of all or any part of its
property;
(h)
an attachment or
execution is levied against any substantial part of the
Company’s assets that is not released within thirty (30)
days;
(i)
the Company
dissolves, liquidates or ceases business activity, or transfers any
major portion of its assets other than in the ordinary course of
business;
(j)
the Company
breaches any covenant or agreement on its part contained in this
Note, and such breach is not waived or cured within thirty (30)
days of receipt by the Company of notice of such
breach;
(k)
any material
inaccuracy or untruthfulness of any representation or warranty of
the Company set forth in this Note and/or the Subordination
Agreement;
(l)
the Company shall
default in any of its obligations under any mortgage, credit
agreement or other facility or financing instrument that involves
an obligation of the Company of greater than $25,000 whether such
indebtedness now exists or shall hereafter be created;
or
(m)
the Company has
entered against it any monetary judgment, writ or similar final
process for an amount greater than $25,000.
8.
Definitions
.
“
Business Day
” (whether or
not capitalized) means any day banking transactions can be
conducted in the State of California, and does not include any day
that is a federal or state holiday in such State.
“
Common Stock
” means the
common stock of the Company, par value $0.001 per share, 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 for, or otherwise entitles the
holder thereof to receive, Common Stock.
“
Disclosure Schedules
”
means any schedule referenced in Section 6 herein.
“
Lien(s)
” mean a lien,
charge pledge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.
“
Noteholder
” with respect
to any Note, means at any time each Person then the record owner
hereof and “
Noteholders
” means all of
such Noteholders collectively.
“
Person
” means any person
or entity of any nature whatsoever, specifically including an
individual, a firm, a company, a corporation, a partnership, a
limited liability company, a trust or other entity.
“
Proceeding
” means any
action, claim, suit, investigation or proceeding (including,
without limitation, an information investigation or partial
proceeding, such as a deposition), whether commenced or threatened
in which the Company has knowledge.
“
Subordination Agreement
”
refers to the Subordination Agreement entered into by the Company
and certain creditors of the Company concurrently with the
execution of this Note.
“
Transaction Documents
”
refers to the Securities Purchase Agreement, Consulting Agreement
and associated Warrant, Irrevocable Proxy, and Release of Claims
and Indemnity Agreement by an between the Holders, PureTech and
Enlight, each dated as of the date hereof.
9.
Board
Representation
. Upon execution of
this Note, the Board of Directors of the Company shall consist of
one member, Mr. Alex Tokman (the “
Incumbent Director
”), and the
Incumbent Director shall execute a unanimous written consent
appointing two designees selected by the Holders to the Board of
Directors to serve for a term of one year or until their successors
are elected and approved (the “
Holder Designees
”). The Company
shall use its best efforts to ensure that the Holder Designees
continue to be elected to the Board of Directors for so long as the
Holder of the Note, together with the holders of like senior
promissory notes issued on the date hereof, owns at least fifty
percent (50%) of the Company’s outstanding Common
Stock.
10.
Reporting
of Financial Statements and Business Summaries
. For so long as
the Holder of the Note, together with the holders of like senior
promissory notes issued on the date hereof, owns at least fifty
percent (50%) of the Company’s outstanding Common Stock, the
Company shall provide the Holder with unaudited financial
statements reflecting the Company’s financial condition and
results of operations, including, without limitation, quarterly and
annual financial statements, as well as periodic business summaries
made available by the Company.
11.
Expenses
of Enforcement, etc
. The Company
agrees to pay all reasonable fees and expenses incurred by the
Holder in connection with any amendments, modifications, waivers,
extensions, renewals, renegotiations or “workouts” of
the provisions hereof or incurred by the Holder in connection with
the enforcement or protection of its rights in connection with this
Note, or in connection with any pending or threatened action,
proceeding, or investigation relating to the foregoing, including
but not limited to the reasonable fees and disbursements of counsel
for the Holder. The Company shall indemnify the Holder against, and
hold the Holder and each such person and/or entity harmless from,
any and all losses, claims, damages, liabilities and related
expenses, including reasonable counsel fees and expenses, incurred
by or asserted against the Holder or any such person and/or entity
arising out of, in any way connected with, or as a result of (i)
the consummation of the loan evidenced by this Note and the use of
the proceeds thereof or (ii) any claim, litigation, investigation
or proceedings relating to any of the foregoing, whether or not the
Holder or any such person and/or entity is a party thereto other
than any loss, claim, damage, liability or related expense incurred
or asserted against the Holder or any such person on account of the
Holder’s or such person’s gross negligence or willful
misconduct. Notwithstanding the foregoing, with respect to the
indemnification obligations of the Company hereunder, (a) the
Company’s aggregate liability under this Note to the Holder
shall not exceed the aggregate Principal Amount of this Note and
all accrued and unpaid interest thereon and (b) indemnified
liabilities shall not include any liability of any indemnitee
arising out of such indemnitee’s gross negligence or willful
misconduct. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make
the maximum contribution to the payment and satisfaction of each of
the indemnified liabilities that is permissible under applicable
law.
12.
Subordination
Agreement
. In order to
secure the priority of payment of the principal and interest and
all other obligations of the Company under the terms of this Note
now or hereafter owed by the Company to the Holder hereof (the
“
Obligations
”),
the Company shall execute and deliver to the Holder the
Subordination Agreement, pursuant to which the Company will,
subject to the terms and conditions set forth in the Subordination
Agreement, grant to the Holder (or its designee) a priority
position over the repayment of any other indebtedness to any other
persons, and such persons shall agree to subordinate their right to
payment of such indebtedness to the right of the Holder of this
Note. The Subordination Agreement shall terminate and be of no
further force and effect if and when all the Obligations have been
fully and indefeasibly paid in full.
13.
Amendment
and Waiver
. The provisions of
this Note may not be modified, amended or waived, and the Company
may not take any action herein prohibited, or omit to perform any
act herein required to be performed by it, without the written
consent of the Holder.
14.
Remedies
Cumulative
. No remedy herein
conferred upon the Holder is intended to be exclusive of any other
remedy and each and every such remedy shall be cumulative and shall
be in addition to every other remedy given hereunder or now or
hereafter existing at law or in equity or by statute or
otherwise.
15.
Remedies
Not Waived
. No course of
dealing between the Company and the Holder or any delay on the part
of the Holder in exercising any rights hereunder shall operate as a
waiver of any right of the Holder.
16.
Assignments
.
The Company shall not assign or delegate this Note or any of its
liabilities or obligations hereunder.
17.
Headings
.
The headings of the sections and paragraphs of this Note are
inserted for convenience only and do not constitute a part of this
Note.
18.
Severability
.
If any provision of this Note is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this
Note will remain in full force and effect. Any provision of this
Note held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or
unenforceable.
19.
Cancellation
.
After all principal, premiums (if any) and accrued interest at any
time owed on this Note have been paid in full, this Note will be
surrendered to the Company for cancellation and will not be
reissued.
20.
Place
of Payment and Notices
. Unless otherwise
stated herein, payments of principal and interest are to be
delivered to the Holder of this Note at the address provided by the
Holder on the signature page attached hereto, or at such other
address as such Holder has specified by prior written notice to the
Company. No notice shall be deemed to have been delivered until the
first Business Day following actual receipt thereof.
21.
Waiver
of Jury Trial
. The Holder and
the Company each hereby waives any right it may have to a trial by
jury in respect of any litigation directly or indirectly arising
out of, under or in connection with this Note and/or the
transactions contemplated hereunder.
22.
Submission
to Jurisdiction
. THE PARTIES
HERETO EACH HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN
THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO. THE PARTIES HERETO EACH
AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY MUST BE LITIGATED
EXCLUSIVELY IN ANY SUCH STATE OR FEDERAL COURT THAT SITS IN THE
CITY OF SAN DIEGO, COUNTY OF CALIFORNIA, AND ACCORDINGLY, THE
PARTIES EACH IRREVOCABLY WAIVE ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH LITIGATION IN
ANY SUCH COURT. Each of the Holder and Company hereby irrevocably
waive and agree not to assert, by way of motion, as a defense, or
otherwise, in every suit, action or other proceeding arising out of
or based on this Note and brought in any such court, any claim that
the Holder or the Company is not subject personally to the
jurisdiction of the above named courts, that Holder’s or the
Company’s property, as applicable, is exempt or immune from
attachment or execution, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper.
23.
GOVERNING
LAW
. ALL ISSUES AND
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND
INTERPRETATION OF THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR
PROVISIONS (WHETHER OF THE STATE OF CALIFORNIA OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF CALIFORNIA.
[SIGNATURE PAGE
FOLLOWS]
IN
WITNESS WHEREOF, the Company has executed and delivered this
Secured Promissory Note on the date first written
above.
COMPANY:
_______________________________
Name:
David
Steinberg
Title:
Chief Executive
Officer
Address:
Endra,
Inc.
35
Research Drive, Suite 100
Ann
Arbor, MI 48103
[SIGNATURE
PAGE TO SENIOR PROMISSORY NOTE]
13
Schedule 6(a)
Subsidiaries
Schedule 6(f)
Capitalization
Table
Schedule 6(i)
Liabilities
Schedule 6(h)
Financial
Statements
Schedule 6(j)
Use
of Proceeds
Schedule 6(p)
Intellectual
Property
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$
_____________
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_____________
,
2016
|
CONVERTIBLE
PROMISSORY NOTE
1.
Principal and Interest
.
FOR
VALUE RECEIVED, Endra, Inc., a Delaware corporation
(“
Borrower
”),
promises to pay to the order of _____________ (“
Lender
”) the principal sum of
________________ Dollars ($_______), or such other amount as shall
have been advanced and be outstanding hereunder and remain unpaid,
with interest thereon compounded annually from the date hereof
until paid at a rate OF eight percent (8%) per annum. On the date
hereof, Lender made a loan to Borrower in the amount of $_______.
Following making such loan, the principal amount of this
convertible promissory note (this
“Note”
) at any time shall be
equal to such amount less the aggregate amount of all repayments of
principal of this Note made by Borrower through such time. Unless
otherwise defined herein, capitalized terms used herein that are
defined in the UCC shall have the meanings assigned to them in the
UCC, however, if a term is defined in Article 9 of the UCC
differently than in another Article of the UCC, the term has the
meaning specified in Article 9.
(a)
All outstanding
amounts under this Note shall be due and payable upon the one-year
anniversary of the date hereof (the “
Maturity Date
”). All payments
hereunder shall be applied first to payment of accrued interest as
of the date of such payment, and the balance, if any, shall be
applied in reduction of the outstanding principal.
(b)
This Note is one of
several identical convertible promissory notes issued by Borrower
to certain stockholders of the Borrow on the date hereof
(collectively, the “
Notes
”). All payments to be made
by Borrower upon any Note shall be paid proportionally among the
holders of all such Notes (the “
Lenders
”) based upon the total
outstanding principal amounts thereof.
(c)
Upon at least ten
(10) days advanced written notice Borrower shall have the right at
any time and from time to time to prepay this Note in whole or in
part, without any prepayment premium. Any prepayment shall be
applied in the manner above provided.
2.
Conversion
.
(a)
All outstanding
principal and interest on this Note will convert automatically
concurrently with the completion by Borrower of an equity financing
of $3.0 million or more on or before the Maturity Date into the
type, kind and character of securities issued in the financing, on
the same terms, including price, and with the same rights,
preferences and privileges as are received by investors in the
financing, and such conversion securities shall be issued pursuant
to the same agreements for the issuance of the securities in the
financing.
(b)
Lender may, at any
time before the Maturity Date, elect to convert this Note in full
into shares of Borrower Common Stock. Upon such conversion, Lender
shall surrender this Note to Borrower and Borrower shall issue to
Lender a number of shares of Common Stock equal to the outstanding
amount due hereunder divided by $0.40. For avoidance of doubt,
partial conversion of this Note shall not be permitted. In order to
provide Lender the opportunity to convert pursuant to this Section
2(b), the Borrower shall provide Lender at least ten (10) days
advanced written notice of the sale of all or substantially all the
assets of Borrower or any merger, consolidation or acquisition of
Borrower with, by or into another corporation, entity or person; or
any change in the ownership of more than fifty percent (50%) of the
voting capital stock of Borrower in one or more related
transactions (each, a “
Change
of Control
”).
(c)
Upon the election
of Lenders holding a majority of the outstanding principal amount
of the Notes (such holders, the “
Required Lenders
”), all
outstanding Notes may be converted into a number of shares of
Common Stock equal to the outstanding amounts due on such Notes
divided by $0.40 per share.
(a)
As security for the
payment of all principal and interest due under this Note (the
“
Obligations
”),
Borrower hereby pledges and grants to ______________ as collateral
agent (in such capacity, the “
Agent
”) for the ratable benefit of
itself and the other Lenders, a first priority security interest in
and to the Collateral (as defined below) owned by Borrower. For
purposes hereof, “
Collateral
” shall mean shall mean
all the Borrower's present and future right, title and interest in
and to any and all of the assets and personal property of the
Borrower (including the Borrower’s intellectual property)
whether such assets or property are now existing or hereafter
created, acquired or arising and wherever located from time to
time. Except for sales of inventory in the ordinary course of
business, Borrower agrees not to transfer or assign any of the
Collateral as long as any Obligations remain unpaid. Lender shall
have all of the rights, powers and privileges of a secured party
under the Delaware Uniform Commercial Code in force and effect from
time to time with respect to the security interest granted
hereunder.
(b)
Borrower
hereby irrevocably authorizes Agent at any time and from time to
time to file in any relevant jurisdiction any financing statements
(including fixture filings) and amendments thereto that contain the
information required by Article 9 of the UCC of each applicable
jurisdiction for the filing of any financing statement or amendment
relating to the Collateral. Borrower hereby further authorizes
Agent to file with the United States Patent and Trademark Office
and the United States Copyright Office (and any successor office
and any similar office in any United States state or other country)
this Note and other documents for the purpose of perfecting,
confirming, continuing, enforcing or protecting the security
interest granted by Borrower hereunder, without the signature of
Borrower where permitted by law, and naming Borrower as debtor, and
Agent as secured party.
(c)
Borrower represents
and warrants that on the date hereof, any and all financing
statements, agreements, instruments and other documents necessary
to perfect the security interest granted by it to Lenders in
respect of the Collateral and, to the extent necessary or
appropriate, to the extent requested and delivered to Borrower by
Lender, have been duly executed and delivered to Agent. Borrower
agrees that it will maintain the security interest created by this
Note in the Collateral as a perfected first priority security
interest.
(d)
Borrower shall take
such further actions, and execute and/or deliver to Agent such
additional financing statements, amendments, assignments,
agreements, supplements, powers and instruments, as Agent may in
its judgment deem necessary or appropriate in order to perfect,
preserve and protect the security interest in the Collateral as
provided herein and the rights and interests granted to Lenders
hereunder, and enable Agent, on behalf of Lenders, to exercise and
enforce its rights, powers and remedies hereunder with respect to
any Collateral. If an Event of Default has occurred and is
continuing, Agent may institute and maintain, in its own name, such
suits and proceedings as Agent may deem to be necessary or
expedient to prevent any impairment of the security interest in or
the perfection thereof in the Collateral. Borrower shall cooperate
with all of the foregoing at the sole cost and expense of
Borrower.
(e)
Borrower has good
title to, or a valid license to or leasehold interest in, all the
Collateral, and none of such property is subject to any lien,
claim, option or right of others, except for the security interest
granted to Lenders hereunder. This Section is effective to create
in favor of Lenders, a legal, valid and enforceable security
interest in the Collateral and the proceeds thereof.
(f)
Borrower shall, at
its own cost and expense, defend title to the Collateral and the
security interest and lien granted to Lenders with respect thereto
against all claims and demands of all persons at any time claiming
any interest therein adverse to Lenders.
(g)
Borrower shall not
change: (a) its legal name, identity, type of organization or
corporate structure (it being agreed that the creation of new
classes of stock and other corporate changes necessary to
facilitate Borrower’s equity financing shall not be
considered a violation of the foregoing); (b) the location of its
chief executive office or its principal place of business, except
with not less than thirty (30) days written notice to Agent; (c)
its organizational identification number (if any); or (d) its
jurisdiction of organization.
(h)
In the event that
the proceeds of any casualty insurance claim are paid to Borrower,
such net cash proceeds shall be used to repair or replace the
damaged or lost property within 180 days of such damage or loss, or
in the event that such repair or replacement is not feasible
following the casualty, such net cash proceeds shall instead be
held in trust for the benefit of Lenders and immediately after
receipt thereof shall be paid to Agent for application in
accordance with this Note.
(i)
If any Event of
Default shall have occurred and be continuing:
(i)
Agent may exercise, without any other
notice to or demand upon Borrower, in addition to the other rights
and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party upon default under the
UCC (whether or not the UCC applies to the affected Collateral) and
also may, in compliance with applicable law:
(1)
require Borrower
to, and Borrower hereby agrees that it will at its expense and upon
request of Agent immediately, assemble the Collateral or any part
thereof, as directed by Agent and make it available to Agent at
Borrower’s principal place of business;
(2)
with written
notice specified below, sell, resell, assign and deliver or grant a
license to use or otherwise dispose of the Collateral or any part
thereof, in one or more parcels at public or private sale (in which
Borrower and/or any of its stockholders, creditors or designees
shall be entitled to participate), at Agent’s election, for
cash, on credit or for future delivery, and upon such other terms
as are commercially reasonable;
(3)
occupy any
premises owned or leased by Borrower where the Collateral or any
part thereof is assembled or located for a reasonable period in
order to effectuate its rights and remedies hereunder or under law,
without monetary obligation to Borrower in respect of such
occupation; and
(4)
exercise any and
all rights and remedies of Lenders under or in connection with the
Collateral, or otherwise in respect of the Collateral.
(j)
Agent shall give at
least 10 days' written notice to Borrower of the time and place of
any public or private sale of Collateral. At any sale of the
Collateral, if permitted by applicable law, Agent may be the
purchaser, licensee, assignee or recipient of the Collateral or any
part thereof and shall be entitled, for the purpose of bidding and
making settlement or payment of the purchase price for all or any
portion of the Collateral sold, assigned or licensed at such sale,
to use and apply any of the obligations under this Note as a credit
on account of the purchase price of the Collateral or any part
thereof payable at such sale. To the extent permitted by applicable
law, Borrower waives all claims, damages and demands it may acquire
against Agent arising out of the exercise by it of any rights
hereunder. Borrower hereby waives and releases to the fullest
extent permitted by law any right or equity of redemption with
respect to the Collateral after any sale hereunder, and all rights,
if any, of marshaling the Collateral and any other security for the
obligations under the Note or otherwise. Agent shall not be liable
for failure to collect or realize upon any or all of the Collateral
or for any delay in so doing, nor shall it be under any obligation
to take any action with regard thereto. Agent shall not be
obligated to make any sale of Collateral regardless of notice of
sale having been given. Agent may adjourn any public or private
sale from time to time by announcement at the time and place fixed
therefore, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Agent shall not be
obligated to clean-up or otherwise prepare the Collateral for
sale.
(k)
Upon the exercise
by Agent of its remedies hereunder, any proceeds received by Agent
in respect of any realization upon any Collateral shall be applied
pursuant to this Note. Borrower shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the
Collateral are insufficient to pay the obligations under this Note
and the fees and other charges of any attorneys employed by Agent
to collect such deficiency.
(l)
Upon payment in
full of all Obligations, the security interest in the Collateral
shall be terminated and Agent will, at Borrower’s request and
expense, take all necessary action and make such appropriate
filings as required to terminate the security
interest.
4.
Default
.
(a)
Each of the
following shall constitute an “
Event of Default
” hereunder: (1)
commencement by Borrower of a voluntary case or other proceeding
seeking liquidation, a reorganization or other relief with respect
to itself or its debts under any bankruptcy, insolvency or other
similar laws now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar
official of it or all or substantially of its property, or consent
by Borrower to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it, or the making of a general
assignment for the benefit of creditors; (2) commencement of an
involuntary case or other proceeding against Borrower seeking
liquidation, reorganization or other relief with respect to
Borrower or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar
official for Borrower or all or substantially all of its property,
and such involuntary case or other proceeding shall remain
undismissed and unstayed for period of 30 consecutive days; (3) a
Change of Control; and (4) failure to pay amounts outstanding and
due and payable under this Note following five days written notice
thereof from Agent.
(b)
Upon the occurrence
of an Event of Default, the entire principal balance of this Note
and all accrued interest shall become immediately due and payable
whereupon the holder hereof shall also have such other rights and
remedies as may be available hereunder and under applicable law,
all of which shall be cumulative.
5.
Miscellaneous
.
(a)
Borrower shall pay
all reasonable out-of-pocket costs and expenses reasonably incurred
by Agent or then holder of this Note to enforce payment of this
Note when due and payable, including reasonable attorney’s
fees and other out-of-pocket expenses of collection.
(b)
All parties to this
Note, including endorsers, sureties and guarantors, if any, hereby
waive presentment for payment, demand, protest, notice of
nonpayment, or dishonor, and any and all other notices and demands
whatsoever, and agree to remain bound until the principal of and
interest on this Note is paid in full, notwithstanding any
extension or extensions of time for payment which may be granted,
even though the period or periods of extension may be indefinite,
and notwithstanding any inaction by, or failure to assert any legal
rights available to, the holder of this Note. This Note shall be
governed, constructed and enforced in accordance with the laws of
the State of Delaware.
(c)
This Note may be
modified or amended, and any provision hereof may be waived, only
pursuant to a writing signed by Borrower, and the Required Lenders
at the time of such amendment, modification or waiver.
IN
WITNESS WHEREOF, the undersigned has caused this instrument to be
duly executed as of the day and year first above
written.
ENDRA,
INC.
By:
Name:
Francois Michelon
Title:
CEO
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$
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January __, 2016
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PROMISSORY
NOTE
FOR
VALUE RECEIVED,
Endra, Inc., a
Delaware corporation
(“
Borrower
”), promises to pay to the
order of ____________ (“
Lender
”) the principal sum of
________________ Dollars ($_______), or such other amount as shall
have been advanced and be outstanding hereunder and remain unpaid,
without interest thereon.
On the
date hereof, Lender made a loan to Borrower in the amount of
$_______. Following making such loan, the principal amount of this
promissory note (this “
Note
”) at any time shall be equal
to such amount less the aggregate amount of all repayments of
principal of this Note made by Borrower through such
time.
All
outstanding amounts under this Note shall be due and payable upon
the earlier of (1) completion by the Company of an equity financing
of $4.0 million or more and (2) the one-year anniversary of the
date hereof (the “
Maturity
Date
”).
This
Note is one of several identical promissory notes issued by
Borrower to certain of the members of its Board of Directors on the
date hereof (collectively, the “
Promissory Notes
”). All payments
to be made by Borrower upon any Promissory Note shall be paid
proportionally among the holders of all such Promissory Notes based
upon the total outstanding principal amounts thereof.
Borrower shall have
the right at any time and from time to time to prepay this Note in
whole or in part, without any prepayment premium. Any prepayment
shall be applied in the manner above provided.
Each of
the following shall constitute an “Event of Default”
hereunder: (1) commencement by Borrower of a voluntary case or
other proceeding seeking liquidation, a reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar laws now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or all or substantially
of its property, or consent by Borrower to any such relief or to
the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or the
making of a general assignment for the benefit of creditors; (2)
commencement of an involuntary case or other proceeding against
Borrower seeking liquidation, reorganization or other relief with
respect to Borrower or its debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other
similar official for Borrower or all or substantially all of its
property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for period of 30 consecutive days;
and (3) failure to pay amounts outstanding and due and payable
under this Note following five days written notice thereof from
Lender.
Upon
the occurrence of an Event of Default, the entire principal balance
of this Note shall become immediately due and payable whereupon the
holder hereof shall also have such other rights and remedies as may
be available hereunder and under applicable law, all of which shall
be cumulative.
Borrower shall pay
all reasonable out-of-pocket costs and expenses reasonably incurred
by Lender or then holder of this Note to enforce payment of this
Note when due and payable, including reasonable attorney’s
fees and other out-of-pocket expenses of collection.
All
parties to this Note, including endorsers, sureties and guarantors,
if any, hereby waive presentment for payment, demand, protest,
notice of nonpayment, or dishonor, and any and all other notices
and demands whatsoever, and agree to remain bound until this Note
is paid in full, notwithstanding any extension or extensions of
time for payment which may be granted, even though the period or
periods of extension may be indefinite, and notwithstanding any
inaction by, or failure to assert any legal rights available to,
the holder of this Note. This Note shall be governed, constructed
and enforced in accordance with the laws of the State of
Delaware.
No
amendment, modification, termination or waiver of any provision of
this Note shall be effective unless the same shall be in writing
and signed by Borrower, and either Lender or the then holder of
this Note at the time of such amendment, modification, termination
or waiver.
IN
WITNESS WHEREOF, the undersigned has caused this instrument to be
duly executed as of the day and year first above
written.
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ENDRA,
INC.
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/s/
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/s/
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Name:
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Name:
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Title:
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Title:
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ENDRA INC.
SECOND AMENDED AND RESTATED 2013 STOCK INCENTIVE PLAN
Endra Inc., a Delaware corporation (the “Company”), sets forth herein the terms of its Second Amended and Restated 2013 Stock Incentive Plan (the “Plan”), as follows:
The Plan is intended to enhance the ability of the Company and its Affiliates (as defined herein) to attract and retain highly qualified officers, non-employee members of the Board, key employees, consultants and advisors, and to motivate such officers, non-employee members of the Board, key employees, consultants and advisors to serve the Company and
its Affiliates and to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, other stock-based awards and cash awards. Any of these awards may, but need not, be made as performance incentives
to reward attainment of performance goals in accordance with the terms hereof. Stock options granted under the Plan may be non-qualified stock options or incentive stock options, as provided herein.
For purposes of interpreting the Plan and related documents (including Award Agreements), the following definitions shall apply:
2.1.
“Acquiror”
shall have the meaning set forth in
Section
15.2.1
.
2.2.
“Affiliate”
means any company or other trade or business that “controls,” is “controlled by” or is “under common control” with the Company within
the meaning of Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary.
2.3.
“Award”
means a grant of an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Other Stock-based Award or cash award under the Plan.
2.4.
“Award Agreement”
means a written agreement between the Company and a Grantee, or notice from the Company or an Affiliate to a Grantee that evidences and sets out the terms and conditions
of an Award.
2.5.
“Board”
means the Board of Directors of the Company.
2.6.
“Business Combination”
shall have the meaning set forth in
Section
15.2.2
.
2.7.
“Cause”
shall be defined as that term is defined in the Grantee’s offer letter or other applicable employment agreement; or, if there is no such definition, “Cause”
means, as determined by the Company and unless otherwise provided in an applicable Award Agreement: (i) the commission of any act by a Grantee constituting financial dishonesty against the Company or its Affiliates (which act would be chargeable as a crime under applicable law); (ii) a Grantee’s engaging in any other act of dishonesty, fraud, intentional misrepresentation, moral turpitude, illegality or harassment which, as determined in good faith by the Board, would: (A) materially adversely affect the
business or the reputation of the Company or any of its Affiliates with their respective current or prospective customers, suppliers, lenders and/or other third parties with whom such entity does or might do business; or (B) expose the Company or any of its Affiliates to a risk of civil or criminal legal damages, liabilities or penalties; (iii) the repeated failure by a Grantee to follow the directives of the chief executive officer of the Company or any of its Affiliates or the Board, or (iv) any material misconduct,
violation of the Company’s or Affiliates’ policies, or willful and deliberate non-performance of duty by the Grantee in connection with the business affairs of the Company or its Affiliates.
2.8.
“Change in Control”
shall have the meaning set forth in
Section
15.2.2
.
2.9.
“Code”
means the Internal Revenue Code of 1986, as now in effect or as hereafter amended. References to the Code shall include the valid and binding governmental regulations, court
decisions and other regulatory and judicial authority issued or rendered thereunder.
2.10.
“Committee”
means the Compensation Committee of the Board, or such other committee as determined by the Board. The Compensation Committee of the Board may, in its discretion, designate
a subcommittee of its members to serve as the Committee (to the extent the Board has not designated another person, committee or entity as the Committee). Following the Initial Public Offering, (i) the Board will cause the Committee to satisfy the applicable requirements of any stock exchange on which the Common Stock may then be listed; (ii) for purposes of Awards to Covered Employees intended to constitute Performance Awards, to the extent required by Code Section 162(m), Committee means all of the members
of the Compensation Committee who are “outside directors” within the meaning of Section 162(m) of the Code; and (iii) for purposes of Awards to Grantees who are subject to Section 16 of the Exchange Act, Committee means all of the members of the Compensation Committee who are “non-employee directors” within the meaning of Rule 16b-3 adopted under the Exchange Act.
2.11.
“Company”
shall have the meaning set forth in the preamble.
2.12.
“Common Stock”
or
“Stock”
means a share of common stock of the Company, par value $0.0001 per share.
2.13.
“Consultant”
means a consultant or advisor that provides bona fide services to the Company or any Affiliate and who qualifies as a consultant or advisor under Rule 701 of the Securities
Act (during any period in which the Company is not a public company subject to the reporting requirements of the Exchange Act) or Form S-8 (during any period in which the Company is a public company subject to the reporting requirements of the Exchange Act).
2.14.
“Covered Employee”
means a Grantee who is a “covered employee” within the meaning of Section 162(m)(3) of the Code as qualified by
Section
12.4
.
2.15.
“Disability”
shall be defined as that term is defined in the Grantee’s offer letter or other applicable employment agreement; or, if there is no such definition, “Disability”
means, as determined by the Company and unless otherwise provided in an applicable Award Agreement, the Grantee is unable to perform each of the essential duties of such Grantee’s position by reason of a medically determinable physical or mental impairment which is potentially permanent in character or which can be expected to last for a continuous period of not less than 12 months;
provided
,
however
, that, with respect to rules
regarding expiration of an Incentive Stock Option following termination of the Grantee’s Service, “Disability” means “permanent and total disability” as set forth in Section 22(e)(3) of the Code.
2.16.
“Effective Date”
means September 18, 2014, the date the Plan was approved by the Company’s stockholders.
2.17.
“Exchange Act”
means the Securities Exchange Act of 1934, as now in effect or as hereafter amended.
2.18.
“Fair Market Value”
of a share of Common Stock as of a particular date shall mean (1) if the Common Stock is listed on a national securities exchange, the closing or last price of
the Common Stock on the composite tape or other comparable reporting system for the applicable date, or if the applicable date is not a trading day, the trading day immediately preceding the applicable date, or (2) if the shares of Common Stock are not then listed on a national securities exchange, or the value of such shares is not otherwise determinable, such value as determined by the Board in good faith in its sole discretion.
2.19.
“Family Member”
means a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent, grandparent, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive relationships, of the applicable individual, any person sharing the applicable individual’s household (other than a tenant or employee), a trust in which any one or more of these persons have more than fifty percent of the beneficial interest, a foundation in which any one or more of these persons (or the applicable individual) control the management of assets, and any other entity in which one or more of these persons
(or the applicable individual) own more than fifty percent of the voting interests.
2.20.
“Grant Date”
means, as determined by the Board, the latest to occur of (i) the date as of which the Board approves an Award, (ii) the date on which the recipient of an
Award first becomes eligible to receive an Award under
Section
6
, or (iii) such other date as may be specified by the Board in the Award Agreement.
2.21.
“Grantee”
means a person who receives or holds an Award under the Plan.
2.22.
“Holder”
means, with respect to any Issued Shares, the person holding such Issued Shares, including the initial Grantee or any Permitted Transferee.
2.23.
“Incentive Stock Option”
means an “incentive stock option” within the meaning of Section 422 of the Code, or the corresponding provision of any subsequently enacted
tax statute, as amended from time to time.
2.24.
“Incumbent Directors”
shall have the meaning set forth in
Section
15.2.2
.
2.25.
“Initial Public Offering”
means the initial public offering of shares of Common Stock pursuant to a registration statement (other than a Form S-8 or successor forms) filed with,
and declared effective by, the SEC.
2.26.
“Issued Shares”
means, collectively, all outstanding shares of Stock issued pursuant to Awards (including without limitation, outstanding shares of Restricted Stock prior to or after
vesting and shares issued in connection with the exercise of an Option or SAR).
2.27.
“New Shares”
shall have the meaning set forth in
Section
15.1
.
2.28.
“Non-qualified Stock Option”
means an Option that is not an Incentive Stock Option.
2.29.
“Offered Shares”
shall have the meaning set forth in
Section
17.4.1
.
2.30.
“Offering”
shall have the meaning set forth in
Section
17.5
.
2.31.
“Option”
means an option to purchase one or more shares of Stock pursuant to the Plan. An Option may be either an Incentive Stock Option or a Non-qualified Stock Option.
2.32.
“Option Price”
means the exercise price for each share of Stock subject to an Option.
2.33.
“Other Stock-based Awards”
means Awards consisting of Stock units, or other Awards, valued in whole or in part by reference to, or otherwise based on, Common Stock.
2.34.
“Performance Award”
means an Award made subject to the attainment of performance goals (as described in
Section
12
)
over
a performance period of at least one year.
2.35.
“Permitted Transferee”
means any of the following to whom a Holder may transfer Issued Shares hereunder (as set forth in
Section
17.13.3
):
the Holder’s spouse, children (natural or adopted), stepchildren or a trust for their sole benefit of which the Holder is the settlor;
provided however,
that any such trust does not require or permit distribution of any Issued Shares during the term of this Agreement unless subject to its terms. Upon the death of the Holder, the term Permitted Transferees shall also include such deceased Holder’s estate, executors, administrators, personal representatives, heirs,
legatees and distributees, as the case may be.
2.36.
“Plan”
shall have the meaning set forth in the preamble.
2.37.
“Purchase Price”
means the purchase price for each share of Stock pursuant to a grant of Restricted Stock.
2.38.
“Restricted Period”
shall have the meaning set forth in
Section
10.1
.
2.39.
“Restricted Stock”
means shares of Stock, awarded to a Grantee pursuant to
Section
10
.
2.40.
“Restricted Stock Unit”
means a bookkeeping entry representing the equivalent of shares of Stock, awarded to a Grantee pursuant to
Section
10
.
2.41.
“SAR Exercise Price”
means the per share exercise price of a SAR granted to a Grantee under
Section
9
.
2.42.
“SEC”
means the United States Securities and Exchange Commission.
2.43.
“Section 409A”
means Section 409A of the Code.
2.44.
“Securities Act”
means the Securities Act of 1933, as now in effect or as hereafter amended.
2.45.
“Separation from Service”
means a termination of Service by a Service Provider, as determined by the Board, which determination shall be final, binding and conclusive;
provided
,
however
,
that if any Award governed by Section 409A is to be distributed on a Separation from Service, then the definition of Separation from Service for such purposes shall comply with the definition provided in Section 409A.
2.46.
“Service”
means service as a Service Provider to the Company or an Affiliate. Unless otherwise stated in the applicable Award Agreement, a Grantee’s change in position or duties
shall not result in interrupted or terminated Service, so long as such Grantee continues to be a Service Provider to the Company or an Affiliate.
2.47.
“Service Provider”
means an employee, officer, non-employee member of the Board, or Consultant of the Company or an Affiliate.
2.48.
“Stock Appreciation Right”
or
“SAR”
means a right granted to a Grantee under
Section
9
.
2.49.
“Subsidiary”
means any “subsidiary corporation” of the Company within the meaning of Section 424(f) of the Code.
2.50.
“Substitute Award”
means any Award granted in assumption of or in substitution for an award of a company or business acquired by the Company or a Subsidiary or with which the Company
or an Affiliate combines.
2.51.
“Ten Percent Stockholder”
means an individual who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding stock of the Company, its
parent or any of its Subsidiaries. In determining stock ownership, the attribution rules of Section 424(d) of the Code shall be applied.
2.52.
“Termination Date”
means the date that is ten (10) years after the Effective Date, unless the Plan is earlier terminated by the Board under
Section
5.2
.
2.53.
“Transition Period”
means the period beginning with the consummation of an Initial Public Offering and ending as of the earlier of (i) the date of the first annual meeting of shareholders
of the Company at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the Initial Public Offering occurs and (ii) the expiration of the “reliance period” under Treasury Regulation Section 1.162-27(f)(2).
2.54.
“Voting Securities”
shall have the meaning set forth in
Section
15.2.2
.
3.
ADMINISTRATION OF THE PLAN
3.1.
General.
The Board shall have such powers and authorities related to the administration of the Plan as are consistent with the Company’s certificate of incorporation and bylaws and applicable law. The Board shall have the power and authority to delegate its responsibilities hereunder to the Committee, which shall have full authority to act in accordance
with its charter (as in effect from time to time), and with respect to the authority of the Board to act hereunder, all references to the Board shall be deemed to include a reference to the Committee, to the extent such power or responsibilities have been delegated. Except as specifically provided in
Section
14
or as otherwise may be required by applicable law, regulatory requirement or the certificate of incorporation or the bylaws
of the Company, the Board shall have full power and authority to take all actions and to make all determinations required or provided for under the Plan, any Award or any Award Agreement, and shall have full power and authority to take all such other actions and make all such other determinations not inconsistent with the specific terms and provisions of the Plan that the Board deems to be necessary or appropriate to the administration of the Plan. Following the Initial Public Offering, the Committee shall administer
the Plan; provided, however, the Board shall retain the right to exercise the authority of the Committee to the extent consistent with applicable law and the applicable requirements of any securities exchange on which the Common Stock may then be listed. The interpretation and construction by the Board of any provision of the Plan, any Award or any Award Agreement shall be final, binding and conclusive. Without limitation, the Board shall have full and final authority, subject to the other terms and conditions
of the Plan, to:
(i) designate Grantees;
(ii) determine the type or types of Awards to be made to a Grantee;
(iii) determine the number of shares of Stock to be subject to an Award;
(iv) establish the terms and conditions of each Award (including, but not limited to, the Option Price of any Option, the nature and duration of any restriction or condition (or provision for lapse thereof) relating to the vesting, exercise, transfer, or forfeiture of an Award or the shares
of Stock subject thereto, and any terms or conditions that may be necessary to qualify Options as Incentive Stock Options);
(v) prescribe the form of each Award Agreement; and
(vi) amend, modify, or supplement the terms of any outstanding Award including the authority, in order to effectuate the purposes of the Plan, to modify Awards to foreign nationals or individuals who are employed outside the United States to recognize differences in local law, tax
policy, or custom.
3.2.
Award Agreements; Clawbacks.
The grant of any Award may be contingent upon the Grantee executing the appropriate Award Agreement. The Company may retain the right in an Award Agreement to cause a forfeiture of the gain realized by a Grantee on account of actions taken by the Grantee in violation or breach of or in conflict with any employment agreement, non-competition agreement,
any agreement prohibiting solicitation of employees or clients of the Company or any Affiliate thereof or any confidentiality obligation with respect to the Company or any Affiliate thereof or otherwise in competition with the Company or any Affiliate thereof, to the extent specified in such Award Agreement applicable to the Grantee. Furthermore, the Company may annul an Award if the Grantee is terminated for “cause” as defined in the applicable Award Agreement.
Following the Initial Public Offering, Awards shall be subject to the requirements of (i) Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (regarding recovery of erroneously awarded compensation) and any implementing rules and regulations thereunder,, (ii) similar rules under the laws of any other jurisdiction, (iii) any
compensation recovery policies adopted by the Company to implement any such requirements or (iv) any other compensation recovery policies as may be adopted from time to time by the Company, all to the extent determined by the Committee in its discretion to be applicable to a Grantee.
3.3.
Deferral Arrangement.
The Board may permit or require the deferral of any Award payment into a deferred compensation arrangement, subject to such rules and procedures as it may establish and in accordance with Section 409A, which may include provisions for the payment or crediting of interest or dividend equivalents, including converting such credits into deferred Stock
units.
3.4.
No Liability.
No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan, any Award or Award Agreement.
3.5.
Book Entry.
Notwithstanding any other provision of this Plan to the contrary, the Company may elect to satisfy any requirement under this Plan for the delivery of stock certificates through the use of book-entry.
4.
STOCK SUBJECT TO THE PLAN
4.1.
Authorized Number of Shares.
Subject to adjustment under
Section
15
, the aggregate number of shares of Common Stock that may be initially issued pursuant to the Plan is 29,000,000. The total number of shares of Common Stock described in the preceding sentence shall be available for issuance under Incentive
Stock Options. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares, treasury shares, or shares purchased on the open market or otherwise, all as determined by the Company from time to time. No later than the end of the Transition Period, the maximum number of shares for each type of Stock-based Award, and the maximum amount of cash for any cash-based Award, intended to constitute “performance-based compensation” under Code Section 162(m) granted to any Grantee
in any specified period shall be established by the Company and approved by the Company’s stockholders.
4.2.
Share Counting.
Any Award settled in cash shall not be counted as shares of Common Stock for any purpose under this Plan. If any Award under the Plan expires, or is terminated, surrendered or forfeited, in whole or in part, the unissued Common Stock covered by such Award shall again be available for the grant of Awards under the Plan. If shares of Common Stock issued
pursuant to the Plan are repurchased by, or are surrendered or forfeited to the Company at no more than cost, such shares of Common Stock shall again be available for the grant of Awards under the Plan. If shares of Common Stock issuable upon exercise, vesting or settlement of an Award, or shares of Common Stock owned by a Grantee (which are not subject to any pledge or other security interest), are surrendered or tendered to the Company in payment of the Option Price or Purchase Price of an Award or any taxes
required to be withheld in respect of an Award, in each case, in accordance with the terms and conditions of the Plan and any applicable Award Agreement, such surrendered or tendered shares of Common Stock shall again become available for issuance under the Plan. In addition, in the case of any Substitute Award, such Substitute Award shall not be counted against the number of shares reserved under the Plan.
5.
EFFECTIVE DATE, DURATION AND AMENDMENTS
5.1.
Term.
The Plan shall be effective as of the Effective Date, provided that it has been approved by the Company’s stockholders. The Plan shall terminate automatically on the ten (10) year anniversary of the Effective Date and may be terminated on any earlier date as provided in
Section
5.2
.
5.2.
Amendment and Termination of the Plan.
The Board may, at any time and from time to time, amend, suspend, or terminate the Plan as to any Awards which have not been made. An amendment shall be contingent on approval of the Company’s stockholders to the extent stated by the Board, required by applicable law or required by applicable stock exchange listing requirements. No Awards shall
be made after the Termination Date. The applicable terms of the Plan, and any terms and conditions applicable to Awards granted prior to the Termination Date shall survive the termination of the Plan and continue to apply to such Awards. No amendment, suspension, or termination of the Plan shall, without the consent of the Grantee, materially impair rights or obligations under any Award theretofore awarded.
6.
AWARD ELIGIBILITY AND LIMITATIONS
6.1.
Service Providers.
Subject to this Section 6, Awards may be made to any Service Provider as the Board shall determine and designate from time to time in its discretion.
6.2.
Successive Awards.
An eligible person may receive more than one Award, subject to such restrictions as are provided herein.
6.3.
Stand-Alone, Additional, Tandem, and Substitute Awards.
Awards may, in the discretion of the Board, be granted either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award or any award granted under another plan of the Company, any Affiliate, or any business entity to be acquired by the Company or an Affiliate, or any other right of a Grantee to receive payment from
the Company or any Affiliate. Such additional, tandem, and substitute or exchange Awards may be granted at any time. If an Award is granted in substitution or exchange for another Award, the Board shall have the right to require the surrender of such other Award in consideration for the grant of the new Award. Subject to the requirements of applicable law, the Board shall have the right, in its discretion, to make Awards in substitution or exchange for any other award under another plan of the Company, any Affiliate,
or any business entity to be acquired by the Company or an Affiliate. In addition, Awards may be granted in lieu of cash compensation, including in lieu of cash amounts payable under other plans of the Company or any Affiliate, in which the value of Stock subject to the Award is equivalent in value to the cash compensation (for example, Restricted Stock Units or Restricted Stock).
Each Award shall be evidenced by an Award Agreement, in such form or forms as the Board shall from time to time determine. Without limiting the foregoing, an Award Agreement may be provided in the form of a notice which provides that acceptance of the Award constitutes acceptance of all terms of the Plan and the notice. Award Agreements granted from
time to time or at the same time need not contain similar provisions but shall be consistent with the terms of the Plan. Each Award Agreement evidencing an Award of Options shall specify whether such Options are intended to be Non-qualified Stock Options or Incentive Stock Options, and in the absence of such specification such options shall be deemed Non-qualified Stock Options.
8.
TERMS AND CONDITIONS OF OPTIONS
8.1.
Option Price.
The Option Price of each Option shall be fixed by the Board and stated in the related Award Agreement. The Option Price of each Option intended to be an Incentive Stock Option (except those that constitute Substitute Awards) shall be at least the Fair Market Value on the Grant Date of a share of Stock;
provided
,
however
,
that in the event that a Grantee is a Ten Percent Stockholder as of the Grant Date, the Option Price of an Option granted to such Grantee that is intended to be an Incentive Stock Option shall be not less than 110 percent of the Fair Market Value of a share of Stock on the Grant Date. In no case shall the Option Price of any Option be less than the par value of a share of Stock.
8.2.
Vesting.
Subject to
Section
8.3
, each Option shall become exercisable at such times and under such conditions (including, without limitation, performance requirements) as shall be determined by the Board and stated in the Award Agreement.
Each Option shall terminate, and all rights to purchase shares of Stock thereunder shall cease, upon the expiration of the Option term determined by the Board and stated in the Award Agreement not to exceed ten
(10)
years from the Grant Date, or under such circumstances
and on such date prior thereto as is set forth in the Plan or as may be fixed by the Board and stated in the related Award Agreement;
provided
,
however
, that in the event that the Grantee is a Ten Percent Stockholder, an Option granted to such Grantee that is intended to be an Incentive Stock Option at the Grant Date shall not be exercisable after the expiration of five (5) years from its Grant Date.
8.4.
Limitations on Exercise of Option.
Notwithstanding any other provision of the Plan, in no event may any Option be exercised, in whole or in part, (i) prior to the date the Plan is approved by the stockholders of the Company as provided herein or (ii) after the occurrence of an event which results in termination of the Option.
8.5.
Method of Exercise.
An Option that is exercisable may be exercised by the Grantee’s delivery of a notice of exercise to the Company, setting forth the number of shares of Stock with respect to which the Option is to be exercised, accompanied by full payment for the shares. To be effective, notice of exercise must be made in accordance with procedures established
by the Company from time to time.
8.6.
Rights of Holders of Options.
Unless otherwise stated in the related Award Agreement, an individual holding or exercising an Option shall have none of the rights of a stockholder (for example, the right to receive cash or dividend payments or distributions attributable to the subject shares of Stock or to direct the voting of the subject shares of Stock ) until the shares of Stock
covered thereby are fully paid and issued to him. Except as provided in
Section
15
or the related Award Agreement, no adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date of such issuance.
8.7.
Delivery of Stock Certificates.
Promptly after the exercise of an Option by a Grantee and the payment in full of the Option Price, such Grantee shall be entitled to the issuance of a stock certificate or certificates evidencing his or her ownership of the shares of Stock subject to the Option.
8.8.
Limitations on Incentive Stock Options.
An Option shall constitute an Incentive Stock Option only (i) if the Grantee of such Option is an employee of the Company or any Subsidiary of the Company; (ii) to the extent specifically provided in the related Award Agreement; and (iii) to the extent that the aggregate Fair Market Value (determined at the time the Option is granted)
of the shares of Stock with respect to which all Incentive Stock Options held by such Grantee become exercisable for the first time during any calendar year (under the Plan and all other plans of the Grantee’s employer and its Affiliates) does not exceed $100,000. This limitation shall be applied by taking Options into account in the order in which they were granted.
9.
TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
9.1.
Right to Payment.
A SAR shall confer on the Grantee a right to receive, upon exercise thereof, the excess of (i) the Fair Market Value of one share of Stock on the date of exercise over (ii) the SAR Exercise Price, as determined by the Board. The Award Agreement for an SAR shall specify the SAR Exercise Price. SARs may be granted alone or in conjunction with
all or part of an Option or at any subsequent time during the term of such Option or in conjunction with all or part of any other Award.
9.2.
Other Terms.
The Board shall determine at the Grant Date or thereafter, the time or times at which and the circumstances under which a SAR may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the time or times at which SARs shall cease to be or become exercisable following Separation from
Service or upon other conditions, the method of exercise, whether or not a SAR shall be in tandem or in combination with any other Award, and any other terms and conditions of any SAR.
9.3.
Term of SARs.
The term of a SAR granted under the Plan shall be determined by the Board, in its sole discretion;
provided
,
however
, that such term shall not exceed ten (10) years.
9.4.
Payment of SAR Amount.
Upon exercise of a SAR, a Grantee shall be entitled to receive payment from the Company (in cash or Stock, as determined by the Board) in an amount determined by multiplying:
(i) the difference between the Fair Market Value of a share of Stock on the date of exercise over the SAR Exercise Price; by
(ii) the number of shares of Stock with respect to which the SAR is exercised.
10.
TERMS AND CONDITIONS OF RESTRICTED STOCK AND RESTRICTED STOCK UNITS
At the time of grant, the Board may, in its sole discretion, establish a period of time (a “
Restricted Period
”) and any additional restrictions including the satisfaction of corporate or individual performance objectives applicable to an Award of Restricted Stock or Restricted Stock Units
in
accordance with
Section
12.1
and
12.2
. Each Award of Restricted Stock or Restricted Stock Units may be subject to a different Restricted Period and additional restrictions. Neither Restricted Stock nor Restricted Stock Units may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of during the Restricted Period or prior to the satisfaction of any other applicable restrictions.
10.2.
Restricted Stock Certificates.
The Company shall issue stock, in the name of each Grantee to whom Restricted Stock has been granted, stock certificates or other evidence of ownership representing the total number of shares of Restricted Stock granted to the Grantee, as soon as reasonably practicable after the Grant Date. The Board may provide in an Award Agreement that either (i) the
Secretary of the Company shall hold such certificates for the Grantee’s benefit until such time as the Restricted Stock is forfeited to the Company or the restrictions lapse, or (ii) such certificates shall be delivered to the Grantee;
provided
,
however
, that such certificates shall bear a legend or legends that comply with the applicable securities laws and regulations and make appropriate reference to the restrictions
imposed under the Plan and the Award Agreement.
10.3.
Rights of Holders of Restricted Stock.
Unless the Board otherwise provides in an Award Agreement, holders of Restricted Stock shall have rights as stockholders of the Company, including voting and dividend rights.
10.4.
Rights of Holders of Restricted Stock Units.
10.4.1.
Settlement of Restricted Stock Units.
Restricted Stock Units may be settled in cash or Stock, as determined by the Board and set forth in the Award Agreement. The Award Agreement shall also set forth whether the Restricted Stock Units shall be settled (i) within the time period specified in
Section
17.11
for
short term deferrals or (ii) otherwise within the requirements of Section 409A, in which case the Award Agreement shall specify upon which events such Restricted Stock Units shall be settled.
10.4.2.
Voting and Dividend Rights.
Unless otherwise stated in the applicable Award Agreement, holders of Restricted Stock Units shall not have rights as stockholders of the Company, including no voting or dividend or dividend equivalents rights.
10.4.3.
Creditor’s Rights.
A holder of Restricted Stock Units shall have no rights other than those of a general creditor of the Company. Restricted Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Award Agreement.
10.5.
Purchase of Restricted Stock.
The Grantee shall be required, to the extent required by applicable law, to purchase the Restricted Stock from the Company at a Purchase Price equal to the greater of (i) the aggregate par value of the shares of Stock represented by such Restricted Stock or (ii) the Purchase Price, if any, specified in the related Award Agreement. If specified
in the Award Agreement, the Purchase Price may be deemed paid by Services already rendered. The Purchase Price shall be payable in a form described in
Section
11
or, in the discretion of the Board, in consideration for past Services rendered.
10.6.
Delivery of Stock.
Upon the expiration or termination of any Restricted Period and the satisfaction of any other conditions prescribed by the Board, the restrictions applicable to shares of Restricted Stock or Restricted Stock Units settled in Stock shall lapse, and, unless otherwise provided in the Award Agreement, a stock certificate for such shares shall be delivered,
free of all such restrictions, to the Grantee or the Grantee’s beneficiary or estate, as the case may be.
11.
FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK
11.1.
General Rule.
Payment of the Option Price for the shares purchased pursuant to the exercise of an Option or the Purchase Price for Restricted Stock shall be made in cash or in cash equivalents acceptable to the Company, except as provided in this
Section
11
.
11.2.
Surrender of Stock.
To the extent the Award Agreement so provides, payment of the Option Price for shares purchased pursuant to the exercise of an Option or the Purchase Price for Restricted Stock may be made all or in part through the tender to the Company of shares of Stock, which shares shall be valued, for purposes of determining the extent to which the Option Price
or Purchase Price for Restricted Stock has been paid thereby, at their Fair Market Value on the date of exercise or surrender. Notwithstanding the foregoing, in the case of an Incentive Stock Option, the right to make payment in the form of already owned shares of Stock may be authorized only at the time of grant.
11.3.
Cashless Exercise.
With respect to an Option only (and not with respect to Restricted Stock) following the Initial Public Offering, to the extent permitted by law and to the extent the Award Agreement so provides, payment of the Option Price may be made all or in part by delivery (on a form acceptable to the Company) of an irrevocable direction to a licensed securities
broker acceptable to the Company to sell shares of Stock and to deliver all or part of the sales proceeds to the Company in payment of the Option Price and any withholding taxes described in
Section
17.3
.
11.4.
Other Forms of Payment.
To the extent the Award Agreement so provides, payment of the Option Price or the Purchase Price for Restricted Stock may be made in any other form that is consistent with applicable laws, regulations and rules, including, but not limited to, the Company’s withholding of shares of Stock otherwise due to the exercising Grantee.
12.
TERMS AND CONDITIONS OF PERFORMANCE AWARDS
12.1.
Performance Conditions.
The right of a Grantee to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such performance conditions as may be specified by the Board. The Board may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may exercise its
discretion to reduce the amounts payable under any Award subject to performance conditions, except as limited under
Section
12.2
in the case of a Performance Award intended to qualify under Code Section 162(m).
12.2.
Performance Awards Granted to Designated Covered Employees.
If and to the extent that the Board determines that a Performance Award to be granted to a Grantee who is designated by the Board as likely to be a Covered Employee should qualify as “performance-based compensation” for purposes of Code Section 162(m), the grant, exercise and/or settlement of such Performance Award shall be contingent
upon achievement of pre-established performance goals and other terms set forth in this
Section
12.2
. Notwithstanding anything herein to the contrary, the Board in its discretion may provide for Performance Awards to Covered Employees that are not intended qualify as “performance-based compensation” for purposes of Code Section 162(m).
12.2.1.
Performance Goals Generally.
The performance goals for such Performance Awards shall consist of one or more business criteria and a targeted level or levels of performance with respect to each of such criteria, as specified by the Board consistent with this
Section
12.2
. Following the end of the Transition
Period, performance goals shall be objective and shall otherwise meet the requirements of Code Section 162(m) and regulations thereunder including the requirement that the level or levels of performance targeted by the Board result in the achievement of performance goals being “substantially uncertain.” The Board may determine that such Performance Awards shall be granted, exercised and/or settled upon achievement of any one performance goal or that two or more of the performance goals must be
achieved as a condition to grant, exercise and/or settlement of such Performance Awards. Performance goals may, in the discretion of the Board, be established on a Company-wide basis, or with respect to one or more business units, divisions, subsidiaries or business segments, as applicable. Performance goals may be absolute or relative (to the performance of one or more comparable companies or indices). Measurement of performance goals may exclude (in the discretion of the Board) the impact of charges for restructuring,
discontinued operations, extraordinary items, and other unusual non-recurring items, and the cumulative effects of tax or accounting changes (each as defined by generally accepted accounting principles and as identified in the Company’s financial statements or other SEC filings). Performance goals may differ for Performance Awards granted to any one Grantee or to different Grantees.
12.2.2.
Business Criteria.
One or more of the following business criteria for the Company, on a consolidated basis, and/or specified subsidiaries or business units of the Company (except with respect to the total stockholder return and earnings per share criteria), shall be used exclusively by the Board in establishing performance goals for such Performance Awards: (i) cash flow;
(ii) earnings per share, as adjusted for any stock split, stock dividend or other recapitalization; (iii) earnings measures; (iv) return on equity; (v) total shareholder return; (vi) share price performance, as adjusted for any stock split, stock dividend or other recapitalization; (vii) return on capital; (viii) revenue; (ix) income; (x) profit margin; (xi) return on operating revenue; (xii) brand recognition/acceptance; (xiii) customer satisfaction; (xiv) productivity; (xv) expense targets; (xvi) market share;
(xvii) cost control measures; (xviii) balance sheet metrics; (xix) strategic initiatives; (xx) implementation, completion or attainment of measurable objectives with respect to recruitment or retention of personnel or employee satisfaction; or (xxi) any other business criteria established by the the Board; provided, however, that such business criteria shall include any derivations of business criteria listed above (e.g., income shall include pre-tax income, net income, operating income, etc.).
12.2.3.
Timing for Establishing Performance Goals.
Following the Transition Period, performance goals shall be established not later than 90 days after the beginning of any performance period applicable to such Performance Awards, or at such other date as may be required or permitted for “performance-based compensation” under Code Section 162(m).
12.2.4.
Settlement of Performance Awards; Other Terms.
Settlement of Performance Awards shall be in cash, Stock, other Awards or other property, in the discretion of the Board. The Board may, in its discretion, reduce the amount of a settlement otherwise to be made in connection with such Performance Awards.
12.3.
Written Determinations.
All determinations by the Board as to the establishment of performance goals, the amount of any Performance Award pool or potential individual Performance Awards and as to the achievement of performance goals relating to Performance Awards, shall be made in writing in the case of any Award intended to qualify under Code Section 162(m) to the extent
required by Code Section 162(m). To the extent permitted by Code Section 162(m), the Board may delegate any responsibility relating to such Performance Awards.
12.4.
Status of Section 12.2 Awards under Code Section 162(m).
The provisions of this
Section
12.4 are applicable following the Transition Period. It is the intent of the Company that Performance Awards under
Section
12.2
granted to persons who are designated by the Board as likely to be Covered
Employees within the meaning of Code Section 162(m) and regulations thereunder shall, if so designated by the Board, constitute “qualified performance-based compensation” within the meaning of Code Section 162(m) and regulations thereunder. Accordingly, the terms of
Section
12.2
, including the definitions of Covered Employee and other terms used therein, shall be interpreted in a manner consistent with Code Section 162(m)
and regulations thereunder. The foregoing notwithstanding, because the Board cannot determine with certainty whether a given Grantee will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean only a person designated by the Board, at the time of grant of Performance Awards, as likely to be a Covered Employee with respect to that fiscal year. If any provision of the Plan or any agreement relating to such Performance Awards does
not comply or is inconsistent with the requirements of Code Section 162(m) or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements.
13.1.
Grant of Other Stock-based Awards.
Other Stock-based Awards may be granted either alone or in addition to or in conjunction with other Awards under the Plan. Other Stock-based Awards may be granted in lieu of other cash or other compensation to which a Service Provider is entitled from the Company or may be used in the settlement of amounts payable in shares of Common Stock under any
other compensation plan or arrangement of the Company, including without limitation, the Company’s incentive compensation plan. Subject to the provisions of the Plan, the Board shall have the sole and complete authority to determine the persons to whom and the time or times at which such Awards shall be made, the number of shares of Common Stock to be granted pursuant to such Awards, and all other conditions of such Awards. Unless the Board determines otherwise, any such Award shall be confirmed by an Award
Agreement, which shall contain such provisions as the Board determines to be necessary or appropriate to carry out the intent of this Plan with respect to such Award.
13.2.
Terms of Other Stock-based Awards.
Any Common Stock subject to Awards made under this
Section
13
may not be sold, assigned, transferred, pledged or otherwise encumbered prior to the date on which the shares are issued, or, if later, the date on which any applicable restriction, performance or deferral period
lapses.
14.1.
General.
The Company shall not be required to sell or issue any shares of Stock under any Award if the sale or issuance of such shares would constitute a violation by the Grantee, any other individual exercising an Option, or the Company of any provision of any law or regulation of any governmental authority, including without limitation any federal or state
securities laws or regulations. If at any time the Company shall determine, in its discretion, that the listing, registration or qualification of any shares subject to an Award upon any securities exchange or under any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance or purchase of shares hereunder, no shares of Stock may be issued or sold to the Grantee or any other individual exercising an Option pursuant to such Award unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company, and any delay caused thereby shall in no way affect the date of termination of the Award. Specifically, in connection with the Securities Act, upon the exercise of any Option or the delivery of any shares of Stock underlying an Award, unless a registration statement under such Act is in effect with respect to the shares of Stock covered by such Award, the Company shall not be required
to sell or issue such shares unless the Board has received evidence satisfactory to it that the Grantee or any other individual exercising an Option may acquire such shares pursuant to an exemption from registration under the Securities Act. Any determination in this connection by the Board shall be final, binding, and conclusive. The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act. The Company shall not be obligated to take any affirmative
action in order to cause the exercise of an Option or the issuance of shares of Stock pursuant to the Plan to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable until the shares of Stock covered by such Option are registered or are exempt from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness
of such registration or the availability of such an exemption.
14.2.
Rule 16b-3.
During any time when the Company has a class of equity security registered under Section 12 of the Exchange Act, it is the intent of the Company that Awards and the exercise of Options granted to officers and directors hereunder will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent that any provision of the Plan
or action by the Board or Committee does not comply with the requirements of Rule 16b-3, it shall be deemed inoperative to the extent permitted by law and deemed advisable by the Board, and shall not affect the validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the Board may exercise its discretion to modify this Plan in any respect necessary to satisfy the requirements of, or to take advantage of any features of, the revised exemption or its replacement.
15.
EFFECT OF CHANGES IN CAPITALIZATION
15.1.
Adjustments for Changes in Capital Structure.
Subject to any required action by the stockholders of the Company, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off,
combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate and proportionate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Awards, and in the Option Price, SAR Exercise Price or
Purchase Price per share of any outstanding Awards in order to prevent dilution or enlargement of Grantees’ rights under the Plan. For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as “effected without receipt of consideration by the Company.” If a majority of the shares which are of the same class as the shares that are subject to outstanding Awards are exchanged for, converted into, or otherwise become (whether or not pursuant to a
Change in Control) shares of another corporation (the “
New Shares
”), the Board may unilaterally amend the outstanding Awards to provide that such Awards are for New Shares. In the event of any such amendment, the number of shares subject to, and the Option Price, SAR Exercise Price or Purchase Price per share of, the outstanding Awards shall be adjusted in a fair and equitable manner as determined by the Board, in its discretion. Any fractional share resulting
from an adjustment pursuant to this
Section
15.1
shall be rounded down to the nearest whole number and the Option Price, SAR Exercise Price or Purchase Price per share shall be rounded up to the nearest whole cent. In no event may the exercise price of any Award be decreased to an amount less than the par value, if any, of the stock subject to the Award. The Board in its sole discretion, may also make such adjustments in the terms of
any Award to reflect, or related to, such changes in the capital structure of the Company or distributions as it deems appropriate. Adjustments determined by the Board pursuant to this
Section
15.1
shall be made in accordance with Section 409A to the extent applicable.
15.2.
Change in Control.
15.2.1.
Consequences of a Change in Control.
Subject to the requirements and limitations of Section 409A if applicable, the Board may provide for any one or more of the following in connection with a Change in Control:
(a)
Accelerated Vesting
. The Board may, in its discretion, provide in any Award Agreement or, in the event of a Change in Control, may take such actions as it deems appropriate to provide for the acceleration
of the exercisability, vesting and/or settlement in connection with such Change in Control of each or any outstanding Award or portion thereof and shares acquired pursuant thereto upon such conditions, including termination of the Grantee’s Service prior to, upon, or following such Change in Control, to such extent as the Board shall determine.
(b)
Assumption, Continuation or Substitution.
In the event of a Change in Control, the surviving,
continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the “
Acquiror
”
), may, without the consent of any Grantee, either assume or continue the Company’s rights and obligations under each or any Award or portion thereof outstanding immediately prior to the Change in Control or substitute for each or any such outstanding Award or portion thereof a substantially
equivalent award with respect to the Acquiror’s stock, as applicable. For purposes of this
Section 15.2.1
, if so determined by the Board, in its discretion, an Award denominated in shares of Stock shall be deemed assumed if, following the Change in Control, the Award confers the right to receive, subject to the terms and conditions of the Plan and the applicable Award Agreement, for each share of Stock subject to the Award immediately prior to the Change in Control,
the consideration (whether stock, cash, other securities or property or a combination thereof) to which a holder of a share of Stock on the effective date of the Change in Control was entitled;
provided
,
however
, that if such consideration is not solely common stock of the Acquiror, the Board may, with the consent of the Acquiror, provide for the consideration to be received upon the exercise or settlement of the Award, for each share
of Stock subject to the Award, to consist solely of common stock of the Acquiror equal in Fair Market Value to the per share consideration received by holders of Stock pursuant to the Change in Control. If any portion of such consideration may be received by holders of Stock pursuant to the Change in Control on a contingent or delayed basis, the Board may, in its sole discretion, determine such Fair Market Value per share as of the time of the Change in Control on the basis of the Board’s good faith estimate
of the present value of the probable future payment of such consideration. Any Award or portion thereof which is neither assumed or continued by the Acquiror in connection with the Change in Control nor exercised or settled as of the time of consummation of the Change in Control shall terminate and cease to be outstanding effective as of the time of consummation of the Change in Control.
(c)
Cash-Out of Awards
. The Board may, in its discretion and without the consent of any Grantee, determine that, upon the occurrence of a Change in Control, each or any Award or a portion thereof outstanding immediately prior to the Change in Control and not previously exercised or settled shall be canceled in exchange for a payment with respect to each vested share (and each unvested share, if so determined by the Board) of Stock subject to such canceled
Award in (i) cash, (ii) stock of the Company or of a corporation or other business entity a party to the Change in Control, or (iii) other property which, in any such case, shall be in an amount having a Fair Market Value equal to the Fair Market Value of the consideration to be paid per share of Stock in the Change in Control, reduced by the exercise or purchase price per share, if any, under such Award. If any portion of such consideration may be received by holders of Stock pursuant to the Change
in Control on a contingent or delayed basis, the Board may, in its sole discretion, determine such Fair Market Value per share as of the time of the Change in Control on the basis of the Board’s good faith estimate of the present value of the probable future payment of such consideration. In the event such determination is made by the Board, the amount of such payment (reduced by applicable withholding taxes, if any) shall be paid to Grantees in respect of the vested portions of their canceled Awards as
soon as practicable following the date of the Change in Control and in respect of the unvested portions of their canceled Awards in accordance with the vesting schedules applicable to such Awards. For avoidance of doubt, if the amount determined pursuant to this
Section
15.2.1(c)
for an Option or SAR is zero or less, the affected Option or SAR may be cancelled without any payment therefore.
15.2.2.
Change in Control Defined.
Except as may otherwise be defined in an Award Agreement, a Change in Control shall mean the occurrence of any of the following events:
(a)
the acquisition, other than from the Company, by any individual, entity or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), other than the Company or any subsidiary, affiliate (within the meaning of Rule 144 promulgated
under the Securities Act of 1933, as amended) or employee benefit plan of the Company, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50% of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “
Voting Securities
”); or
(b)
a reorganization, merger, consolidation or recapitalization of the Company (a “
Business Combination
”), other than a Business Combination in which more than 50% of the combined voting power of the outstanding
voting securities of the surviving or resulting entity immediately following the Business Combination is held by the persons who, immediately prior to the Business Combination, were the holders of the Voting Securities; or
(c)
a complete liquidation or dissolution of the Company, or a sale of all or substantially all of the assets of the Company; or
(d)
during any period of 24 consecutive months, the Incumbent Directors cease to constitute a majority of the Board of Directors; “
Incumbent Directors
” shall mean individuals who were members of the Board
of Directors at the beginning of such period or individuals whose election or nomination for election to the Board of Directors by the Company's stockholders was approved by a vote of at least a majority of the then Incumbent Directors (but excluding any individual whose initial election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors).
Notwithstanding the foregoing, if it is determined that an Award hereunder is subject to the requirements of Section 409A and payable upon a Change in Control, the Company will not be deemed to have undergone a Change in Control unless the Company is deemed to have undergone a “change in control event” pursuant to the definition of such
term in Section 409A.
15.3.
Adjustments.
Adjustments under this
Section
15
related to shares of Stock or securities of the Company shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. No fractional shares or other securities shall be issued pursuant to any such
adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share.
16.
NO LIMITATIONS ON COMPANY
The making of Awards pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets.
17.
TERMS APPLICABLE GENERALLY TO AWARDS GRANTED UNDER THE PLAN
17.1.
Disclaimer of Rights.
No provision in the Plan or in any Award Agreement shall be construed to confer upon any individual the right to remain in the employ or service of the Company or any Affiliate, or to interfere in any way with any contractual or other right or authority of the Company or any Affiliate either to increase or decrease the compensation or other payments
to any individual at any time, or to terminate any employment or other relationship between any individual and the Company or any Affiliate. In addition, notwithstanding anything contained in the Plan to the contrary, unless otherwise stated in the applicable Award Agreement, no Award granted under the Plan shall be affected by any change of duties or position of the Grantee, so long as such Grantee continues to be a Service Provider. The obligation of the Company to pay any benefits pursuant to this Plan shall
be interpreted as a contractual obligation to pay only those amounts described herein, in the manner and under the conditions prescribed herein. The Plan shall in no way be interpreted to require the Company to transfer any amounts to a third party trustee or otherwise hold any amounts in trust or escrow for payment to any Grantee or beneficiary under the terms of the Plan.
17.2.
Nonexclusivity of the Plan.
Neither the adoption of the Plan nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations upon the right and authority of the Board to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or
specifically to a particular individual or particular individuals), including, without limitation, the granting of stock options as the Board in its discretion determines desirable.
The Company or an Affiliate, as the case may be, shall have the right to deduct from payments of any kind otherwise due to a Grantee any federal, state, or local taxes of any kind required by law to be withheld (i) with respect to the vesting of or other lapse of restrictions applicable to an Award, (ii) upon the issuance of any shares of
Stock upon the exercise of an Option or SAR, or (iii) otherwise due in connection with an Award. At the time of such vesting, lapse, or exercise, the Grantee shall pay to the Company or the Affiliate, as the case may be, any amount that the Company or the Affiliate may reasonably determine to be necessary to satisfy such withholding obligation. Subject to the prior approval of the Company or the Affiliate, which may be withheld by the Company or the Affiliate, as the case may be, in its sole discretion,
the Grantee may elect to satisfy such obligations, in whole or in part, (i) by causing the Company or the Affiliate to withhold the minimum required number of shares of Stock otherwise issuable to the Grantee as may be necessary to satisfy such withholding obligation or (ii) by delivering to the Company or the Affiliate shares of Stock already owned by the Grantee. The shares of Stock so delivered or withheld shall have an aggregate Fair Market Value equal to such withholding obligations. The Fair Market
Value of the shares of Stock used to satisfy such withholding obligation shall be determined by the Company or the Affiliate as of the date that the amount of tax to be withheld is to be determined. A Grantee who has made an election pursuant to this
Section
17.3
may satisfy his or her withholding obligation only with shares of Stock that are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.
17.4.
Right of First Refusal; Right to Repurchase.
17.4.1.
Right of First Refusal.
Except as otherwise expressly provided in an Award Agreement, stockholders’ agreement or other agreement to which a Holder is a party, at any time prior to registration by the Company of its Common Stock under Section 12 of the Exchange Act, in the event that the Holder desires at any time to sell or otherwise transfer all or any part of such
Holder’s Issued Shares (to the extent vested), the Holder first shall give written notice to the Company of the Holder’s intention to make such transfer. Such notice shall state the number of Issued Shares which the Holder proposes to sell (the “Offered Shares”), the price and the terms at which the proposed sale is to be made and the name and address of the proposed transferee. At any time within 30 days after the receipt of such notice by the Company, the Company or its assigns may elect
to purchase all or any portion of the Offered Shares at the price and on the terms offered by the proposed transferee and specified in the notice. The Company or its assigns shall exercise this right by mailing or delivering written notice to the Holder within the foregoing 30-day period. If the Company or its assigns elect to exercise its purchase rights under this
Section
17.4.1
, the closing for such purchase shall, in any event,
take place within 45 days after the receipt by the Company of the initial notice from the Holder. In the event that the Company or its assigns do not elect to exercise such purchase right, or in the event that the Company or its assigns do not pay the full purchase price within such 45-day period, the Holder may, within 60 days thereafter, sell the Offered Shares to the proposed transferee and at the same price and on the same terms as specified in the Holder’s notice. Any Issued Shares purchased by such
proposed transferee shall no longer be subject to the terms of the Plan. Any Issued Shares not sold to the proposed transferee shall remain subject to the Plan.
17.4.2.
Right of Repurchase.
Except as otherwise expressly provided in an Award Agreement, stockholders’ agreement or other agreement to which a Grantee is a party, at any time prior to registration by the Company of its Common Stock under Section 12 of the Exchange Act, in the case of any Grantee whose Separation from Service is for Cause, or where the Grantee has, in the
Board's reasonable determination, taken any action prior to or following his Separation of Service which would have constituted grounds for Cause, the Company shall have the right, exercisable at any time and from time to time thereafter, to repurchase from the Grantee (or any successor in interest by purchase, gift or other mode of transfer) any shares of Common Stock issued to such Grantee under the Plan for the purchase price paid by the Grantee for such shares of Common Stock (or the Fair Market Value of
such Common Stock at the time of repurchase, if lower).
17.5.
Market Standoff Requirement.
Except as otherwise expressly provided in an Award Agreement, stockholders’ agreement or other agreement to which a Grantee is a party,
in connection with any underwritten public offering of its Common Stock (“
Offering
”) and upon request of the Company
or the underwriters managing the Offering, Grantees shall not be permitted to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise directly or indirectly dispose of any Common Stock delivered under the Plan (other than those shares of Common Stock included in the Offering) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time from the effective date of the registration statement with respect to such Offering as may
be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters in connection with such Offering.
17.6.
Captions.
The use of captions in this Plan or any Award Agreement is for the convenience of reference only and shall not affect the meaning of any provision of the Plan or any Award Agreement.
17.7.
Other Provisions.
Each Award Agreement may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Board, in its sole discretion. In the event of any conflict between the terms of an employment agreement and the Plan, the terms of the employment agreement govern.
17.8.
Number and Gender.
With respect to words used in this Plan, the singular form shall include the plural form, the masculine gender shall include the feminine gender, etc., as the context requires.
17.9.
Severability.
If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction.
17.10.
Governing Law.
The Plan shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the principles of conflicts of law.
The Plan is intended to comply with Section 409A to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and administered to be in compliance therewith. Any payments described in the Plan that are due within the “short-term deferral period” as defined in Section 409A shall not be treated
as deferred compensation unless applicable laws require otherwise. Notwithstanding anything to the contrary in the Plan, to the extent required to avoid accelerated taxation and tax penalties under Section 409A, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to the Plan during the six (6) month period immediately following the Grantee’s Separation from Service shall instead be paid on the first payroll date after the six-month anniversary of the Grantee’s
Separation from Service (or the Grantee’s death, if earlier). Notwithstanding the foregoing, neither the Company nor the Committee shall have any obligation to take any action to prevent the assessment of any excise tax or penalty on any Grantee under Section 409A and neither the Company nor the Committee will have any liability to any Grantee for such tax or penalty.
17.12.
Separation from Service.
The Board shall determine the effect of a Separation from Service upon Awards, and such effect shall be set forth in the appropriate Award Agreement. Without limiting the foregoing, the Board may provide in the Award Agreements at the time of grant, or any time thereafter with the consent of the Grantee, the actions that will be taken upon the occurrence
of a Separation from Service, including, but not limited to, accelerated vesting or termination, depending upon the circumstances surrounding the Separation from Service.
17.13.
Transferability of Awards and Issued Shares.
17.13.1.
Transfers in General.
Except as provided in
Section
17.13.2
, no Award shall be assignable or transferable by the Grantee to whom it is granted, other than by will or the laws of descent and distribution, and, during the lifetime of the Grantee, only the Grantee personally (or the Grantee’s
personal representative) may exercise rights under the Plan.
17.13.2.
Family Transfers.
If authorized in the applicable Award Agreement, a Grantee may transfer, not for value, all or part of an Award (other than Incentive Stock Options) to any Family Member. For the purpose of this
Section
17.13.2
, a “not for value” transfer is a transfer which
is (i) a gift, (ii) a transfer under a domestic relations order in settlement of marital property rights; or (iii) a transfer to an entity in which more than fifty percent of the voting interests are owned by Family Members (or the Grantee) in exchange for an interest in that entity. Following a transfer under this
Section
17.13.2
, any such Award shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer. Subsequent transfers of transferred Awards are prohibited except to Family Members of the original Grantee in accordance with this
Section
17.13.2
or by will or the laws of descent and distribution.
No Issued Shares shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of or encumbered, whether voluntarily or by operation of law, unless (i) such transfer is in compliance with the terms of the applicable Award, all applicable securities laws, and with the terms and conditions of the Plan (including
Sections
17.4
and
17.5
and
this
Section
17.13.3
), (ii) such transfer does not cause the Company to become subject to the reporting requirements of the Exchange Act, and (iii) the transferee consents in writing to be bound by the provisions of the Plan (including
Sections
17.4
and
17.5
and this
Section
17.13.3
).
In connection with any proposed transfer, the Board may require the transferor to provide at the transferor’s own expense an opinion of counsel to the transferor, satisfactory to the Board, that such transfer is in compliance with all foreign, federal and state securities laws. Any attempted disposition of Issued Shares not in accordance with the terms and conditions of this
Section
17.13.3
shall
be null and void, and the Company shall not reflect on its records any change in record ownership of any Issued Shares as a result of any such disposition, shall otherwise refuse to recognize any such disposition and shall not in any way give effect to any such disposition of Issued Shares. Subject to the foregoing general provisions, and unless otherwise provided in the agreement with respect to a particular Award, Issued Shares may be transferred pursuant to the following specific terms and conditions:
(a)
Transfers to Permitted Transferees
. The Holder may sell, assign, transfer or give away any or all of the Issued Shares to Permitted Transferees;
provided, however,
that
following such sale, assignment, or other transfer, such Issued Shares shall continue to be subject to the terms of this Plan (including
Sections
17.4
and
17.5
and this
Section
17.13.3
) and such Permitted Transferee(s) shall, as
a condition to any such transfer, deliver a written
acknowledgment to that effect to the Company.
(b)
Transfers Upon Death
. Upon the death of the Holder, any Issued Shares then held by the Holder at the time of such death and any Issued Shares acquired thereafter by the Holder’s legal representative
shall be subject to the provisions of this Plan, and the Holder’s estate, executors, administrators, personal representatives, heirs, legatees and distributees shall be obligated to convey such Issued Shares to the Company or its assigns under the terms contemplated hereby.
17.14.
Dividends and Dividend Equivalent Rights.
If specified in the Award Agreement, the recipient of an Award under this Plan may be entitled to receive, currently or on a deferred basis, dividends or dividend equivalents with respect to the Common Stock or other securities covered by an Award. The terms and conditions of a dividend equivalent right may be set forth in the Award Agreement. Dividend
equivalents credited to a Grantee may be paid currently or may be deemed to be reinvested in additional shares of Stock or other securities of the Company at a price per unit equal to the Fair Market Value of a share of Stock on the date that such dividend was paid to shareholders, as determined in the sole discretion of the Board.
Adopted by the Board on ________, 2014
Approved by Stockholders on ___________, 2014
Termination Date: ___________, 2024
NOTICE OF GRANT OF NON-QUALIFIED STOCK OPTION AWARD
Endra Inc.
Second Amended and Restated 2013 Stock Incentive Plan
FOR GOOD AND VALUABLE CONSIDERATION, Endra Inc. (the “
Company
”) hereby grants, pursuant to the provisions of the Company’s
Second Amended and Restated 2013 Stock Incentive Plan, as amended from time to time (the “
Plan
”),
to the Grantee designated in this Notice of Grant of Non-Qualified Stock Option Award (the “
Notice
”) an option to purchase the number of shares of the Common Stock of the Company set forth in the Notice (the “
Shares
”), subject to certain restrictions as outlined below in this Notice and the additional provisions set forth in the attached Terms and Conditions of Stock Option Award (collectively, the “
Agreement
”).
The terms and conditions of the Plan are incorporated by reference in their entirety into this Agreement. When used in this Agreement, the terms which are defined in the Plan shall have the meanings given to them in the Plan, as modified herein (if applicable).
|
Grantee
:
__________
|
Type of Option
: Non-Qualified Stock Option
|
|
Exercise Price per Share
: $____
|
Date of Grant
: ____________
|
|
Total Number of Shares Granted
: _______
|
Expiration Date
: ____________
|
|
Vesting Schedule
:
The Option will vest and become exercisable as follows:
|
|
The Option shall be fully vested on the date of issuance
|
|
|
Notwithstanding the foregoing Vesting Schedule, the Option will vest and become exercisable in accordance with any provisions contained in Grantee’s employment agreement that specifically address vesting of the Option, if any, and to the extent of any conflict the terms of such employment agreement shall control.
|
|
Exercise After Separation from Service
:
Separation from Service for any reason other than Cause
: any non-vested portion of the Option expires immediately and any vested portion of the Option remains exercisable through the Expiration Date;
Separation from Service for Cause
: the entire Option, including any vested and non-vested portion, expires immediately upon Separation from Service.
IN NO EVENT MAY THIS OPTION BE EXERCISED AFTER THE EXPIRATION DATE AS PROVIDED ABOVE
.
Notwithstanding the foregoing, the Option will remain exercisable in accordance with any provisions contained in Grantee’s employment agreement that specifically address exercisability of this Option, if any, and to the extent of any conflict the terms of such employment agreement shall control.
|
By signing below, the Grantee agrees that this Non-Qualified Stock Option Award is granted under and governed by the terms and conditions of the Company’s Second Amended and Restated 2013 Stock Incentive Plan and the attached Terms and Conditions.
Grantee Endra
Inc.
___________________________
By: __________________________
Title: _________________________
Date: ______________________
Date: ________________________
TERMS AND CONDITIONS OF STOCK OPTION AWARD
1.
Grant of Option
. The Stock Option Award (the “
Award
”) granted by Endra Inc. (the “
Company
”) to the Grantee specified in the Notice of Grant of Non-Qualified
Stock Option Award (the “
Notice
”) to which these Terms and Conditions of Stock Option Award (the “
Terms
”) are attached, is subject to the terms and conditions of the Plan, the Notice, and these Terms. The terms and conditions of the Plan are incorporated by reference in their entirety into these Terms (the Plan is available upon request). Together, the Notice, all Exhibits to the Notice and these Terms constitute
the “
Agreement
.” When used in this Agreement, the terms which are defined in the Plan shall have the meanings given to them in the Plan, as modified herein (if applicable). For purposes this Agreement, any reference to the Company shall include a reference to any Affiliate.
The Board has approved an award of an Options to the Grantee with respect to a number of shares of the Company’s Common Stock as set forth in the Notice, conditioned upon the Grantee’s acceptance of the provisions set forth in the Notice and these Terms within 60 days after the Notice and these Terms are presented to the Grantee for review.
The Company intends that this Option not be considered to provide for the deferral of compensation under Section 409A and that this Agreement shall be so administered and construed. Further, the Company may modify the Plan and this Award to the extent necessary to fulfill this intent.
2.
Exercise of Option
.
(a)
Right to Exercise
. This Option shall be exercisable, in whole or in part, during its term in accordance with the Vesting Schedule set out in the Notice and with the applicable provisions of the Plan and this Agreement. No Shares shall
be issued pursuant to the exercise of an Option unless the issuance and exercise comply with applicable laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Grantee on the date on which the Option is exercised with respect to such Shares. Until such time as the Option has been duly exercised and Shares have been delivered, the Grantee shall not be entitled to exercise any voting rights with respect to such Shares and shall not be entitled to receive dividends
or other distributions with respect thereto. The Board may, in its discretion and pursuant to its administrative authority under Section 3.1 of the Plan, (i) accelerate vesting of the Option or (ii) extend the applicable exercise period of the Option.
(b)
Method of Exercise
. The Grantee may exercise the Option by delivering an exercise notice in a form approved by the Company (the “
Exercise Notice
”) which shall state the election to exercise
the Option, the number of Shares with respect to which the Option is being exercised, 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 Shares exercised. 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.
3.
Method of Payment
. If the Grantee elects to exercise the Option by submitting an Exercise Notice under Section 2(b) of this Agreement, the aggregate Exercise Price (as well as any applicable withholding or other taxes) shall be paid by cash or check;
provided,
however
, that the Board may consent, in its discretion, to payment in any of the following forms, or a combination of them:
(a) cash or check;
(b) a “net exercise” under which the Company reduces the number of shares of Common Stock issued upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate Exercise Price and any applicable withholding, or such other consideration
received by the Company under a cashless exercise program approved by the Company in connection with the Plan;
(c) surrender of other shares of Common Stock owned by the Grantee which have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the exercised Shares and any applicable withholding; or
(d) any other consideration that the Board deems appropriate and in compliance with applicable law.
4.
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 the Shares upon exercise or the method of payment of consideration for those shares would constitute a violation of any applicable
law, regulation or Company policy.
5.
Non-Transferability of Option
. 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 the Grantee only by the Grantee. The terms of the Plan and this Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Grantee.
6.
Term of Option
. This Option may be exercised only within the term set out in the Notice, and may be exercised during such term only in accordance with the Plan and the terms of this Agreement.
7.
Withholding
.
(a) The Board shall determine the amount of any withholding or other tax required by law to be withheld or paid by the Company with respect to any income recognized by the Grantee with respect to the Option Award.
(b) The Grantee shall be required to meet any applicable tax withholding obligation in accordance with the provisions of Section 17.3 of the Plan.
8.
Grantee Representations
. The Grantee hereby represents to the Company that the Grantee has read and fully understands the provisions of the Notice, these Terms and the Plan, and the Grantee’s decision to participate in the Plan is completely voluntary. Further, the Grantee acknowledges
that the Grantee is relying solely on his or her own advisors with respect to the tax consequences of this Award. The Grantee releases and holds the Company, and its officers, directors, employees and agents, harmless from any loss or claim related to or in any way connected with the tax consequences of the Option, including without limitation the treatment of the Option under Section 409A.
9.
Regulatory Limitations on Exercises
. Notwithstanding the other provisions of this Agreement, the Board shall have the sole discretion to impose such conditions, restrictions and limitations (including suspending the exercise of the Option and the tolling of any applicable exercise period during
such suspension) on the issuance of Common Stock with respect to this Option unless and until the Board determines that such issuance complies with (i) any applicable registration requirements under the Securities Act or the Board has determined that an exemption therefrom is available, (ii) any applicable listing requirement of any stock exchange on which the Common Stock is listed, (iii) any applicable Company policy or administrative rules, and (iv) any other applicable provision of state, federal or foreign
law, including foreign securities laws where applicable.
10.
Miscellaneous
.
(a)
Notices
. Any notice which either party hereto may be required or permitted to give to the other shall be in writing and may be delivered personally, by intraoffice mail, by fax, by electronic mail or other electronic means, or via a
postal service, postage prepaid, to such electronic mail or postal address and directed to such person as the Company may notify the Grantee from time to time; and to the Grantee at the Grantee’s electronic mail or postal address as shown on the records of the Company from time to time, or at such other electronic mail or postal address as the Grantee, by notice to the Company, may designate in writing from time to time.
(b)
Waiver
. The waiver by any party hereto of a breach of any provision of the Notice or these Terms hall not operate or be construed as a waiver of any other or subsequent breach.
(c)
Entire Agreement
. These Terms, the Notice and the Plan constitute the entire agreement between the parties with respect to the subject matter hereof. Any prior agreements, commitments or negotiations concerning the Award are superseded.
(d)
Binding Effect; Successors
. These Terms hall inure to the benefit of and be binding upon the parties hereto and to the extent not prohibited herein, their respective heirs, successors, assigns and representatives. Nothing in these Terms,
express or implied, is intended to confer on any person other than the parties hereto and as provided above, their respective heirs, successors, assigns and representatives any rights, remedies, obligations or liabilities.
(e)
Governing Law
. The Notice and these Terms shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the principles of conflicts of law.
(f)
Headings
. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of these Terms.
(g)
Conflicts; Amendment
. The provisions of the Plan are incorporated in these Terms in their entirety. In the event of any conflict between the provisions of these Terms and the Plan, the provisions of the Plan shall control. The Agreement
may be amended at any time by the Board, provided that no amendment may, without the consent of the Grantee, materially impair the Grantee’s rights with respect to the Option.
(h)
No Right to Continued Employment
. Nothing in the Notice or these Terms shall confer upon the Grantee any right to continue in the employ or service of the Company or affect the right of the Company to terminate the Grantee’s employment
or service at any time.
(i)
Further Assurances
. The Grantee agrees, upon demand of the Company or the Board, to do all acts and execute, deliver and perform all additional documents, instruments and agreements which may be reasonably required by the Company or
the Board, as the case may be, to implement the provisions and purposes of the Notice and these Terms and the Plan.
(j)
Confidentiality
. The Grantee agrees that the terms and conditions of the Option award reflected in the Notice and these Terms are strictly confidential and, with the exception of Grantee’s counsel, tax advisor, immediate family, or as required by applicable
law, have not and shall not be disclosed, discussed, or revealed to any other persons, entities, or organizations, whether within or outside Company, without prior written approval of Company. The Grantee further agrees to take all reasonable steps necessary to ensure that confidentiality is maintained by any of the individuals or entities referenced above to whom disclosure is authorized.
NOTICE OF GRANT OF INCENTIVE STOCK OPTION AWARD
Endra Inc.
Second Amended and Restated 2013 Stock Incentive Plan
FOR GOOD AND VALUABLE CONSIDERATION, Endra Inc. (the “
Company
”) hereby grants, pursuant to the provisions of the Company’s
Second Amended and Restated 2013 Stock Incentive Plan, as amended from time to time (the “
Plan
”),
to the Grantee designated in this Notice of Grant of Incentive Stock Option Award (the “
Notice
”) an option to purchase the number of shares of the Common Stock of the Company set forth in the Notice (the “
Shares
”), subject to certain restrictions as outlined below in this Notice and the additional provisions set forth in the attached Terms and Conditions of Stock Option Award (collectively, the “
Agreement
”).
The terms and conditions of the Plan are incorporated by reference in their entirety into this Agreement. When used in this Agreement, the terms which are defined in the Plan shall have the meanings given to them in the Plan, as modified herein (if applicable).
|
Grantee
:
__________
|
Type of Option
: Incentive Stock Option
|
|
Exercise Price per Share
: _______
|
Date of Grant
: _______
|
|
Total Number of Shares Granted
: _______
|
Expiration Date
: _______
|
|
Vesting Schedule
:
The Option shall be fully vested on the date of issuance
|
|
Notwithstanding the foregoing Vesting Schedule, the Option will vest and become exercisable in accordance with any provisions contained in Grantee’s employment agreement that specifically address vesting of the Option, if any, and to the extent of any conflict the terms of such employment agreement shall control.
|
|
Exercise After Separation from Service
:
Separation from Service for any reason other than Cause
: any non-vested portion of the Option expires immediately and any vested portion of the Option remains exercisable for a period of twelve months;
Separation from Service for Cause
: the entire Option, including any vested and non-vested portion, expires immediately upon Separation from Service.
IN NO EVENT MAY THIS OPTION BE EXERCISED AFTER THE EXPIRATION DATE AS PROVIDED ABOVE
.
Notwithstanding the foregoing, the Option will remain exercisable in accordance with any provisions contained in Grantee’s employment agreement that specifically address exercisability of this Option, if any, and to the extent of any conflict the terms of such employment agreement shall control.
|
By signing below, the Grantee agrees that this Incentive Stock Option Award is granted under and governed by the terms and conditions of the Company’s Second Amended and Restated 2013 Stock Incentive Plan and the attached Terms and Conditions.
Grantee Endra
Inc.
___________________________
By: __________________________
Title: _________________________
Date: ______________________
Date: ________________________
TERMS AND CONDITIONS OF STOCK OPTION AWARD
1.
Grant of Option
. The Stock Option Award (the “
Award
”) granted by Endra Inc. (the “
Company
”) to the Grantee specified in the Notice of Grant of Incentive
Stock
Option Award (the “
Notice
”) to which these Terms and Conditions of Stock Option Award (the “
Terms
”) are attached, is subject to the terms and conditions of the Plan, the Notice, and these Terms. The terms and conditions of the Plan are incorporated by reference in their entirety into these Terms (the Plan is available upon request). Together, the Notice, all Exhibits to the Notice and these Terms constitute the
“
Agreement
.” When used in this Agreement, the terms which are defined in the Plan shall have the meanings given to them in the Plan, as modified herein (if applicable). For purposes this Agreement, any reference to the Company shall include a reference to any Affiliate.
The Board has approved an award of an Options to the Grantee with respect to a number of shares of the Company’s Common Stock as set forth in the Notice, conditioned upon the Grantee’s acceptance of the provisions set forth in the Notice and these Terms within 60 days after the Notice and these Terms are presented to the Grantee for review.
If designated in the Notice 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 the Option fails to meet the requirements of an ISO under Section 422 of the Code, this Option shall
be treated as a Non-qualified Stock Option (“
NSO
”).
The Company intends that this Option not be considered to provide for the deferral of compensation under Section 409A and that this Agreement shall be so administered and construed. Further, the Company may modify the Plan and this Award to the extent necessary to fulfill this intent.
2.
Exercise of Option
.
(a)
Right to Exercise
. This Option shall be exercisable, in whole or in part, during its term in accordance with the Vesting Schedule set out in the Notice and with the applicable provisions of the Plan and this Agreement. No Shares shall
be issued pursuant to the exercise of an Option unless the issuance and exercise comply with applicable laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Grantee on the date on which the Option is exercised with respect to such Shares. Until such time as the Option has been duly exercised and Shares have been delivered, the Grantee shall not be entitled to exercise any voting rights with respect to such Shares and shall not be entitled to receive dividends
or other distributions with respect thereto. The Board may, in its discretion and pursuant to its administrative authority under Section 3.1 of the Plan, (i) accelerate vesting of the Option or (ii) extend the applicable exercise period of the Option.
(b)
Method of Exercise
. The Grantee may exercise the Option by delivering an exercise notice in a form approved by the Company (the “
Exercise Notice
”) which shall state the election to exercise
the Option, the number of Shares with respect to which the Option is being exercised, 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 Shares exercised. 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.
3.
Method of Payment
. If the Grantee elects to exercise the Option by submitting an Exercise Notice under Section 2(b) of this Agreement, the aggregate Exercise Price (as well as any applicable withholding or other taxes) shall be paid by cash or check;
provided,
however
, that the Board may consent, in its discretion, to payment in any of the following forms, or a combination of them:
(a) cash or check;
(b) a “net exercise” under which the Company reduces the number of shares of Common Stock issued upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate Exercise Price and any applicable withholding, or such other consideration
received by the Company under a cashless exercise program approved by the Company in connection with the Plan;
(c) surrender of other shares of Common Stock owned by the Grantee which have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the exercised Shares and any applicable withholding; or
(d) any other consideration that the Board deems appropriate and in compliance with applicable law.
4.
Restrictions on Exercise
. This Option may not be exercised if the issuance of the Shares upon exercise or the method of payment of consideration for those shares would constitute a violation of any applicable law, regulation or Company policy.
5.
Non-Transferability of Option
. 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 the Grantee only by the Grantee. The terms of the Plan and this Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Grantee.
6.
Term of Option
. This Option may be exercised only within the term set out in the Notice, and may be exercised during such term only in accordance with the Plan and the terms of this Agreement.
7.
Withholding
.
(a) The Board shall determine the amount of any withholding or other tax required by law to be withheld or paid by the Company with respect to any income recognized by the Grantee with respect to the Option Award.
(b) The Grantee shall be required to meet any applicable tax withholding obligation in accordance with the provisions of Section 17.3 of the Plan.
(c) If the Grantee makes any disposition of Shares delivered pursuant to the exercise of an ISO under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions) or any successor provision of the Code, the Grantee shall notify the Company
of such disposition within ten days of such disposition.
8.
Grantee Representations
. The Grantee hereby represents to the Company that the Grantee has read and fully understands the provisions of the Notice, these Terms and the Plan, and the Grantee’s decision to participate in the Plan is completely voluntary. Further, the Grantee acknowledges
that the Grantee is relying solely on his or her own advisors with respect to the tax consequences of this Award. The Grantee releases and holds the Company, and its officers, directors, employees and agents, harmless from any loss or claim related to or in any way connected with the tax consequences of the Option, including without limitation the treatment of the Option under Section 409A.
9.
Regulatory Limitations on Exercises
. Notwithstanding the other provisions of this Agreement, the Board shall have the sole discretion to impose such conditions, restrictions and limitations (including suspending the exercise of the Option and the tolling of any applicable exercise period during
such suspension) on the issuance of Common Stock with respect to this Option unless and until the Board determines that such issuance complies with (i) any applicable registration requirements under the Securities Act or the Board has determined that an exemption therefrom is available, (ii) any applicable listing requirement of any stock exchange on which the Common Stock is listed, (iii) any applicable Company policy or administrative rules, and (iv) any other applicable provision of state, federal or foreign
law, including foreign securities laws where applicable.
10.
Miscellaneous
.
(a)
Notices
. Any notice which either party hereto may be required or permitted to give to the other shall be in writing and may be delivered personally, by intraoffice mail, by fax, by electronic mail or other electronic means, or via a
postal service, postage prepaid, to such electronic mail or postal address and directed to such person as the Company may notify the Grantee from time to time; and to the Grantee at the Grantee’s electronic mail or postal address as shown on the records of the Company from time to time, or at such other electronic mail or postal address as the Grantee, by notice to the Company, may designate in writing from time to time.
(b)
Waiver
. The waiver by any party hereto of a breach of any provision of the Notice or these Terms hall not operate or be construed as a waiver of any other or subsequent breach.
(c)
Entire Agreement
. These Terms, the Notice and the Plan constitute the entire agreement between the parties with respect to the subject matter hereof. Any prior agreements, commitments or negotiations concerning the Award are superseded.
(d)
Binding Effect; Successors
. These Terms hall inure to the benefit of and be binding upon the parties hereto and to the extent not prohibited herein, their respective heirs, successors, assigns and representatives. Nothing in these Terms,
express or implied, is intended to confer on any person other than the parties hereto and as provided above, their respective heirs, successors, assigns and representatives any rights, remedies, obligations or liabilities.
(e)
Governing Law
. The Notice and these Terms shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the principles of conflicts of law.
(f)
Headings
. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of these Terms.
(g)
Conflicts; Amendment
. The provisions of the Plan are incorporated in these Terms in their entirety. In the event of any conflict between the provisions of these Terms and the Plan, the provisions of the Plan shall control. The Agreement
may be amended at any time by the Board, provided that no amendment may, without the consent of the Grantee, materially impair the Grantee’s rights with respect to the Option.
(h)
No Right to Continued Employment
. Nothing in the Notice or these Terms shall confer upon the Grantee any right to continue in the employ or service of the Company or affect the right of the Company to terminate the Grantee’s employment
or service at any time.
(i)
Further Assurances
. The Grantee agrees, upon demand of the Company or the Board, to do all acts and execute, deliver and perform all additional documents, instruments and agreements which may be reasonably required by the Company or
the Board, as the case may be, to implement the provisions and purposes of the Notice and these Terms and the Plan.
(j)
Confidentiality
. The Grantee agrees that the terms and conditions of the Option award reflected in the Notice and these Terms are strictly confidential and, with the exception of Grantee’s counsel, tax advisor, immediate family, or as required by applicable
law, have not and shall not be disclosed, discussed, or revealed to any other persons, entities, or organizations, whether within or outside Company, without prior written approval of Company. The Grantee further agrees to take all reasonable steps necessary to ensure that confidentiality is maintained by any of the individuals or entities referenced above to whom disclosure is authorized.
ENDRA
Life Sciences Inc.
Non-Employee
Director Compensation Policy
(Adopted
by the ENDRA Life Sciences Inc. Board of Directors,
effective July 21, 2016)
Members
of the Board of Directors (the “
Board
”) of ENDRA
Life Sciences Inc. (the “
Company
”) who are not
employees of the Company or any subsidiary of the Company
(“
Directors
”) shall be paid
the following amounts in consideration for their services on the
Board.
Initial Compensation
Upon
his or her initial election to the Board (the “
Appointment Date
”), each
new Director shall be awarded a number of Options equal to $30,000
divided by the closing price of the Company’s Common Stock on
the Appointment Date. Such Options shall become exercisable on the
first trading day following December 31 of the year of the
Appointment Date (the “
Initial Award Vesting
Date
”). If a Director ceases to serve as a Director
before the Initial Award Vesting Date due to the Director’s
death, or if there is a Change in Control prior to the Initial
Award Vesting Date, then the Options shall become fully exercisable
as of the date of such death or Change in Control. If a Director
ceases to serve as a Director at any time for any reason other than
death before the earlier of an Initial Award Vesting Date or a
Change in Control, then any remaining unvested portion of the
Director’s initial grant of Options shall be forfeited as of
the date of such cessation of services.
Upon
the Company’s initial public offering of its Common Stock
(the “
IPO
”), each then-current
Director shall receive Options pursuant to this section as if such
Director’s Appointment Date was the effective date of the
IPO, with the number of Options to be awarded to each Director upon
the IPO equal to $30,000 divided by the price at which the
Company’s Common Stock is offered in the IPO (the
“
IPO
Price
”). The exercise price for such Options shall be
equal to the IPO Price.
Annual Compensation
Cash
Compensation
Each
Director shall be paid an annual cash retainer of $36,000, prorated
for partial years of service and paid quarterly in
arrears.
Equity Compensation
On the
first trading day of each calendar year (each, an
“
Option Grant
Date
”), each Director will be awarded a number of
Options equal to $30,000 divided by the closing price of the Common
Stock on the Option Grant Date. Such Options shall not become
exercisable until the first anniversary of their Option Grant Date
(each, an “
Annual
Award Vesting Date
”). If a Director ceases to serve as
a Director before the applicable Annual Award Vesting Date due to
the Director’s death, or if there is a Change in Control
prior to the Annual Award Vesting Date, then the Options shall
become fully exercisable as of the date of such death or Change in
Control. If a Director ceases to serve as a Director at any time
for any reason other than death before the earlier of the Annual
Award Vesting Date or a Change in Control, then any Options issued
pursuant to the annual equity grant shall become vested pro rata
(based on the number of days between the Option Grant Date and the
date of cessation of services divided by 365), and to the extent
the Options are not thereby exercisable, they shall be forfeited as
of the date of such cessation of services.
Equity Award Terms
Capitalized terms
used in this Policy and not otherwise defined shall have the
meanings given to them in the Company’s Second Amended and
Restated 2013 Equity Compensation Plan, or any successor equity
compensation plan under which Directors receive awards (the
“
Plan
”). Any Options
granted under this Policy shall be granted under and pursuant to
the Plan. Any Options issued in accordance with the terms of this
Policy shall have a term of eight years and shall be exercisable
through the date that is 12 months following the date the Director
ceases to serve as a Director unless otherwise provided in the
Plan. The Board, in its sole discretion and in recognition for
meritorious service, may elect to vest up to 100% of a
Director’s unvested equity awards upon
retirement.
Expense
Reimbursement
The
compensation described in this Policy is in addition to
reimbursement of all reasonable out-of-pocket expenses incurred by
Directors in attending meetings of the Board.
Employee
Directors
An
employee of the Company who serves as a director on the Board or on
the board of directors of a Company subsidiary shall not receive
any additional compensation for such service.
Section
409A
This
Policy is intended to comply with Code Section 409A to the extent
subject thereto, and, accordingly, to the maximum extent permitted,
the Policy shall be interpreted and administered to be in
compliance therewith.
INDEMNIFICATION
AGREEMENT
THIS
INDEMNIFICATION AGREEMENT (the “
Agreement
”) is made and entered
into as of __________ by and between ENDRA Life
Sciences Inc., a Delaware corporation (the
“
Company
”), and
________________ (“
Indemnitee
”).
WITNESSETH
THAT:
WHEREAS, highly
competent persons have become more reluctant to serve corporations
as directors or officers or in other capacities unless they are
provided with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions
against them arising out of their service to and activities on
behalf of the corporation;
WHEREAS, although
the furnishing of liability insurance to protect persons serving
the Company and its subsidiaries from certain liabilities has been
a customary and widespread practice among United States-based
corporations and other business enterprises, the Company believes
that, given current market conditions and trends, such insurance
may be available to it in the future only at higher premiums and
with more exclusions. At the same time, directors, officers, and
other persons in service to corporations or business enterprises
are being increasingly subjected to expensive and time-consuming
litigation relating to, among other things, matters that
traditionally would have been brought only against the Company or
business enterprise itself. The Bylaws and Certificate of
Incorporation of the Company require indemnification of the
officers and directors of the Company. Indemnitee may also be
entitled to indemnification pursuant to the General Corporation Law
of the State of Delaware (“
DGCL
”). The Bylaws and Certificate
of Incorporation and the DGCL expressly provide that the
indemnification provisions set forth therein are not exclusive, and
thereby contemplate that contracts may be entered into between the
Company and members of the board of directors, officers and other
persons with respect to indemnification;
WHEREAS, the
uncertainties relating to liability insurance and to
indemnification have increased the difficulty of attracting and
retaining such persons;
WHEREAS, the Board
has determined that the increased difficulty in attracting and
retaining such persons is detrimental to the best interests of the
Company's stockholders and that the Company should act to assure
such persons that there will be increased certainty of such
protection in the future;
WHEREAS, it is
reasonable, prudent and necessary for the Company contractually to
obligate itself to indemnify, and to advance expenses on behalf of,
such persons to the fullest extent permitted by applicable law so
that they will serve or continue to serve the Company free from
undue concern that they will not be so indemnified;
WHEREAS, this
Agreement is a supplement to and in furtherance of the Bylaws and
Certificate of Incorporation of the Company and any resolutions
adopted pursuant thereto, and shall not be deemed a substitute
therefor, nor to diminish or abrogate any rights of Indemnitee
thereunder; and
WHEREAS, Indemnitee
does not regard the protection available under the Company's Bylaws
and Certificate of Incorporation and insurance as adequate in the
present circumstances, and may not be willing to serve as an
officer or director without adequate protection, and the Company
desires Indemnitee to serve in such capacity. Indemnitee is willing
to serve, continue to serve and to take on additional service for
or on behalf of the Company on the condition that he be so
indemnified; and
WHEREAS, Indemnitee
has certain rights to indemnification and/or insurance provided by
other entities and/or organizations which Indemnitee and such other
entities and/or organizations intend to be secondary to the primary
obligation of the Company to indemnify Indemnitee as provided
herein, with the Company’s acknowledgement and agreement to
the foregoing being a material condition to Indemnitee’s
willingness to serve on the Board.
NOW,
THEREFORE, in consideration of Indemnitee’s agreement to
serve as an officer or a director from and after the date hereof,
the parties hereto agree as follows:
1.
Indemnity of
Indemnitee
. The Company hereby
agrees to hold harmless and indemnify Indemnitee to the fullest
extent permitted by law, as such may be amended from time to time.
In furtherance of the foregoing indemnification, and without
limiting the generality thereof:
(a)
Proceedings Other Than
Proceedings by or in the Right of the Company
. Indemnitee shall be entitled to the rights of
indemnification provided in this
Section
1(a)
if, by reason of his Corporate Status
(as hereinafter defined), the Indemnitee is, or is threatened to be
made, a party to or participant in any Proceeding (as hereinafter
defined) other than a Proceeding by or in the right of the Company.
Pursuant to this
Section
1(a)
,
Indemnitee shall be indemnified against all Expenses (as
hereinafter defined), judgments, penalties, fines and amounts paid
in settlement actually and reasonably incurred by him, or on his
behalf, in connection with such Proceeding or any claim, issue or
matter therein, if the Indemnitee acted in good faith and in a
manner the Indemnitee reasonably believed to be in or not opposed
to the best interests of the Company, and with respect to any
criminal Proceeding, had no reasonable cause to believe the
Indemnitee’s conduct was unlawful.
(b)
Proceedings by or in
the Right of the Company
.
Indemnitee shall be entitled to the rights of indemnification
provided in this
Section
1(b)
if, by reason of his Corporate Status,
the Indemnitee is, or is threatened to be made, a party to or
participant in any Proceeding brought by or in the right of the
Company. Pursuant to this
Section
1(b)
,
Indemnitee shall be indemnified against all Expenses actually and
reasonably incurred by the Indemnitee, or on the Indemnitee’s
behalf, in connection with such Proceeding if the Indemnitee acted
in good faith and in a manner the Indemnitee reasonably believed to
be in or not opposed to the best interests of the Company;
provided, however, if applicable law so provides, no
indemnification against such Expenses shall be made in respect of
any claim, issue or matter in such Proceeding as to which
Indemnitee shall have been adjudged to be liable to the Company
unless and to the extent that the Court of Chancery of the State of
Delaware shall determine that such indemnification may be
made.
(c)
Indemnification
for Expenses of a Party Who is Wholly or Partly
Successful
. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee
is, by reason of his Corporate Status, a party to or is otherwise
involved in and is successful, on the merits or otherwise, in any
Proceeding, or in defense of any claim, issue or matter therein, in
whole or in part, he shall be indemnified to the maximum extent
permitted by law, as such may be amended from time to time, against
all Expenses actually and reasonably incurred by him or on his
behalf in connection therewith. If Indemnitee is not wholly
successful in such Proceeding but is successful, on the merits or
otherwise, as to 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 him or on
his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section and without
limitation, 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.
2.
Additional
Indemnity
. In addition to, and
without regard to any limitations on, the indemnification provided
for in
Section
1
of this Agreement, to the maximum
extent permitted by law, the Company shall and hereby does
indemnify and hold harmless Indemnitee against all Expenses,
judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by him or on his behalf if, by reason of
his Corporate Status, he is, or is threatened to be made, a party
to or participant in any Proceeding (including a Proceeding by or
in the right of the Company), including, without limitation, all
liability arising out of the negligence or active or passive
wrongdoing of Indemnitee. The only limitation that shall exist upon
the Company’s obligations pursuant to this Agreement shall be
that the Company shall not be obligated to make any payment to
Indemnitee that is finally determined (under the procedures, and
subject to the presumptions, set forth in
Sections
6
and
7
hereof) to be unlawful.
3.
Contribution
.
(a)
Whether
or not the indemnification provided in
Sections
1
and
2
hereof is available, in respect of any threatened,
pending or completed action, suit or proceeding in which the
Company is jointly liable with Indemnitee (or would be if joined in
such action, suit or proceeding), the Company shall pay, in the
first instance, the entire amount of any judgment or settlement of
such action, suit or proceeding without requiring Indemnitee to
contribute to such payment and the Company hereby waives and
relinquishes any right of contribution it may have against
Indemnitee. The Company shall not enter into any settlement of any
action, suit or proceeding in which the Company is jointly liable
with Indemnitee (or would be if joined in such action, suit or
proceeding) unless such settlement provides for a full and final
release of all claims asserted against
Indemnitee.
(b)
Without
diminishing or impairing the obligations of the Company set forth
in the preceding subparagraph, if, for any reason, Indemnitee shall
elect or be required to pay all or any portion of any judgment or
settlement in any threatened, pending or completed action, suit or
proceeding in which the Company is jointly liable with Indemnitee
(or would be if joined in such action, suit or proceeding), the
Company shall contribute to the amount of Expenses, judgments,
fines and amounts paid in settlement actually and reasonably
incurred and paid or payable by Indemnitee in proportion to the
relative benefits received by the Company and all officers,
directors or employees of the Company, other than Indemnitee, who
are jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), on the one hand, and Indemnitee, on
the other hand, from the transaction from which such action, suit
or proceeding arose; provided, however, that the proportion
determined on the basis of relative benefit may, to the extent
necessary to conform to law, be further adjusted by reference to
the relative fault of the Company and all officers, directors or
employees of the Company other than Indemnitee who are jointly
liable with Indemnitee (or would be if joined in such action, suit
or proceeding), on the one hand, and Indemnitee, on the other hand,
in connection with the events that resulted in such expenses,
judgments, fines or settlement amounts, as well as any other
equitable considerations which the Law may require to be
considered. The relative fault of the Company and all officers,
directors or employees of the Company, other than Indemnitee, who
are jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), on the one hand, and Indemnitee, on
the other hand, shall be determined by reference to, among other
things, the degree to which their actions were motivated by intent
to gain personal profit or advantage, the degree to which their
liability is primary or secondary and the degree to which their
conduct is active or passive.
(c)
The
Company hereby agrees to fully indemnify and hold Indemnitee
harmless from any claims of contribution which may be brought by
officers, directors or employees of the Company, other than
Indemnitee, who may be jointly liable with Indemnitee.
(d)
To
the fullest extent permissible under applicable law, if the
indemnification provided for in this Agreement is unavailable to
Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by
Indemnitee, whether for judgments, fines, penalties, excise taxes,
amounts paid or to be paid in settlement and/or for Expenses, 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 event(s) and/or transaction(s) giving
cause to such Proceeding; and/or (ii) the relative fault of the
Company (and its directors, officers, employees and agents) and
Indemnitee in connection with such event(s) and/or
transaction(s).
4.
Indemnification
for Expenses of a Witness
.
Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a
witness, or is made (or asked to) respond to discovery requests, in
any Proceeding to which Indemnitee is not a party, he shall be
indemnified against all Expenses actually and reasonably incurred
by him or on his behalf in connection
therewith.
5.
Advancement of
Expenses
. Notwithstanding any
provision to the contrary in this Agreement, the Company shall
advance all Expenses incurred by or on behalf of Indemnitee in
connection with any Proceeding by reason of Indemnitee’s
Corporate Status within thirty (30) days after the receipt by the
Company of a statement or statements from Indemnitee requesting
such advance or advances from time to time, whether prior to or
after final disposition of such Proceeding. Such statement or
statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by a
written undertaking by or on behalf of Indemnitee to repay any
Expenses advanced if it shall ultimately be determined that
Indemnitee is not entitled to be indemnified against such Expenses.
Any advances and undertakings to repay pursuant to this
Section
5
shall be unsecured and interest free
and without reference to the financial ability of the Indemnitee to
make such repayment or to such Indemnitee’s ultimate
entitlement to indemnification under other provisions of this
Agreement. Advancement of Expenses pursuant to this
Section
5
shall not require approval of the
Board or the stockholders of the Company, or of any other person or
body. The Secretary of the Company shall promptly advise the Board
in writing of the request for advancement of Expenses, of the
amount and other details of the advancement and of the undertaking
to make repayment pursuant to this Section 5. Advances shall
include any and all reasonable Expenses incurred pursuing an action
to enforce this right of advancement, including Expenses incurred
preparing and forwarding statements to the Company to support the
advances claimed.
6.
Procedures and
Presumptions for Determination of Entitlement to
Indemnification
. It is the
intent of this Agreement to secure for Indemnitee rights of
indemnity that are as favorable as may be permitted under the DGCL
and public policy of the State of Delaware. Accordingly, the
parties agree that the following procedures and presumptions shall
apply in the event of any question as to whether Indemnitee is
entitled to indemnification under this
Agreement:
(a)
Initial
Request
. To obtain
indemnification under this Agreement, Indemnitee shall submit to
the Company a written request, including therein or therewith such
documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to
what extent Indemnitee is entitled to indemnification including,
but not limited to, a description of the nature of the Proceeding
and the facts underlying such Proceeding. The Secretary of the
Company shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors in writing that
Indemnitee has requested indemnification. Notwithstanding the
foregoing, any failure of Indemnitee to provide such a request to
the Company, or to provide such a request in a timely fashion,
shall not relieve the Company of any liability that it may have to
Indemnitee unless, and to the extent that, such failure actually
and materially prejudices the interests of the
Company.
(b)
Method of
Determination
. Upon written
request by Indemnitee for indemnification pursuant to the first
sentence of
Section
6(a)
hereof, a determination (if required
by applicable law) with respect to Indemnitee’s entitlement
to indemnification shall be made as follows: (1) if a Change of
Control has occurred, unless Indemnitee shall request in writing
that such determination be made in accordance with clause (2) of
this
Section
6(b)
,
the determination shall be made by Independent Counsel in a written
statement to the Board, a copy of which shall be delivered to
Indemnitee; or (2) if a Change of Control has not occurred, the
determination shall be made by (A) the Board by a majority vote of
a quorum consisting of Disinterested Directors (or pursuant to
unanimous written consent in lieu of a meeting if all of the
Company’s Directors are Disinterested Directors), (B) a
committee of Disinterested Directors designated by a majority vote
of the Disinterested Directors, even though less than a quorum of
the Board, (C) if there are no such Disinterested Directors or, if
such Disinterested Directors so direct, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be
delivered to Indemnitee, or (D) if so directed by the Board of
Directors, by the stockholders of the Company.
(c)
Selection, Payment,
Discharge, of Independent Counsel
. In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant
to
Section
6(b)
of this Agreement, the Independent
Counsel shall be selected, paid, and discharged in the following
manner: (1) if a Change of Control has not occurred, the
Independent Counsel shall be selected by the Board of Directors,
and the Company shall give written notice to Indemnitee advising
Indemnitee of the identity of the Independent Counsel so selected,
or (2) if a Change of Control has occurred, the Independent Counsel
shall be selected by Indemnitee (unless Indemnitee shall request
that such selection be made by the Board, in which event clause (1)
of this Section 6(c) shall apply), and Indemnitee shall give
written notice to the Company advising it of the identity of the
Independent Counsel so selected. Following the initial selection of
Independent Counsel described in clauses (1) and (2) of this
Section
6(c)
,
Indemnitee or the Company, as the case may be, may, within 10 days
after such written notice of selection has been given, deliver to
the other party a written objection to such selection. 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
13
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 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. Either the Company or Indemnitee may
petition the Delaware Court (as defined in Section 20) if the
parties have been unable to agree on the selection of Independent
Counsel within 20 days after submission by Indemnitee of a written
request for indemnification pursuant to
Section
6(a)
of this Agreement. Such petition may
request a determination whether an objection to the party’s
selection of Independent Counsel is without merit and/or seek the
appointment as Independent Counsel of a person selected by the
Delaware Court or by such other person as the Delaware Court shall
designate. A person so appointed shall act as Independent Counsel
under this Section 6.
The
Company shall pay any and all reasonable fees and expenses of
Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to
Section
6
hereof, and the Company shall
pay all reasonable fees and expenses incident to the procedures of
Section
6(c)
hereof,
regardless of the manner in which such Independent Counsel was
selected or appointed. If it is determined that Indemnitee is
entitled to indemnification under this Section 6, payment shall be
made within ten (10) days.
(d)
Burden
of Proof
. In making a
determination with respect to entitlement to indemnification
hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to
indemnification under this Agreement. Anyone seeking to overcome
this presumption shall, to the maximum extent not prohibited by
law, have the burden of proof and the burden of persuasion by clear
and convincing evidence. Neither the failure of the Company
(including by its directors or independent legal counsel) to have
made a determination prior to the commencement of any action
pursuant to this Agreement that indemnification is proper in the
circumstances because Indemnitee has met the applicable standard of
conduct, nor an actual determination by the Company (including by
its directors or independent legal counsel) that Indemnitee has not
met such applicable standard of conduct, shall be a defense to the
action or create a presumption that Indemnitee has not met the
applicable standard of conduct.
(e)
Reliance as Safe
Harbor
. For purposes of any
determination of “good faith”, Indemnitee shall be
deemed to have acted in good faith if Indemnitee’s action is
based on the records or books of account of the Enterprise,
including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise (as hereinafter
defined) in the course of their duties, or on the advice of legal
counsel for the Enterprise or on information or records given or
reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with
reasonable care by the Enterprise. In addition, the knowledge
and/or actions, or failure to act, of any director, officer, agent
or employee of the Enterprise shall not be imputed to Indemnitee
for purposes of determining the right to indemnification under this
Agreement. Whether or not the foregoing provisions of this
Section
6(e)
are satisfied, it shall in any event
be presumed that Indemnitee has at all times acted in good faith
and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company. Anyone seeking to overcome this
presumption shall, to the maximum extent not prohibited by law,
have the burden of proof and the burden of persuasion by clear and
convincing evidence.
(f)
Cooperation
.
Indemnitee shall cooperate with the person, persons or entity
making such 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 which is not privileged or otherwise protected from
disclosure and which is reasonably available to Indemnitee and
reasonably necessary to such determination. Any Independent
Counsel, member of the Board of Directors or stockholder of the
Company shall act reasonably and in good faith in making a
determination regarding the Indemnitee’s entitlement to
indemnification under this Agreement. Any costs or expenses
(including attorneys’ fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity
making such determination shall be borne by the Company
(irrespective of the determination as to Indemnitee’s
entitlement to indemnification) and the Company hereby indemnifies
and agrees to hold Indemnitee harmless
therefrom.
(g)
Presumptions
.
In making a determination with respect to entitlement to
indemnification hereunder, it shall be presumed that Indemnitee has
been successful on the merits or otherwise in such action, suit or
proceeding. Anyone seeking to overcome this presumption shall, to
the extent not prohibited by law, have the burden of proof and the
burden of persuasion by clear and convincing
evidence.
(h)
Effect
of Other Proceedings
. The
termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a
plea of nolo contendere or its equivalent, shall not (except as
otherwise expressly provided in this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a
presumption that Indemnitee did not act in good faith and in a
manner which he 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 conduct was unlawful.
7.
Remedies of
Indemnitee
.
(a)
In
the event that (i) a determination is made pursuant to
Section
6
of this Agreement that Indemnitee is
not entitled to indemnification under this Agreement, (ii)
advancement of Expenses is not timely made pursuant to
Section
5
of this Agreement, (iii) no
determination of entitlement to indemnification is made pursuant
to
Section
6(b)
of this Agreement within 90 days after
receipt by the Company of the request for indemnification, (iv)
payment of indemnification is not made pursuant to this Agreement
within ten (10) days after receipt by the Company of a written
request therefor, or (v) payment of indemnification is not made
within ten (10) days after a determination has been made that
Indemnitee is entitled to indemnification or such determination is
deemed to have been made pursuant to
Section
6
of this Agreement, Indemnitee shall be
entitled to an adjudication in the Delaware Court (as defined
in
Section
20
),
of Indemnitee’s entitlement to such indemnification or
advancement, as the case may be. Indemnitee shall commence such
proceeding seeking an adjudication within 180 days following the
date on which Indemnitee first has the right to commence such
proceeding pursuant to this
Section
7(a)
.
The Company shall not oppose Indemnitee’s right to seek any
such adjudication.
(b)
In
the event that a determination shall have been made pursuant
to
Section
6(b)
of this Agreement that Indemnitee is
not entitled to indemnification, any judicial proceeding commenced
pursuant to this
Section
7
shall be conducted in all respects as
a de novo trial on the merits, and Indemnitee shall not be
prejudiced by reason of the adverse determination under
Section
6(b)
.
(c)
If
a determination shall have been made pursuant to
Section
6(b)
of this Agreement that
Indemnitee is entitled to indemnification, the Company shall be
bound by such determination in any judicial proceeding commenced
pursuant to this
Section
7
, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make
Indemnitee’s misstatement not materially misleading in
connection with the application for indemnification, or (ii) a
prohibition of such indemnification under applicable
law.
(d)
In
the event that Indemnitee, pursuant to this
Section
7
, seeks a judicial adjudication of his rights
under, or to recover damages for breach of, this Agreement, or to
recover under any directors’ and officers’ liability
insurance policies maintained by the Company, the Company shall, to
the maximum extent permitted by law, pay on his behalf, in advance,
any and all expenses (of the types described in the definition of
Expenses in
Section
13
of this Agreement) actually and
reasonably incurred by him in such judicial adjudication,
regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advancement of expenses or
insurance recovery.
(e)
The
Company shall, to the maximum extent not prohibited by law, be
precluded from asserting in any judicial proceeding commenced
pursuant to this
Section
7
that the procedures and presumptions
of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court that the Company is bound by all the
provisions of this Agreement. The Company shall indemnify
Indemnitee against any and all Expenses and, if requested by
Indemnitee, shall (within ten (10) days after receipt by the
Company of a written request therefore) advance, to the extent not
prohibited by law, such expenses to Indemnitee, which are incurred
by Indemnitee in connection with any action brought by Indemnitee
for indemnification or advance of Expenses from the Company under
this Agreement or under any directors' and officers' liability
insurance policies maintained by the Company, regardless of whether
Indemnitee ultimately is determined to be entitled to such
indemnification, advancement of Expenses or insurance recovery, as
the case may be.
(f)
Notwithstanding
anything in this Agreement to the contrary, no determination as to
entitlement to indemnification under this Agreement shall be
required to be made prior to the final disposition of the
Proceeding.
8.
Non-Exclusivity;
Survival of Rights; Insurance; Primacy of Indemnification;
Subrogation
.
(a)
The
rights of indemnification and advancement 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 Certificate of Incorporation, the Bylaws, any agreement, a vote
of stockholders, a resolution of directors or otherwise, of the
Company. No amendment, alteration or repeal of this Agreement or of
any provision hereof shall limit or restrict any right of
Indemnitee under this Agreement in respect of any action taken or
omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in
Delaware law, whether by statute or judicial decision, permits
greater indemnification than would be afforded currently under the
Certificate of Incorporation, 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. 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. 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.
(b)
To
the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers,
employees, or agents or fiduciaries of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise that such person serves at the request of
the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the
coverage available for any director, officer, employee, agent or
fiduciary under such policy or policies. If, at the time of the
receipt of a notice of a claim pursuant to the terms hereof, the
Company has director and officer liability insurance in effect, the
Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set
forth in the respective policies. The Company shall thereafter take
all necessary or desirable action to cause such insurers to pay, on
behalf of the Indemnitee, all amounts payable as a result of such
proceeding in accordance with the terms of such
policies.
(c)
In the event of any payment
under this Agreement, the Company shall be subrogated to the extent
of such payment to all of the rights of recovery of Indemnitee, who
shall execute all papers required and take all action necessary to
secure such rights, including execution of such documents as are
necessary to enable the Company to bring suit to enforce such
rights.
(d)
The
Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the
extent that Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or
otherwise.
(e)
Except
as provided in paragraph
(c)
above, the
Company's obligation to indemnify or advance Expenses hereunder to
Indemnitee who is or was serving at the request of the Company as a
director, officer, employee or agent of any other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise shall be reduced by any amount Indemnitee has actually
received as indemnification or advancement of expenses from such
other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise.
9.
Exception to Right of
Indemnification
.
Notwithstanding any provision in this Agreement, the Company shall
not be obligated under this Agreement to make any indemnity in
connection with any claim made against
Indemnitee:
(a)
for
which payment has actually been made to or on behalf of Indemnitee
under any insurance policy or other indemnity provision, except
with respect to any excess beyond the amount paid under any
insurance policy or other indemnity provision, provided, that the
foregoing shall not affect the rights of Indemnitee set forth
in
Section
8(c)
above;
(b)
for
an accounting of profits made from the purchase and sale (or sale
and purchase) by Indemnitee of securities of the Company within the
meaning of Section 16(b) of the Securities Exchange Act of 1934, as
amended, or similar provisions of state statutory law or common
law;
(c)
in
connection with any Proceeding (or any part of any Proceeding)
initiated by Indemnitee, including any Proceeding (or any part of
any Proceeding) initiated by Indemnitee against the Company or its
directors, officers, employees or other indemnitees, unless (i) the
Board of Directors of the Company authorized the Proceeding (or any
part of any Proceeding) prior to its initiation or (ii) the Company
provides the indemnification, in its sole discretion, pursuant to
the powers vested in the Company under applicable law;
(d)
with
respect to remuneration paid to Indemnitee if it is determined by
final judgment or other final adjudication that such remuneration
was in violation of law (and, in this respect, both the Company and
Indemnitee have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising
under the federal securities laws is against public policy and is,
therefore, unenforceable and that claims for indemnification should
be submitted to appropriate courts for adjudication, as indicated
in the last paragraph of this
Section
9
below);
(e)
a
final judgment or other final adjudication is made that
Indemnitee’s conduct was in bad faith, knowingly fraudulent
or deliberately dishonest or constituted willful misconduct (but
only to the extent of such specific determination); or
(f)
on
account of conduct that is established by a final judgment as
constituting a breach of Indemnitee’s duty of loyalty to the
Company or resulting in any personal profit or advantage to which
Indemnitee is not legally entitled.
For
purposes of this
Section
9
, a final judgment or other
adjudication may be reached in either the underlying proceeding or
action in connection with which indemnification is sought or a
separate proceeding or action to establish rights and liabilities
under this Agreement.
Any
provision herein to the contrary notwithstanding, the Company shall
not be obligated pursuant to the terms of this Agreement to
indemnify Indemnitee or otherwise act in violation of any
undertaking appearing in and required by the rules and regulations
promulgated under the Securities Act of 1933, as amended (the
“
Act
”), or in
any registration statement filed with the SEC under the Act.
Indemnitee acknowledges that paragraph (h) of Item 512 of
Regulation S-K currently generally requires the Company to
undertake in connection with any registration statement filed under
the Act to submit the issue of the enforceability of
Indemnitee’s rights under this Agreement in connection with
any liability under the Act on public policy grounds to a court of
appropriate jurisdiction and to be governed by any final
adjudication of such issue. Indemnitee specifically agrees that any
such undertaking shall supersede the provisions of this Agreement
and to be bound by any such undertaking.
10.
Duration
of Agreement
. All agreements
and obligations of the Company contained herein shall continue
during the period Indemnitee is an officer or director of the
Company (or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise) and shall
continue thereafter so long as Indemnitee shall be subject to any
Proceeding (or any proceeding commenced under
Section
7
hereof) by reason of his Corporate
Status, whether or not he is acting or serving in any such capacity
at the time any liability or expense is incurred for which
indemnification can be provided under this Agreement. This
Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors
(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), assigns, spouses, heirs,
executors and personal and legal
representatives.
11.
Security
.
To the extent requested by Indemnitee and approved by the Board of
Directors of the Company, the Company may at any time and from time
to time provide security to Indemnitee for the Company’s
obligations hereunder through an irrevocable bank line of credit,
funded trust or other collateral. Any such security, once provided
to Indemnitee, may not be revoked or released without the prior
written consent of the Indemnitee.
12.
Enforcement
.
(a)
The
Company expressly confirms and agrees that it has entered into this
Agreement and assumes the obligations imposed on it hereby in order
to induce Indemnitee to serve as an officer or director of the
Company, and the Company acknowledges that Indemnitee is relying
upon this Agreement in serving as an officer or director of the
Company.
(b)
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.
13.
Definitions
.
For purposes of this Agreement:
(a)
A
“
Change of
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
. During any period of
two (2) consecutive years (not including any period prior to the
execution of this Agreement), individuals who at the beginning of
such period constitute the Board, and any new director (other than
a director designated by a person who has entered into an agreement
with the Company to effect a transaction described in
Sections
13(a)(i)
,
13(a)(iii)
or
13(a)(iv)
)
whose election by the Board 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 a least a majority of the members of the
Board;
(iii)
Corporate
Transactions
. The effective
date of a merger or consolidation of the Company with any other
entity, other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior
to such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting securities
of the surviving entity) more than fifty one percent (51%) of the
combined voting power of the voting securities of the surviving
entity outstanding immediately after such merger or consolidation
and with the power to elect at least a majority of the Board or
other governing body of such surviving entity;
(iv)
Liquidation
.
The approval by the stockholders of the Company of a complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets; and
(v)
Other
Events
. There occurs 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 a response to
any similar item on any similar schedule or form) promulgated under
the Exchange Act (as defined below), whether or not the Company is
then subject to such reporting requirement.
For
purposes of this
Section
13(a)
, the following terms
shall have the following meanings:
(A)
“
Exchange
Act
” shall mean the
Securities Exchange Act of 1934, as amended.
(B)
“
Person
”
shall have the meaning as set forth in Sections 13(d) and 14(d) of
the Exchange Act; 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.
(C)
“
Beneficial
Owner
” shall have the
meaning given to such term in Rule 13d-3 under the Exchange
Act;
provided
,
however
,
that Beneficial Owner shall exclude any Person otherwise becoming a
Beneficial Owner by reason of the stockholders of the Company
approving a merger of the Company with another
entity.
(b)
“
Corporate
Status
” describes the
status of a person who is or was a director, officer, employee,
agent or fiduciary of the Company or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise that such person is or was serving at the express
written request of the Company.
(c)
“
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.
(d)
“
Enterprise
”
shall mean the Company and any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise
that Indemnitee is or was serving at the express written request of
the Company as a director, officer, employee, agent or
fiduciary.
(e)
“
Expenses
”
shall include all reasonable attorneys’ fees, retainers,
court costs, transcript costs, fees 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, participating, or being or preparing to be a
witness in a Proceeding, or responding to, or objecting to, a
request to provide discovery in any Proceeding. Expenses also shall
include Expenses incurred in connection with any appeal resulting
from any Proceeding and any federal, state, local or foreign taxes
imposed on the Indemnitee as a result of the actual or deemed
receipt of any payments under this Agreement, including without
limitation the premium, security for, and other costs relating to
any cost bond, supersede as bond, or other appeal bond or its
equivalent. Expenses, however, shall not include amounts paid in
settlement by Indemnitee or the amount of judgments or fines
against Indemnitee.
(f)
“
Independent
Counsel
” means a law
firm, or a 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
with respect to matters concerning Indemnitee under this Agreement,
or of 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. The Company agrees
to pay the reasonable fees of the Independent Counsel referred to
above and to fully indemnify such counsel against any and all
Expenses, claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant
hereto.
(g)
“
Proceeding
”
includes any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, investigation,
inquiry, administrative hearing or any other actual, threatened or
completed proceeding, whether brought by or in the right of the
Company or otherwise and whether civil, criminal, administrative or
investigative, in which Indemnitee was, is or will be involved as a
party or otherwise, by reason of the fact that Indemnitee is or was
an officer or director of the Company, by reason of any action
taken by him or of any inaction on his part while acting as an
officer or director of the Company, or by reason of the fact that
he is or was serving at the request of the Company as a director,
officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other Enterprise; in each case
whether or not he is acting or serving in any such capacity at the
time any liability or expense is incurred for which indemnification
can be provided under this Agreement; including one pending on or
before the date of this Agreement, but excluding one initiated by
an Indemnitee pursuant to
Section
7
of this Agreement to enforce his
rights under this Agreement.
14.
Severability
.
The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other
provision. Without limiting the generality of the foregoing, this
Agreement is intended to confer upon Indemnitee indemnification
rights to the fullest extent permitted by applicable laws. In the
event any provision hereof conflicts with any applicable law, such
provision shall be deemed modified, consistent with the
aforementioned intent, to the extent necessary to resolve such
conflict.
15.
Modification
and Waiver
. No supplement,
modification, termination or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto.
No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a
continuing waiver.
16.
Notice
By Indemnitee
. Indemnitee
agrees promptly to notify the Company in writing upon being served
with or otherwise receiving any summons, citation, subpoena,
complaint, indictment, information or other document relating to
any Proceeding or matter which may be subject to indemnification
covered hereunder. The failure to so notify the Company shall not
relieve the Company of any obligation which it may have to
Indemnitee under this Agreement or otherwise unless and only to the
extent that such failure or delay materially prejudices the
Company.
17.
Notices
.
All notices and other communications given or made pursuant to this
Agreement shall be in writing and shall be deemed effectively
given: (a) upon personal delivery to the party to be notified, (b)
when sent by confirmed electronic mail or facsimile if sent during
normal business hours of the recipient, and if not so confirmed,
then on the next business day, (c) five (5) days after having been
sent by registered or certified mail, return receipt requested,
postage prepaid, or (d) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be
sent:
(a)
To
Indemnitee at the address set forth below Indemnitee signature
hereto.
(b)
To
the Company at:
ENDRA
Life Sciences Inc.
3600
Green Court, Suite 350
Ann
Arbor, MI 48105
Attn: Chief
Executive Officer
or to
such other address as may have been furnished to Indemnitee by the
Company or to the Company by Indemnitee, as the case may
be.
18.
Counterparts
.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed 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 two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same
instrument.
19.
Headings
.
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.
20.
Governing Law and
Consent to Jurisdiction
. This
Agreement and the legal relations among the parties shall be
governed by, and construed and enforced in accordance with, the
laws of the State of Delaware, without regard to its conflict of
laws rules. The Company and Indemnitee hereby irrevocably and
unconditionally (i) agree that any action or proceeding arising out
of or in connection with this Agreement shall be brought only in
the Chancery Court of the State of Delaware (the
“
Delaware
Court
”), 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 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, irrevocably
Corporation Service Company 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, and (v) waive,
and agree not to plead or to make, any claim that any such action
or proceeding brought in the Delaware Court has been brought in an
improper or inconvenient forum.
SIGNATURE PAGE FOLLOWS
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
|
|
COMPANY
ENDRA
LIFE SCIENCES,
Inc
.
By:____________________________________
Name:
Title:
INDEMNITEE
______________________________________
Name:
Address:
______________________________________
______________________________________
______________________________________
|
[__________],
2016
DRAFT
Via
Email
fmichelon@endrainc.com
Dear
Francois:
Endra
Life Sciences Inc. (the “Company”) is
pleased to offer you continued employment on the following
terms:
1.
Position
. Your title will be Chief
Executive Officer and Chairman of the Board of Directors of the
Company (the “Board”), and you will report directly to
the Board. This is a full-time position. While you render services
to the Company, you will not engage in any other employment,
consulting or other business activity (whether full-time or
part-time) that would create a conflict of interest with the
Company. By signing this letter agreement, you confirm to the
Company that you have no contractual commitments or other legal
obligations that would prohibit you from performing your duties for
the Company.
2.
Term
.
Subject to the remaining provisions of this paragraph, this letter
agreement will be for an initial term that begins as of the date
first set forth above and continues in effect through
December 31, 2019 (the “Initial Term”) and,
unless terminated sooner, will continue on a year-to-year basis
after the Initial Term (each year, a “Renewal Term”).
If either party elects not to renew this letter agreement, that
party must give a written notice of termination to the other party
at least 90 days before the expiration of the then-current Initial
Term or Renewal Term. If one party provides the other with a notice
of termination, no further automatic extensions will occur and this
letter agreement will terminate at the end of the then-existing
Initial Term or Renewal Term, and such termination will not result
in any entitlement to compensation pursuant to Section 9 below
or otherwise.
3.
Cash Compensation
. The Company will pay
you a base salary
at an
annual rate of $325,000,
in accordance with the
Company’s standard payroll schedule and subject to applicable
deductions and withholdings. This salary will be subject to
periodic review and adjustments at the Board’s discretion. In
addition, you will be eligible to receive an annual bonus to be
paid based on attainment of Company and individual performance
objectives to be established annually by the Board. With respect to
2016, the annual bonus target to be paid if all goals are achieved
will be a cash payment equal to 35% of your base salary earned in
2016
and will be based on
the realization of milestones determined and approved by the Board.
4.
Employee Benefits
. As a regular employee
of the Company, you will be eligible to participate in a number of
Company-sponsored benefits. You will receive 15 days of paid time
off (PTO) per calendar year, in accordance with Company policy in
effect from time to time. Without limiting the generality of the
foregoing, while you are an employee of the Company, the Company
will provide you life insurance, with you to designate the
beneficiary thereunder, in an amount equal to your base salary as
in effect on the date of this letter agreement and as in effect on
the first business day of each calendar year thereafter. You will
also be eligible to participate in a long-term disability insurance
plan sponsored by the Company.
5.
IPO Stock Option
.
(a)
Number of Shares
. Immediately prior to a
firm commitment, underwritten Initial Public Offering (as defined
in the Company’s Second Amended and Restated 2013 Stock
Incentive Plan, as amended (the “Plan”)), you will be
granted an Option (as defined in the Plan) to purchase such number
of shares of the Company’s common stock (the “Common
Stock”) that, together with any options to purchase Common
Stock held by you immediately prior to the Initial Public Offering,
is equal to 5% (on a fully-diluted basis) of the Company’s
total issued and outstanding shares of Common Stock at the time of
the Initial Public Offering (the “IPO
Option”).
(b)
Exercise Price; Term
. The exercise price
per share of the IPO Option will be
equal to the price at which shares
of Common Stock are sold to the public in such Initial Public
Offering. The IPO Option will have a term that expires eight years
from the grant date.
(c)
Plan Terms Control
. The IPO Option will
be subject to the terms and conditions applicable to Options
granted under the Plan, as described in the Plan and the applicable
Award Agreement (as defined in the Plan).
(d)
Scheduled Vesting
. The IPO Option will
vest in three equal annual installments on the first, second and
third annual anniversaries of the Grant Date, as described in the
applicable Award Agreement.
(e)
Accelerated Vesting
. If your Separation
from Service (as defined in the Plan) is the result of an
involuntary discharge by the Company that is without Cause (as
defined in the Plan) and is not the result of your death or
Disability (as defined in the Plan), then any shares subject to the
IPO Option that are scheduled to vest within 12 months of such
Separation from Service will vest immediately upon such Separation
from Service, and any remaining unvested portion of the IPO Option
will terminate immediately.
(f)
Accelerated Vesting upon Change in
Control
. If your Separation from Service is the result of an
involuntary discharge by the Company that is without Cause, and is
not the result of your death or Disability, and is within 12 months
following a Change in Control (as defined in the Plan), then all
shares subject to the IPO Option will vest immediately upon such
Separation from Service.
(g)
Forfeiture of Unvested Options
. If your
Separation from Service is for any reason other than an involuntary
discharge by the Company that is without Cause, the unvested
portion of the IPO Option will immediately terminate.
(h)
Separation from Service for Cause
. If
your Separation from Service is for Cause, the unvested and vested
portion of the IPO Option will immediately terminate.
(i)
Exercise Period following Separation from
Service.
Following your Separation from Service for any
reason other than Cause, the vested potion of the Option will
remain exercisable for one year (by you or your beneficiaries in
the event of your death), subject to any outer limits contained in
the Plan or the applicable Award Agreement.
6.
Confidential Information, Assignment of
Inventions, and Non-Solicitation Agreement
. You will be
required, as a condition of your continued employment with the
Company, to sign (or re-sign) the Company’s Confidential
Information, Assignment of Inventions, and Non-Solicitation
Agreement, a copy of which is attached hereto as
Exhibit A
.
7.
Time and Place of Employment; Travel
. It
is acknowledged that your regular workplace will not be the
Company’s offices in Ann Arbor, Michigan and instead will be
outside of the state of Michigan. The Company will pay or reimburse
your reasonable travel for business on the Company’s behalf
from your home in Florida, lodging, meal and related incidental
costs, consistent with the Company’s travel policies in
effect from time to time. Additionally, upon the Company’s
establishment of a new corporate headquarters outside the state of
Michigan, you will be expected to relocate your permanent residence
to such general location. In connection with your relocation, the
Company agrees to reimburse your reasonable moving expenses and up
to two months for temporary housing, such amounts to be ultimately
determined by the Board. The Company requires presentation of
receipts or an itemized accounting prior to making any
reimbursements under this paragraph.
8.
Employment Relationship
. Your employment
with the Company will continue to be “at will,” meaning
that either you or the Company may terminate your employment at any
time and for any reason, with or without cause. Any contrary
representations that may have been made to you are superseded by
this letter agreement. This is the full and complete agreement
between you and the Company on this term. Although your job duties,
title, compensation and benefits, as well as the Company’s
personnel policies and procedures, may change from time to time,
the “at will” nature of your employment may only be
changed in an express written agreement signed by you and a duly
authorized officer of the Company (other than you).
9.
Certain Payments upon Separation from
Service
. If you are terminated by the Company without Cause,
then, contingent upon your execution, delivery and non-revocation
of a release in form and substance satisfactory to the Company and
consistent with the Company’s standard release agreement,
which contains a full release of all claims against the Company and
certain other provisions (the “Release Agreement”),
including a reaffirmation of the covenants in your Confidential
Information, Assignment of Inventions, and Non-Solicitation
Agreement, you will be entitled to (i) 12 months’ (or 24
months’ if such Separation from Service occurs within one
year following a Change in Control) continuation of your current
base salary and (ii) a lump sum payment equal to 12 months (or 24
months if such Separation from Service occurs within one year
following a Change in Control) of COBRA premiums based on the terms
of Company’s group health plan and your coverage under such
plan as of the date of your Separation from Service (regardless of
any COBRA election actually made by you or the actual COBRA
coverage period under the Company’s group health plan). The
Company’s obligations under this paragraph are subject to the
requirements and time periods set forth in this paragraph and in
the Release Agreement. Prior to receiving the payments described in
this paragraph, you must execute the Release Agreement on or before
the date 21 days (or such longer period to the extent required by
law) after your Separation from Service. If you fail to timely
execute and remit the Release Agreement, you waive any right to the
payments provided under this paragraph. Payments under this
paragraph will commence within 15 days of your execution and
delivery of the Release Agreement, provided that you do not revoke
the Release Agreement. Your rights following a Separation from
Service under the terms of any Company plan, whether tax-qualified
or not, that are not specifically addressed in this letter
agreement, will be subject to the terms of such plan, and this
letter agreement will have no effect upon such terms except as
specifically provided herein. Except as specifically provided in
this paragraph, you will not have any further rights to
compensation under this letter agreement following your Separation
from Service.
10.
Removal from any Boards and Positions
.
Unless you and the Company agree otherwise at the time of your
Separation from Service, upon your Separation from Service, you
will be deemed to resign (a) if a member, from the Board and the
board of directors of any affiliate and any other board to which
you have been appointed or nominated by or on behalf of the Company
or an affiliate, (b) from each position with the Company and any
affiliate, including as an officer of the Company or an affiliate
and (c) as a fiduciary of any employee benefit plan of the Company
and any affiliate.
11.
Tax Matters
.
(a)
Withholding
. All forms of compensation
referred to in this letter agreement are subject to reduction to
reflect applicable withholding and payroll taxes and other
deductions required by law.
(b)
Tax Advice
. You are encouraged to obtain
your own tax advice regarding your compensation from the Company.
You agree that the Company does not have a duty to design its
compensation policies in a manner that minimizes your tax
liabilities.
12.
Confidentiality
. You and the Company
have entered into a Confidential Information, Assignment of
Inventions, and Non-Solicitation Agreement. In addition to the
terms of that agreement, you agree that the terms and conditions of
this letter agreement are strictly confidential and, with the
exception of your legal counsel, tax advisor, immediate family or
as required by applicable law, have not and will not be disclosed,
discussed or revealed to any other persons, entities or
organizations, whether within or outside the Company, without prior
written approval of the Company. For avoidance of doubt, you may
not utilize the terms of this letter agreement to seek employment
with another party.
13.
Interpretation, Amendment and
Enforcement
. This letter agreement and
Exhibit A
hereto constitute the
complete agreement between you and the Company, contain all of the
terms of your continued employment with the Company and supersede
any prior agreements, representations or understandings (whether
written, oral or implied) between you and the Company. This letter
agreement may not be amended or modified, except by an express
written agreement signed by both you and a duly authorized officer
of the Company. The terms of this letter agreement and the
resolution of any disputes as to the meaning, effect, performance
or validity of this letter agreement or arising out of, related to,
or in any way connected with, this letter agreement, your
employment with the Company or any other relationship between you
and the Company will be governed by Michigan law, excluding laws
relating to conflicts or choice of law.
14.
Section 409A
. It is intended that this
letter agreement comply with Section 409A of the Internal Revenue
Code of 1986 (“Section 409A”), to the extent
applicable. This letter agreement will be administered in a manner
consistent with this intent, and any provision that would cause
this letter agreement to fail to satisfy Section 409A will have no
force or effect until amended to comply with Section 409A.
Notwithstanding anything in this letter agreement to the contrary,
in the event any payment or benefit hereunder is determined to
constitute nonqualified deferred compensation subject to Section
409A, then to the extent necessary to comply with Section 409A,
such payment or benefit will not be made, provided or commenced
until six months after your Separation from Service. For purposes
of Section 409A, the right to a series of installment payments will
be treated as a right to a series of separate payments.
Notwithstanding anything in this letter agreement to the contrary,
to the extent required in order to avoid accelerated taxation
and/or additional taxes under Section 409A, amounts reimbursable to
you under this letter agreement will be paid to you on or before
the last day of the year following the year in which the expense
was incurred and the amount of expenses eligible for reimbursement
(and in-kind benefits provided to you) during any one year may not
effect amounts reimbursable or provided in any subsequent
year.
* * * *
*
You may
indicate your agreement with the terms of this letter agreement by
signing and dating both the enclosed duplicate original of this
letter agreement and the enclosed Confidential Information,
Assignment of Inventions, and Non-Solicitation Agreement and
returning them to me.
If you
have any questions, please call me at (617) 398-7618.
Very
truly yours,
ENDRA LIFE SCIENCES INC.
Sign
Name:
Print
Name:
Anthony
DiGiandomenico
Title:
Member of the Board of
Directors
I have
read and accept this employment letter agreement:
_____________________________________________
Signature of
Francois Michelon
Dated:
________________________________
Attachment
Exhibit
A: Confidential Information, Assignment of Inventions, and
Non-Solicitation Agreement
[__________],
2016
DRAFT
Via
Email
[provide
current email address]
Dear
Michael:
Endra
Life Sciences Inc. (the “Company”) is
pleased to offer you continued employment on the following
terms:
1.
Position
. Your title will be Chief
Technology Officer and President of the Company, and you will
report directly to the Chief Executive Officer of the Company and
the Board of Directors of the Company (the “Board”).
This is a full-time position. While you render services to the
Company, you will not engage in any other employment, consulting or
other business activity (whether full-time or part-time) that would
create a conflict of interest with the Company. By signing this
letter agreement, you confirm to the Company that you have no
contractual commitments or other legal obligations that would
prohibit you from performing your duties for the
Company.
2.
Term
.
Subject to the remaining provisions of this paragraph, this letter
agreement will be for an initial term that begins as of the date
first set forth above and continues in effect through
December 31, 2019 (the “Initial Term”) and,
unless terminated sooner, will continue on a year-to-year basis
after the Initial Term (each year, a “Renewal Term”).
If either party elects not to renew this letter agreement, that
party must give a written notice of termination to the other party
at least 90 days before the expiration of the then-current Initial
Term or Renewal Term. If one party provides the other with a notice
of termination, no further automatic extensions will occur and this
letter agreement will terminate at the end of the then-existing
Initial Term or Renewal Term, and such termination will not result
in any entitlement to compensation pursuant to Section 9 below
or otherwise.
3.
Cash Compensation
. The Company will pay
you a base salary
at an
annual rate of $245,000,
in accordance with the
Company’s standard payroll schedule and subject to applicable
deductions and withholdings. This salary will be subject to
periodic review and adjustments at the Board’s discretion. In
addition, you will be eligible to receive an annual bonus to be
paid based on attainment of Company and individual performance
objectives to be established annually by the Board. With respect to
2016, the annual bonus target to be paid if all goals are achieved
will be a cash payment equal to 22% of your base salary earned in
2016
and will be based on
the realization of milestones determined and approved by the Board.
4.
Employee Benefits
. As a regular employee
of the Company, you will be eligible to participate in a number of
Company-sponsored benefits. You will receive 15 days of paid time
off (PTO) per calendar year, in accordance with Company policy in
effect from time to time. Without limiting the generality of the
foregoing, while you are an employee of the Company, the Company
will provide you life insurance, with you to designate the
beneficiary thereunder, in an amount equal to your base salary as
in effect on the date of this letter agreement and as in effect on
the first business day of each calendar year thereafter. You will
also be eligible to participate in a long-term disability insurance
plan sponsored by the Company.
5.
IPO Stock Option
.
(a)
Number of Shares
. Immediately prior to a
firm commitment, underwritten Initial Public Offering (as defined
in the Company’s Second Amended and Restated 2013 Stock
Incentive Plan, as amended (the “Plan”)), you will be
granted an Option (as defined in the Plan) to purchase such number
of shares of the Company’s common stock (the “Common
Stock”) that, together with any options to purchase Common
Stock held by you immediately prior to the Initial Public Offering,
is equal to 5% (on a fully-diluted basis) of the Company’s
total issued and outstanding shares of Common Stock at the time of
the Initial Public Offering (the “IPO
Option”).
(b)
Exercise Price; Term
. The exercise price
per share of the IPO Option will be
equal to the price at which shares
of Common Stock are sold to the public in such Initial Public
Offering. The IPO Option will have a term that expires eight years
from the grant date.
(c)
Plan Terms Control
. The IPO Option will
be subject to the terms and conditions applicable to Options
granted under the Plan, as described in the Plan and the applicable
Award Agreement (as defined in the Plan).
(d)
Scheduled Vesting
. The IPO Option will
vest in three equal annual installments on the first, second and
third annual anniversaries of the Grant Date, as described in the
applicable Award Agreement.
(e)
Accelerated Vesting
. If your Separation
from Service (as defined in the Plan) is the result of an
involuntary discharge by the Company that is without Cause (as
defined in the Plan) and is not the result of your death or
Disability (as defined in the Plan), then any shares subject to the
IPO Option that are scheduled to vest within 12 months of such
Separation from Service will vest immediately upon such Separation
from Service, and any remaining unvested portion of the IPO Option
will terminate immediately.
(f)
Accelerated Vesting upon Change in
Control
. If your Separation from Service is the result of an
involuntary discharge by the Company that is without Cause, and is
not the result of your death or Disability, and is within 12 months
following a Change in Control (as defined in the Plan), then all
shares subject to the IPO Option will vest immediately upon such
Separation from Service.
(g)
Forfeiture of Unvested Options
. If your
Separation from Service is for any reason other than an involuntary
discharge by the Company that is without Cause, the unvested
portion of the IPO Option will immediately terminate.
(h)
Separation from Service for Cause
. If
your Separation from Service is for Cause, the unvested and vested
portion of the IPO Option will immediately terminate.
(i)
Exercise Period following Separation from
Service.
Following your Separation from Service for any
reason other than Cause, the vested potion of the Option will
remain exercisable for one year (by you or your beneficiaries in
the event of your death), subject to any outer limits contained in
the Plan or the applicable Award Agreement.
6.
Confidential Information, Assignment of
Inventions, and Non-Solicitation Agreement
. You will be
required, as a condition of your continued employment with the
Company, to sign (or re-sign) the Company’s Confidential
Information, Assignment of Inventions, and Non-Solicitation
Agreement, a copy of which is attached hereto as
Exhibit A
.
7.
Time and Place of Employment; Travel
.
Your regular workplace will be [__________]. The Company will pay
or reimburse your reasonable travel for business on the
Company’s behalf from your home, lodging, meal and related
incidental costs, consistent with the Company’s travel
policies in effect from time to time. Additionally, upon the
Company’s establishment of a new corporate headquarters
outside the state of Michigan, you will be expected to relocate
your permanent residence to such general location. In connection
with your relocation, the Company agrees to reimburse your
reasonable moving expenses and up to two months for temporary
housing, such amounts to be ultimately determined by the Board. The
Company requires presentation of receipts or an itemized accounting
prior to making any reimbursements under this
paragraph.
8.
Employment Relationship
. Your employment
with the Company will continue to be “at will,” meaning
that either you or the Company may terminate your employment at any
time and for any reason, with or without cause. Any contrary
representations that may have been made to you are superseded by
this letter agreement. This is the full and complete agreement
between you and the Company on this term. Although your job duties,
title, compensation and benefits, as well as the Company’s
personnel policies and procedures, may change from time to time,
the “at will” nature of your employment may only be
changed in an express written agreement signed by you and a duly
authorized officer of the Company (other than you).
9.
Certain Payments upon Termination
. If
you are terminated by the Company without Cause, then, contingent
upon your execution, delivery and non-revocation of a release in
form and substance satisfactory to the Company and consistent with
the Company’s standard release agreement, which contains a
full release of all claims against the Company and certain other
provisions (the “Release Agreement”), including a
reaffirmation of the covenants in your Confidential Information,
Assignment of Inventions, and Non-Solicitation Agreement, you will
be entitled to (i) 12 months’ (or 24 months’ if such
termination occurs within one year following a Change in Control)
continuation of your current base salary and (ii) a lump sum
payment equal to 12 months (or 24 months if such termination occurs
within one year following a Change in Control) of COBRA premiums
based on the terms of Company’s group health plan and your
coverage under such plan as of the date of your Separation from
Service (regardless of any COBRA election actually made by you or
the actual COBRA coverage period under the Company’s group
health plan). The Company’s obligations under this paragraph
are subject to the requirements and time periods set forth in this
paragraph and in the Release Agreement. Prior to receiving the
payments described in this paragraph, you must execute the Release
Agreement on or before the date 21 days (or such longer period to
the extent required by law) after your Separation from Service. If
you fail to timely execute and remit the Release Agreement, you
waive any right to the payments provided under this paragraph.
Payments under this paragraph will commence within 15 days of your
execution and delivery of the Release Agreement, provided that you
do not revoke the Release Agreement. Your rights following a
Separation from Service under the terms of any Company plan,
whether tax-qualified or not, that are not specifically addressed
in this letter agreement, will be subject to the terms of such
plan, and this letter agreement will have no effect upon such terms
except as specifically provided herein. Except as specifically
provided in this paragraph, you will not have any further rights to
compensation under this letter agreement following your Separation
from Service.
10.
Removal from any Boards and Positions
.
Unless you and the Company agree otherwise at the time of your
Separation from Service, upon your Separation from Service, you
will be deemed to resign (a) if a member, from the Board and the
board of directors of any affiliate and any other board to which
you have been appointed or nominated by or on behalf of the Company
or an affiliate, (b) from each position with the Company and any
affiliate, including as an officer of the Company or an affiliate
and (c) as a fiduciary of any employee benefit plan of the Company
and any affiliate.
11.
Tax Matters
.
(a)
Withholding
. All forms of compensation
referred to in this letter agreement are subject to reduction to
reflect applicable withholding and payroll taxes and other
deductions required by law.
(b)
Tax Advice
. You are encouraged to obtain
your own tax advice regarding your compensation from the Company.
You agree that the Company does not have a duty to design its
compensation policies in a manner that minimizes your tax
liabilities.
12.
Confidentiality
. You and the Company
have entered into a Confidential Information, Assignment of
Inventions, and Non-Solicitation Agreement. In addition to the
terms of that agreement, you agree that the terms and conditions of
this letter agreement are strictly confidential and, with the
exception of your legal counsel, tax advisor, immediate family or
as required by applicable law, have not and will not be disclosed,
discussed or revealed to any other persons, entities or
organizations, whether within or outside the Company, without prior
written approval of the Company. For avoidance of doubt, you may
not utilize the terms of this letter agreement to seek employment
with another party.
13.
Interpretation, Amendment and
Enforcement
. This letter agreement and
Exhibit A
hereto constitute the
complete agreement between you and the Company, contain all of the
terms of your continued employment with the Company and supersede
any prior agreements, representations or understandings (whether
written, oral or implied) between you and the Company. This letter
agreement may not be amended or modified, except by an express
written agreement signed by both you and a duly authorized officer
of the Company. The terms of this letter agreement and the
resolution of any disputes as to the meaning, effect, performance
or validity of this letter agreement or arising out of, related to,
or in any way connected with, this letter agreement, your
employment with the Company or any other relationship between you
and the Company will be governed by Michigan law, excluding laws
relating to conflicts or choice of law.
14.
Section 409A
. It is intended that this
letter agreement comply with Section 409A of the Internal Revenue
Code of 1986 (“Section 409A”), to the extent
applicable. This letter agreement will be administered in a manner
consistent with this intent, and any provision that would cause
this letter agreement to fail to satisfy Section 409A will have no
force or effect until amended to comply with Section 409A.
Notwithstanding anything in this letter agreement to the contrary,
in the event any payment or benefit hereunder is determined to
constitute nonqualified deferred compensation subject to Section
409A, then to the extent necessary to comply with Section 409A,
such payment or benefit will not be made, provided or commenced
until six months after your Separation from Service. For purposes
of Section 409A, the right to a series of installment payments will
be treated as a right to a series of separate payments.
Notwithstanding anything in this letter agreement to the contrary,
to the extent required in order to avoid accelerated taxation
and/or additional taxes under Section 409A, amounts reimbursable to
you under this letter agreement will be paid to you on or before
the last day of the year following the year in which the expense
was incurred and the amount of expenses eligible for reimbursement
(and in-kind benefits provided to you) during any one year may not
effect amounts reimbursable or provided in any subsequent
year.
* * * *
*
You may
indicate your agreement with the terms of this letter agreement by
signing and dating both the enclosed duplicate original of this
letter agreement and the enclosed Confidential Information,
Assignment of Inventions, and Non-Solicitation Agreement and
returning them to me.
If you
have any questions, please call me at (617) 453-8401.
Very
truly yours,
ENDRA LIFE SCIENCES INC.
_____________________________________
By:
Francois Michelon, Chief
Executive Officer
I have
read and accept this employment letter agreement:
_____________________________________________
Signature of
Michael Thornton
Dated:
______________________________________
Attachment
Exhibit
A: Confidential Information, Assignment of Inventions, and
Non-Solicitation Agreement
Exhibit
10.11
From
the Desk of
David
R. Wells
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT
(the
“Agreement”) is entered into as of
July 23, 2014
, by and between
Endra, Inc.,
a Michigan
corporation (the “Company”), and
StoryCorp Consulting,
a Nevada
corporation (“StoryCorp”).
RECITALS
WHEREAS,
Company desires to engage
StoryCorp to provide certain finance, accounting and management
services with respect to the Company’s business;
and
WHEREAS,
StoryCorp represents that they
have considerable knowledge and experience in finance, accounting
and management services, and desires to provide those services to
the Company, all as more specifically set forth below.
NOW, THEREFORE,
in consideration of the
promises and the respective covenants and agreements of the parties
herein contained, the parties hereby agree as follows.
1.
Consulting
Engagement: Term
. Company
hereby engages StoryCorp and StoryCorp hereby accepts such
engagement by Company as a consultant and advisor with respect to
the matters specifically set forth herein and/or Schedule
“A” attached hereto. The term of this Agreement shall
commence on the date of execution of this Agreement and continue on
a monthly basis unless terminated earlier as herein
provided.
2.
Consulting
Services
. During the term of
the Agreement, StoryCorp shall devote the time necessary from the
StoryCorp offices, completing tasks as outlined in Schedule A.
StoryCorp represents and warrants to the Company that they are able
to provide such services in a professional manner consistent with
this type of engagement. The parties understand and further agree
that, during the Term of the Agreement, StoryCorp is not restricted
from providing similar consulting services to other companies,
provided that any such other activities shall not materially
interfere with the services required to be provided
hereunder.
Company
agrees to respond timely by email to activity reports submitted by
StoryCorp. In the absence of comments from Company, StoryCorp
assumes that activities are accepted by the Company.
3.
Compensation
.
In consideration of the consulting services to be rendered as set
forth herein, Company shall compensate StoryCorp as
follows:
(a)
$8,000
payable upon execution of this Agreement. The fee will be payable
in cash;
(b)
$8,000
payable on August 1, 2014. The fee will be payable in
cash;
(c)
$8,000
payable on September 1, 2014 per month, and for each month
thereafter. The fee will be payable in $5,000 cash and $3,000 in
restricted common stock of the Company. The number of shares issued
will be based on a share price equal to the price of the APO
transaction once consummated; and
(d)
For
services outside of those described in Exhibit A, StoryCorp will
issue monthly invoices at a bill rate of $250 per hour, payable in
cash.
Monthly
compensation as noted in 3(c) is subject to adjustment by both
parties based on several factors including transaction volume,
complexity, internal staffing and changes in reporting
requirements. Services rendered under 3(d) require prior approval
from the Company, verbal approval is considered
acceptable.
4.
Termination
.
This Agreement may be terminated in any one of the following
ways:
(a)
By
Company With or Without Cause
.
The Company may, with or without cause, terminate this Agreement
immediately without prior notice.
(b)
By
StoryCorp With or Without Cause
. At any time after the commencement of this
Agreement, StoryCorp may, with or without cause, terminate this
Agreement, effective thirty (30) days after written notice is
provided to Company.
(c)
By
StoryCorp, Immediate
. At any
time after the commencement of this Agreement, StoryCorp may
terminate this Agreement immediately for reasons of non-payment of
fees.
5.
Expenses
.
During the term of the Agreement, Company shall pay or promptly
reimburse StoryCorp for reasonable and necessary travel, lodging,
meals, telephone, copying, delivery, and other expenses paid or
incurred by StoryCorp in connection with the direct performance of
its services, activities and responsibilities under this Agreement,
upon presentation of documented expenses, statements, or other
evidences of expenses provided. Amounts incurred in excess of $500
require pre-approval by email.
6.
Representations
and Warranties of the Company
.
(a)
Company
hereby represents and warrants that it has full power and legal
right and authority to execute, deliver, and perform under this
Agreement, and that the officers executing this Agreement on behalf
of Company have full power of authority to do so.
(b)
Company
hereby represents and warrants that this Agreement has been duly
authorized by all necessary corporate action, has been duly
executed and delivered by Company and is enforceable against
Company in accordance with its terms, subject only to the
applicable bankruptcy, insolvency, reorganization or other similar
laws relating to or affecting the rights of creditors generally and
to principles of equity.
(c)
Company
hereby covenants and agrees to indemnify and hold harmless
StoryCorp from and against and in respect of: (i) any and all
losses and damages resulting from any misrepresentations or
breaches of any warranty, covenant or agreement by Company made or
contained in this Agreement, and (ii) any and all actions, suit,
proceedings, claims, demands, judgments, costs and expenses,
including attorney’s fees, incident to the
foregoing.
7.
Representations,
Warranties and Covenants of StoryCorp
.
(a)
StoryCorp
hereby represents and warrants that he has full power and legal
right and authority to execute, deliver, and perform under this
Agreement.
(b)
StoryCorp
hereby covenants and agrees to indemnify and hold harmless Company
from and against and in respect of: (i) any and all losses and
damages resulting from any misrepresentation or breach of any
warranty, covenant or agreement by StoryCorp made or contained in
this Agreement, and (ii) any and all actions, suit, proceedings,
claims, demands, judgments, costs and expenses, including
attorney’s fees, incident to the foregoing.
(c)
StoryCorp
acknowledges that it has signed a Non-Disclosure
agreement.
8.
Independent
Contractor Status
.
It is
expressly understood and agreed that this is a consulting services
agreement only and does not constitute an employer/employee
relationship. Accordingly, StoryCorp agrees that StoryCorp shall be
solely responsible for the payment of its own taxes or sums due to
the federal, state or local governments, office overhead, workers
compensation, fringe benefits, pension contributions and other
expenses. StoryCorp is an independent contractor and the Company
shall have no right to control the activities of StoryCorp other
than to require StoryCorp to provide its consulting services in a
professional manner pursuant to the terms and conditions of this
Agreement. StoryCorp shall have no authority to bind the Company
except as provided for by Company in writing.
9.
Miscellaneous
Provisions
.
(a)
Notices
.
Any notice, request, demand or other communications required or
permitted pursuant to this Agreement shall be in writing and shall
be deemed to have been properly given if delivered in person or by
courier or other overnight carrier, by facsimile transmission or by
certified or registered mail, postage prepaid and return receipt
requested, to each party hereto at the address indicated below or
at any other address as may be designated from time to time by
written notice to each party. Such notice shall be deemed given
upon delivery.
If to
StoryCorp:
StoryCorp
Consulting
2601
Ocean Park Blvd. Suite 316
Santa
Monica, CA 90405
Fax
(866) 212-6489
If to
Company:
Endra,
Inc.
35
Research Dr. Suite 100
Ann
Arbor, MI, 48103
10.
Entire
Agreement
. This Agreement
constitutes the entire agreement between the parties hereto
relating to the subject matter hereof, and supersedes all prior
written or oral agreements, commitments or understandings with
respect to the matters provided for herein, and no modification
shall be binding unless set forth in writing and duly executed by
each party hereto.
11.
Binding
Effects
. This Agreement shall
be binding upon and inure to the benefit of the parties hereto
their respective heirs, executors, administrators and successors,
including any corporation with which or into which Company may be
merged or which may succeed to its assets or
business.
12.
Headings
.
The headings or captions of this Agreement are inserted only as a
matter of convenience and for reference and in no way define,
limit, extend or scope of this Agreement or the intent of any
provisions hereof.
13.
Identification
.
Whenever required by the context of this Agreement, the singular
number shall include the plural, and the word “person”
or “party” shall include a corporation, limited
liability Company, firm, partnership, or other form of
association.
14.
Waiver
.
The waiver by any party to this Agreement of a breach of any
provision of this Agreement shall not be deemed a continuing waiver
or a waiver of any subsequent breach of that or any other provision
of this Agreement.
15.
Arbitration
.
In the event of any dispute between the parties which arises under
this Agreement, such dispute shall be settled by arbitration in
accordance with the rules for commercial arbitration of the
American Arbitration Association (or a similar organization) in
effect at the time such arbitration is initiated. A list of
arbitrators shall be presented to the Claimant and Respondent from
which one will be chosen using the applicable rules. The hearing
shall be conducted in the City of Los Angeles, California, unless
both parties consent to a different location. The decision of the
arbitrator shall be final and binding upon all
Parties.
The
prevailing party shall be awarded all of the filing fees and
related administrative costs. Administrative and other costs of
enforcing an arbitration award, including the costs of subpoenas,
depositions, transcripts and the like, witness fees, payment of
reasonable attorney’s fees, and similar costs related to
collecting an arbitrator’s award, will be added to, and
become a part of, the amount due pursuant to this Agreement. Any
questions involving contract interpretation shall use the laws of
state of the venue as described above. An arbitrator’s
decision may be entered in any jurisdiction in which the party has
assets in order to collect any amounts due hereunder.
16.
Counterparts
.
For the convenience of the parties hereto, this Agreement may be
executed in one or more counterparts, which shall each be
considered an original.
17.
Severability
.
If any provision of this Agreement shall be declared invalid or
unenforceable, the remainder of this Agreement will continue in
full force and effect so far as the intent of the parties hereto
can be carried out.
18.
Construction
.
Should any provision of this Agreement require judicial
interpretation, it is agreed that the court interpreting or
construing the same shall not be apply a presumption that the terms
hereof shall be more strictly construed or strictly against the
party who itself or through its agent prepared the same, it being
agreed that the agents of all parties have participated in the
preparation hereof.
19.
Recitals
.
The recitals set forth at the beginning of this Agreement are
incorporated by reference in, and made a part of this
Agreement.
20.
Governing
Law
. This Agreement shall be
governed by and construed under the laws of the State of California
(irrespective of its choice of law principles). Each party hereby
consents to the exclusive jurisdiction of the state and federal
courts sitting in Los Angeles County, California, in any action on
a claim arising out of, under or in connection with this Agreement
or the transactions contemplated by this Agreement. Each party
further agrees that personal jurisdiction over such party may be
effected by service of process by registered or certified mail
addressed as provided in Section 9(a) of this Agreement, and that
when so made shall be as if served upon such party personally
within the State of California.
Endra,
Inc.
StoryCorp Consulting
By:
/s/ Michael
Thornton
By:
/s/ David
Wells
Name:
Michael Thornton
Name: David R. Wells
Title:
President
Title:
President
Date:
August 28,
2014
Date:
August 28,
2014
SCHEDULE A
Services
for Phase 1
1.
Preparation of December 31, 2012 and December 31, 2013 Financial
Statements, and related disclosures
a)
In
conjunction with existing Company staffing, prepare all work
papers, calculations and entries to be consistent and in compliance
with Generally Accepted Accounting Principals (GAAP) for the
periods ended December 31, 2012 and December 31, 2013;
b)
In
conjunction with existing Company staffing, prepare quarterly
closings and financial statements for the 3 quarterly periods in
fiscal 2013;
c)
Assist
in the filing of the required forms with the SEC, in collaboration
with the Chairman, the Chairman’s designees, the
Company’s audit committee, the Company’s audit firm and
securities counsel, as necessary;
d)
Assist
with ‘cleaning up’ Balance Sheet as currently presented
and in connection with the proposed APO transaction;
e)
Develop
and install a process for variance reporting against the approved
budget; and
f)
Model
scenarios and analysis for reverse split to accommodate all issued,
outstanding and derivative securities.
a)
Act
as a liaison with lawyers, auditors, transfer agent and other
professionals;
b)
Manage
issuance new securities and certificates (stock, warrant), and the
exchange or recall of previously issued warrants;
c)
Prepare
a Capitalization Table that is acceptable to
management;
d)
Manage
APO process with legal counsel; and
e)
Prepare
Form S-1 related to APO transaction.
(Remainder of this
page intentionally blank)
Company
acknowledges that StoryCorp and/or its affiliates are not
registered Broker/ Dealers and therefore are unable to accept
payment for fund raising as a percentage of the amount raised. As
well, Company receiving funding is not a criterion for continued
engagement and StoryCorp makes no promises as to its ability to
arrange funding in any form for Company.
Company
and StoryCorp agree to periodically review and amend, if necessary,
Schedule A items.
____________________________
_______________________________________
Company
(Initial) StoryCorp
(Initial)
8
SECURITIES PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “
Agreement
”), dated as of July 10,
2013, is by and between Enlight Biosciences, LLC, a Delaware
limited liability corporation (the “
Seller
”), and each purchaser
identified on
Schedule
A
hereto (each, including its successors and assigns, a
“
Purchaser
” and
collectively, the “
Purchasers
”).
RECITALS
A.
Seller
owns 8,432,832 shares of Common Stock, $0.001 par value
(“
Common
Stock
”) (“
Shares
”), and a warrant to
purchase 8,432,832 shares of Common Stock, (“
Warrant
”), issued by Endra, Inc.
(the “
Company
”). The Shares and the
Warrant are collectively referred to herein as the
“
Securities
”);
B.
Seller
desires to sell to the Purchasers such Securities, and Purchasers,
severally and not jointly, desire to purchase the Securities from
Seller, in each case upon the terms and subject to the conditions
set forth herein; and
C.
Simultaneously
with the execution and delivery of this Agreement, the Purchasers
are purchasing from the Company certain senior promissory notes in
the aggregate principal amount of $115,000 (the “
Notes
”) (the “
Note Financing
”).
AGREEMENT
NOW,
THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, and other good and valuable
consideration, the receipt and sufficient of which are hereby
acknowledged, and intending to be legally bound hereby, the parties
agree as follows:
ARTICLE I
- THE
SECURITIES
Section 1.1
Sale and Purchase of
the Securities
. In reliance
upon the representations and warranties made herein, Seller agrees
to sell the Securities to Purchasers, and Purchasers agree,
severally and not jointly, to purchase the Securities from
Seller.
Section
1.2
Purchase
Price
. The aggregate purchase
price for the Securities (the “
Purchase
Price
”) shall be $820.00,
which Purchase Price shall be allocated to the Purchasers as set
forth on
Schedule A
hereto.
Section
1.3
Closing
.
The closing of the purchase and sale of the Securities (the
“
Closing
”) shall be held concurrently with the
execution and delivery of this Agreement. At the Closing, Seller
will deliver to the Purchaser and the Company (i) the original
Warrant, together with a written assignment thereof assigning the
Warrant to Purchaser; (ii) irrevocable notice of the transfer
of the Securities from Seller to Purchasers; and
(iii) confirmation from the Company acknowledging the transfer
of the Securities, and Purchasers will deliver the Purchase Price
(in the amounts set forth on
Schedule A
hereto, to Seller by wire transfer of
immediately available funds to the account specified by
Seller.
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF
SELLER
Seller
represents and warrants to Purchaser as follows:
Section
2.1
Title to
Securities
. Seller holds record
and beneficial ownership of the Securities, free and clear of any
and all security interests, pledges, mortgages, liens, charges,
encumbrances, adverse claims, restrictions, or other burdens or
encumbrances of any kind (“
Liens
”), other than those restrictions arising
from applicable federal and state securities laws or the Articles
of Incorporation of the Company, and the delivery of the Securities
to Purchaser at the Closing pursuant to this Agreement will
transfer to Purchaser valid legal and beneficial ownership thereto
free and clear of all Liens, other than those restrictions arising
from applicable federal and state securities laws or otherwise
described in this Section 2.1.
Section
2.2
Power and Authority of
Seller
. Seller has all
requisite power and authority to execute, deliver and perform this
Agreement and to execute and deliver the Shares, Warrants,
certificates or instruments to be executed and delivered pursuant
hereto by Seller and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly authorized,
executed, and delivered by Seller and constitutes the valid and
binding obligation of Seller, enforceable against Seller in
accordance with its terms, except to the extent that such
enforceability (i) may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws relating to
creditors’ rights generally, and (ii) is subject to
general principles of equity.
Section
2.3
Absence of Conflicting
Agreements
. The execution,
delivery, and performance of this Agreement and the consummation of
the transactions contemplated hereby do not with or without the
giving of notice, the lapse of time, or both: (i) contravene or
conflict with, or constitute a violation of, any judgment,
injunction, order, or decree binding upon or applicable to Seller,
(ii) require any consent, approval, or other action by any third
party, (iii) contravene or conflict with, or constitute a violation
of, any agreement to which Seller is a party or by which Seller is
bound, or (iv) result in the creation or imposition of any Lien on
the Securities.
Section
2.4
Broker’s
Fees
. Seller does not have any
liability or obligation to pay any fees or commissions to any
broker, finder or agent with respect to the transactions
contemplated hereby, or based in any way upon arrangements,
agreements, or understandings made by or on behalf of Seller
hereunder.
Section
2.5
Ownership
.
The Securities represent the only securities issued by the Company
that are beneficially owned, controlled or under common control of
Seller. Seller owns no securities issued by the Company that may be
converted into, exercisable for, or otherwise exchanged for Common
Stock or other securities of the Company. Notwithstanding the
foregoing, Purchasers acknowledge that Seller owns a membership
interest in Endra Holdings, LLC (“
Endra
Holdings
”),
and that Endra Holdings owns 4,528,594 shares of
Common Stock in the Company, which shares are subject to an
irrevocable proxy issued to Purchaser or a representative
thereof.
Section
2.6
Absence of Certain
Information
. To the best of
Seller’s knowledge, no contract or other agreement to which
the Company is a party or by which the Company is bound would be
triggered or otherwise affected as a result of consummation of the
transactions contemplated by this Agreement, or the Note Financing.
Notwithstanding the generality of the foregoing, to the best of
Seller’s knowledge, no party has the right to accelerate
performance by the Company, or terminate any agreement to which the
Company is a party, as a result of the consummation of the
transactions contemplated by this Agreement or the Note
Financing.
ARTICLE III
-
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchasers
represent and warrant, severally and not jointly, to Seller as
follows:
Section
3.1
Accredited Investor
and investment Purpose
.
Purchaser is an “accredited investor” as that term is
defined in Rule 50l(a) of the Securities Act. The Securities will
be acquired for investment for Purchaser’s own account. not
as a nominee or agent, and not with a view to the resale or
distribution or any part thereof in violation of the Securities
Act, and Purchaser has no present intention of selling, granting
any participation in, or otherwise distributing the same in
violation of the Securities Act.
Section
3.2
Power and
Authority
. Purchaser has all
requisite power and authority to execute, deliver and perform this
Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly and validly authorized, executed and
delivered by Purchaser and constitutes the valid and binding
obligation of Purchaser, enforceable in accordance with its terms,
except to the extent that such enforceability (i) may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors’ rights generally and (ii) is
subject to general principles or equity.
Section
3.3
Broker’s
Fees
. Purchaser does not have
any liability or obligation to pay any fees or commissions to any
broker, finder or agent with respect to the transactions
contemplated hereby or based in any way upon agreements,
arrangements or understandings made by or on behalf or Purchaser
hereunder.
Section
3.4
Absence of Conflicting
Agreements
.
The
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, do not, with
or without the giving of notice, the lapse of lime or both: (i)
contravene or conflict with, or constitute a violation of, any
judgment, injunction, order or decree binding upon or applicable to
Purchaser; (ii) require any consent, approval or other action by
any third party; or (iii) contravene or conflict with, or
constitute a violation of, any agreement to which Purchaser is a
party or by which Purchaser is bound.
Section
3.5
Purchaser
(i) is a sophisticated investor and has such knowledge and
experience in financial and business matters as to be capable of
evaluating independently the merits, risks and suitability of
entering into this Agreement and the transactions contemplated
hereby; (ii) has conducted its own analysis and due diligence and
independently obtained such information as it deems necessary in
order to make an informed investment decision with respect to the
Securities; (iii) is able to hear the risks attendant to the
transactions contemplated hereby; and (iv) acknowledges that (a) no
public market exists for the Securities, (b) the Securities are
being sold hereunder in a private transaction, and (c) the
Purchase Price was negotiated privately between the parties
hereto.
ARTICLE IV
- COVENANTS OF
THE PARTIES
Section
4.1
Subsequent
Financings
. In the event on or
before two (2) years from the date of this Agreement the Company
enters into a securities purchase agreement or similar agreement to
issue securities to any Purchaser in a financing, or series of
financings, Seller shall have the right, but not the obligation, to
purchase up to 20% of the securities proposed to be issued to such
Purchaser under the same terms and conditions as offered to
Purchasers (“
Purchase
Right
”). In the event any
Purchaser is obligated to offer the Purchase Right to Seller
hereunder, such Purchaser shall provide written notice of such
Purchase Right to Seller setting forth the terms and conditions of
the Purchase Right (“
Option
Notice
”). Seller shall
have three (3) business days following receipt of the Option Notice
to notify the Purchaser, in writing, of Seller’s election to
exercise the Purchase Right. In the event Seller exercises the
Purchase Right by delivering written notice of such election to the
Purchaser with three (3) business days following receipt of the
Option Notice, Purchaser shall assign its right to acquire the
securities to Seller or otherwise assign the Purchase Right to the
Seller, consistent with the terms and conditions set forth in this
Section 4.1. In the event the Purchaser does not receive written
notice from Seller of its election to exercise the Purchase Right,
the Purchaser shall have the right to consummate the purchase of
the securities from the Company, in whole or in part on
substantially the terms and conditions set forth in the Option
Notice. In the event the Purchaser fails to provide Seller with the
Option Notice, Seller’s sole remedy shall be to provide
written notice to the Purchaser of such Purchaser’s failure
to provide the required Option Notice, and to immediately tender
payment for such purchase to the Purchaser. Failure to pay the
purchase price for the exercise of the Purchase Right within five
(5) business days following Seller’s receipt of actual or
constructive notice of the financing or series of financings giving
rise to the Purchase Right shall constitute a waiver of
Seller’s right to exercise the Purchase Right. The Purchasers
agree and covenant not to enter into any agreement with the Company
to purchase securities unless such agreement is assignable to
Seller and/or such agreement includes reference to the Purchase
Right granted to Seller hereunder.
Section
4.2
Liquidity
Event
.
(a)
In
the event (i) the Company files a registration statement with the
Securities and Exchange Commission (“
Commission
”), which registration statement registers
any of the Securities for sale to the public under the Securities
Act of 1933, as amended, and such registration statement is
declared effective by the Commission (an “
IPO
”) and any Purchaser sells any or part of
the Securities in the public market; (ii) the Purchasers sell any
or part of their Securities to a subsequent purchaser in a private
transaction (a “
Covered
Sale
”); or (iii) the
Company is acquired by, combines or merges with another company in
which (A) the Company is not the surviving entity, and (B) such
transaction results in the Purchasers receiving cash or other
consideration for its interest in the Securities; and/or (C) the
Purchasers are required or elect to tender their Securities for or
in consideration for cash or other consideration (each of the
events described in Section 4.2(a)(i) through (iii) are
“
Covered
Transactions
”), such
Purchaser shall pay to Seller, within ten (10) business days
following consummation of the Covered Transaction, an amount equal
to six percent (6%) of the cash amount or other consideration
actually received by such Purchaser in connection with such Covered
Transaction. The parties agree and acknowledge that (i) the Shares
shall bear a legend referencing the terms and conditions set forth
in this Section 4.2, and prohibiting their transfer except in
compliance with the terms and conditions hereof; and (ii) the term
“
Covered
Sale
” shall not include
any transfer of the Securities to a party or person controlling,
controlled by, or under common control of, Purchaser. The parties
further agree and acknowledge that Seller has no other right to
receive any cash or other consideration from a Purchaser, or any
rights to any capital stock in the Company (or voting or other
rights therein) in the event of the consummation of a Covered
Transaction other than as specifically set forth in this Section
4.2 or as a result of the exercise of Seller’s Purchase Right
set forth in Section 4.1.
(b)
The
parties agree and acknowledge that the Seller is entering into the
transaction contemplated by this Agreement with the understanding
that the Purchaser will exercise its rights as a shareholder of the
Company to increase shareholder value for all shareholders. Without
limiting the generality of the foregoing, and while no assurances
can be given and without any obligation whatsoever to directly or
indirectly provide financing or otherwise engage directly or
indirectly in a financing or other transaction, assuming Purchaser
owns in excess of fifty percent (50%) of the issued and outstanding
voting securities of the Company, Purchaser will use its reasonable
efforts to obtain from third party sources capital necessary to
fund the Company’s continued operations.
Section
4.3
Inspection
Rights
. So long as Purchasers
own at least fifty percent (50%) of the Shares, and provided such
access is not in violation of the laws of the Company’s state
of incorporation or any agreement by and between the Purchaser and
the Company, Purchaser shall provide Seller with quarterly
financial information and other business or other summaries made
available to Purchaser by the Company (“
Confidential
Data
”). The parties agree
and acknowledge that, as a condition to making the Confidential
Data available to Seller, Seller shall execute a confidentiality
agreement restricting the disclosure or use of the Confidential
Data of the Company by Seller.
Section
4.4
Further
Assurances
. At any time or from
time to time after the Closing, each of Seller and Purchaser shall,
at the reasonable request and expense of the other party or its
counsel (unless such request is occasioned by the breach of a
representation, warranty or covenant of the other party, in which
case it shall be at the expense of such breaching party), execute
and deliver any further instruments or documents and take all such
further action in order to evidence or otherwise facilitate the
consummation of the transactions contemplated
hereby.
Section
4.5
No Other
Representations or Warranties
.
Except as set forth in this Agreement, no party is making, or is
relying on, any express or implied representations or warranties
relating to any party or to the consummation of the transactions
contemplated hereby. Each party is making its decision to
consummate the purchase and sale of the Securities described herein
on the basis of its due diligence investigation of the Company and
not on any representation warranty, statement or information made
or communicated (orally or in writing) to by the other party or any
affiliate, representative or agent thereof, other than as set forth
in this Agreement. The representations and warranties made by
Seller and Purchaser in Articles II and III, respectively, shall
survive the Closing and the delivery of the
Securities.
ARTICLE V
--
MISCELLANEOUS
Section
5.1
Expenses
.
Each party hereto shall pay its own expenses in connection with the
transactions contemplated hereby, whether or not such transactions
shall be consummated.
Section
5.2
Notices
.
All notices, requests, demands, waivers and other communications
required or permitted to be given under this Agreement shall be in
writing and shall be deemed to have been duly given if (i)
delivered personally; (ii) mailed, certified or registered mail
with postage prepaid; or (iii) sent by next-day or overnight mail
or delivery or sent by telecopy or electronic mail to the address
listed below each party’s name on the signature page hereto
or at such other address as may be specified in writing to the
other parties hereto. All such notices, requests, demands, waivers
and other communications shall be deemed to have been received (i)
if by personal delivery on the day after such delivery,
(ii) if by certified or registered mail, on the fifth business
day after the mailing thereof, (iii) if by next-day or overnight
mail or delivery, on the day delivered and (iv) if by telecopy or
electronic mail on the next day following the day on which such
telecopy was sent, provided that a copy is also sent by certified
or registered mail.
Section
5.3
Governing
Law
. This Agreement shall be
construed in accordance with and governed by the laws of the State
of California applicable to agreements made and to be performed
wholly within such jurisdiction.
Section
5.4
Binding Effect;
Assignment
. This Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. No
party hereto may assign either this Agreement or any of its rights,
interests or obligations hereunder without the prior written
approval or each or the other parties hereto.
Section
5.5
No Third Party
Beneficiaries
.
Nothing
in this Agreement shall confer any rights upon any person or entity
other than the parties hereto and their respective successors and
permitted assigns.
Section
5.6
Amendment; Waivers;
Etc
. No amendment, modification
or discharge of this Agreement, and no waiver hereunder, shall be
valid or binding unless set forth in writing and duly executed by
the party against whom enforcement of the amendment, modification,
discharge or waiver is sought. Any such waiver shall constitute a
waiver only with respect to the specific matter described in such
writing and shall in no way impair the rights of the party granting
such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default
under any of the provisions of this Agreement, nor the failure by
any of the parties. on one or more occasions, to enforce any of the
provisions of this Agreement or to exercise any right or privilege
hereunder, shall be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such
provisions, rights or privileges hereunder.
Section
5.7
Entire Agreement;
Confidentiality
. This Agreement
constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof. Each of
Purchaser and Seller shall maintain the confidentiality of the
terms of the transaction described herein unless otherwise required
by law or regulatory authority, or other legal process, except that
the parties may disclose the terms of the transaction to their
respective affiliates, attorneys, accountants and other
professionals and in connection with the enforcement of the parties
respective rights and obligations hereunder.
Section
5.8
Counterparts;
Facsimile
. This Agreement may
be executed in several counterparts, each of which shall be deemed
an original and all of which shall together constitute one and the
same instrument. The reproduction of signatures by means of
telecopying or electronic device shall be treated as though such
reproductions arc executed originals.
[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK
[SIGNATURE PAGE FOR
SELLER FOLLOWS]
IN
WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated
above.
SELLER:
By:
Name:
Title:
Number
of Shares of Common Stock
Sold:
Number
of Warrants
Sold:
Purchase
Price:
[SIGNATURE
PAGES FOR PURCHASERS FOLLOWS]
[SELLER
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
7
IN
WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated
above.
Name of
Purchaser:
Signature of Authorized Signatory of
Purchaser
:
Name of
Authorized Signatory:
Title
of Authorized
Signatory:
Email
Address of Authorized
Signatory:
Facsimile Number of
Authorized
Signatory:
Address
for Notice to Purchaser:
Address
for Delivery of Securities to Purchaser (if not same as address for
notice):
[PURCHASER
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
SECURITIES PURCHASE AGREEMENT
This
Securities Purchase Agreement (this “
Agreement
”), dated as of July 10,
2013, is by and between PureTech Ventures, LLC, a Delaware limited
liability corporation (the “
Seller
”), and each purchaser
identified on
Schedule
A
hereto (each, including its successors and assigns, a
“
Purchaser
” and
collectively, the “
Purchasers
”).
RECITALS
A
. Seller
owns 1,956,414 shares of Common Stock, $0.001 par value
(“
Common
Stock
”) (“
Shares
”), and a warrant to
purchase 1,706,593 shares of Common Stock, (“
Warrant
”), issued by Endra, Inc.
(the “
Company
”). The Shares and the
Warrant are collectively referred to herein as the
“
Securities
”)
;
B.
Seller
desires to sell to the Purchasers such Securities, and Purchasers,
severally and not jointly, desire to purchase the Securities from
Seller, in each case upon the terms and subject to the conditions
set forth herein; and
C.
Simultaneously
with the execution and delivery of this Agreement, the Purchasers
are purchasing from the Company certain senior promissory notes in
the aggregate principal amount of $115,000 (the “
Notes
”) (the “
Note Financing
”).
AGREEMENT
NOW,
THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, and other good and valuable
consideration, the receipt and sufficient of which are hereby
acknowledged, and intending to be legally bound hereby, the parties
agree as follows:
ARTICLE I
- THE
SECURITIES
Section
1.1
Sale
and Purchase of the Securities
.
In reliance upon the representations and warranties made herein,
Seller agrees to sell the Securities to Purchasers, and Purchasers
agree, severally and not jointly, to purchase the Securities from
Seller.
Section
1.2
Purchase
Price
. The aggregate purchase
price for the Securities (the “
Purchase
Price
”) shall be $180.00,
which Purchase Price shall be allocated to the Purchasers as set
forth on
Schedule A
hereto.
Section
1.3
Closing
.
The closing of the purchase and sale of the Securities (the
“
Closing
”) shall be held concurrently with the
execution and delivery of this Agreement. At the Closing, Seller
will deliver to the Purchaser and the Company (i) the original
Warrant, together with a written assignment thereof assigning the
Warrant to Purchaser; (ii) irrevocable notice of the transfer
of the Securities from Seller to Purchasers; and
(iii) confirmation from the Company acknowledging the transfer
of the Securities, and Purchasers will deliver the Purchase Price
(in the amounts set forth on
Schedule A
hereto, to Seller by wire transfer of
immediately available funds to the account specified by
Seller.
ARTICLE II
- REPRESENTATIONS
AND WARRANTIES OF SELLER
Seller
represents and warrants to Purchaser as follows:
Section
2.1
Title to
Securities
. Seller holds record
and beneficial ownership of the Securities, free and clear of any
and all security interests, pledges, mortgages, liens, charges,
encumbrances, adverse claims, restrictions, or other burdens or
encumbrances of any kind (“
Liens
”), other than those restrictions arising
from applicable federal and state securities laws or the Articles
of Incorporation of the Company, and the delivery of the Securities
to Purchaser at the Closing pursuant to this Agreement will
transfer to Purchaser valid legal and beneficial ownership thereto
free and clear of all Liens, other than those restrictions arising
from applicable federal and state securities laws or otherwise
described in this Section 2.1.
Section
2.2
Power and Authority of
Seller
. Seller has all
requisite power and authority to execute, deliver and perform this
Agreement and to execute and deliver the Shares, Warrants,
certificates or instruments to be executed and delivered pursuant
hereto by Seller and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly authorized,
executed, and delivered by Seller and constitutes the valid and
binding obligation of Seller, enforceable against Seller in
accordance with its terms, except to the extent that such
enforceability (i) may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws relating to
creditors’ rights generally, and (ii) is subject to general
principles of equity.
Section
2.3
Absence of Conflicting
Agreements
. The execution,
delivery, and performance of this Agreement and the consummation of
the transactions contemplated hereby do not with or without the
giving of notice, the lapse of time, or both: (i) contravene or
conflict with, or constitute a violation of, any judgment,
injunction, order, or decree binding upon or applicable to Seller,
(ii) require any consent, approval, or other action by any third
party, (iii) contravene or conflict with, or constitute a violation
of, any agreement to which Seller is a party or by which Seller is
bound, or (iv) result in the creation or imposition of any Lien on
the Securities.
Section
2.4
Broker’s
Fees
. Seller does not have any
liability or obligation to pay any fees or commissions to any
broker, finder or agent with respect to the transactions
contemplated hereby, or based in any way upon arrangements,
agreements, or understandings made by or on behalf of Seller
hereunder.
Section
2.5
Ownership
.
The Securities represent the only securities issued by the Company
that are beneficially owned, controlled or under common control of
Seller. Seller owns no securities issued by the Company that may be
converted into, exercisable for, or otherwise exchanged for Common
Stock or other securities of the Company. Notwithstanding the
foregoing, Purchasers acknowledge that Seller owns a membership
interest in Endra Holdings, LLC (“
Endra
Holdings
”)
,
and that Endra Holdings owns 4,528,594 shares of
Common Stock in the Company, which shares are subject to an
irrevocable proxy issued to Purchaser or a representative
thereof.
Section
2.6
Absence of Certain
Information
. To the best of
Seller’s knowledge, no contract or other agreement to which
the Company is a party or by which the Company is bound would be
triggered or otherwise affected as a result of consummation of the
transactions contemplated by this Agreement, or the Note Financing.
Notwithstanding the generality of the foregoing, to the best of
Seller’s knowledge, no party has the right to accelerate
performance by the Company, or terminate any agreement to which the
Company is a party, as a result of the consummation of the
transactions contemplated by this Agreement or the Note
Financing.
ARTICLE III
- REPRESENTATIONS
AND WARRANTIES OF PURCHASER
Purchasers
represent and warrant, severally and not jointly, to Seller as
follows:
Section
3.1
Accredited Investor
and investment Purpose
.
Purchaser is an “accredited investor” as that term is
defined in Rule 50l(a) of the Securities Act. The Securities will
be acquired for investment for Purchaser’s own account. not
as a nominee or agent, and not with a view to the resale or
distribution or any part thereof in violation of the Securities
Act, and Purchaser has no present intention of selling, granting
any participation in, or otherwise distributing the same in
violation of the Securities Act.
Section
3.2
Power and
Authority
. Purchaser has all
requisite power and authority to execute, deliver and perform this
Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly and validly authorized, executed and
delivered by Purchaser and constitutes the valid and binding
obligation of Purchaser, enforceable in accordance with its terms,
except to the extent that such enforceability (i) may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors’ rights generally and (ii) is
subject to general principles or equity.
Section
3.3
Broker’s
Fees
. Purchaser does not have
any liability or obligation to pay any fees or commissions to any
broker, finder or agent with respect to the transactions
contemplated hereby or based in any way upon agreements,
arrangements or understandings made by or on behalf or Purchaser
hereunder.
Section
3.4
Absence of Conflicting
Agreements
.
The
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, do not, with
or without the giving of notice, the lapse of lime or both: (i)
contravene or conflict with, or constitute a violation of, any
judgment, injunction, order or decree binding upon or applicable to
Purchaser; (ii) require any consent, approval or other action by
any third party; or (iii) contravene or conflict with, or
constitute a violation of, any agreement to which Purchaser is a
party or by which Purchaser is bound.
Section
3.5
Purchaser
(i) is a sophisticated investor and has such knowledge and
experience in financial and business matters as to be capable of
evaluating independently the merits, risks and suitability of
entering into this Agreement and the transactions contemplated
hereby; (ii) has conducted its own analysis and due diligence and
independently obtained such information as it deems necessary in
order to make an informed investment decision with respect to the
Securities; (iii) is able to hear the risks attendant to the
transactions contemplated hereby; and (iv) acknowledges that (a) no
public market exists for the Securities, (b) the Securities are
being sold hereunder in a private transaction, and (c) the Purchase
Price was negotiated privately between the parties
hereto.
ARTICLE IV
- COVENANTS OF THE
PARTIES
Section
4.1
Subsequent
Financings
. In the event on or
before two (2) years from the date of this Agreement the Company
enters into a securities purchase agreement or similar agreement to
issue securities to any Purchaser in a financing, or series of
financings, Seller shall have the right, but not the obligation, to
purchase up to 20% of the securities proposed to be issued to such
Purchaser under the same terms and conditions as offered to
Purchasers (“
Purchase
Right
”). In the event any
Purchaser is obligated to offer the Purchase Right to Seller
hereunder, such Purchaser shall provide written notice of such
Purchase Right to Seller setting forth the terms and conditions of
the Purchase Right (“
Option
Notice
”). Seller shall
have three (3) business days following receipt of the Option Notice
to notify the Purchaser, in writing, of Seller’s election to
exercise the Purchase Right. In the event Seller exercises the
Purchase Right by delivering written notice of such election to the
Purchaser with three (3) business days following receipt of the
Option Notice, Purchaser shall assign its right to acquire the
securities to Seller or otherwise assign the Purchase Right to the
Seller, consistent with the terms and conditions set forth in this
Section 4.1. In the event the Purchaser does not receive written
notice from Seller of its election to exercise the Purchase Right,
the Purchaser shall have the right to consummate the purchase of
the securities from the Company, in whole or in part on
substantially the terms and conditions set forth in the Option
Notice. In the event the Purchaser fails to provide Seller with the
Option Notice, Seller’s sole remedy shall be to provide
written notice to the Purchaser of such Purchaser’s failure
to provide the required Option Notice, and to immediately tender
payment for such purchase to the Purchaser. Failure to pay the
purchase price for the exercise of the Purchase Right within five
(5) business days following Seller’s receipt of actual or
constructive notice of the financing or series of financings giving
rise to the Purchase Right shall constitute a waiver of
Seller’s right to exercise the Purchase Right. The Purchasers
agree and covenant not to enter into any agreement with the Company
to purchase securities unless such agreement is assignable to
Seller and/or such agreement includes reference to the Purchase
Right granted to Seller hereunder.
Section
4.2
Liquidity
Event
.
(a)
In
the event (i) the Company files a registration statement with the
Securities and Exchange Commission (“
Commission
”), which registration statement registers
any of the Securities for sale to the public under the Securities
Act of 1933, as amended, and such registration statement is
declared effective by the Commission (an “
IPO
”) and any Purchaser sells any or part of
the Securities in the public market; (ii) the Purchasers sell any
or part of their Securities to a subsequent purchaser in a private
transaction (a “
Covered
Sale
”); or (iii) the
Company is acquired by, combines or merges with another company in
which (A) the Company is not the surviving entity, and (B) such
transaction results in the Purchasers receiving cash or other
consideration for its interest in the Securities; and/or (C) the
Purchasers are required or elect to tender their Securities for or
in consideration for cash or other consideration (each of the
events described in Section 4.2(a)(i) through (iii) are
“
Covered
Transactions
”), such
Purchaser shall pay to Seller, within ten (10) business days
following consummation of the Covered Transaction, an amount equal
to six percent (6%) of the cash amount or other consideration
actually received by such Purchaser in connection with such Covered
Transaction. The parties agree and acknowledge that (i) the Shares
shall bear a legend referencing the terms and conditions set forth
in this Section 4.2, and prohibiting their transfer except in
compliance with the terms and conditions hereof; and (ii) the term
“
Covered
Sale
” shall not include
any transfer of the Securities to a party or person controlling,
controlled by, or under common control of, Purchaser. The parties
further agree and acknowledge that Seller has no other right to
receive any cash or other consideration from a Purchaser, or any
rights to any capital stock in the Company (or voting or other
rights therein) in the event of the consummation of a Covered
Transaction other than as specifically set forth in this Section
4.2 or as a result of the exercise of Seller’s Purchase Right
set forth in Section 4.1.
(b)
The
parties agree and acknowledge that the Seller is entering into the
transaction contemplated by this Agreement with the understanding
that the Purchaser will exercise its rights as a shareholder of the
Company to increase shareholder value for all shareholders. Without
limiting the generality of the foregoing, and while no assurances
can be given and without any obligation whatsoever to directly or
indirectly provide financing or otherwise engage directly or
indirectly in a financing or other transaction, assuming Purchaser
owns in excess of fifty percent (50%) of the issued and outstanding
voting securities of the Company, Purchaser will use its reasonable
efforts to obtain from third party sources capital necessary to
fund the Company’s continued operations.
Section
4.3
Inspection
Rights
. So long as Purchasers
own at least fifty percent (50%) of the Shares, and provided such
access is not in violation of the laws of the Company’s state
of incorporation or any agreement by and between the Purchaser and
the Company, Purchaser shall provide Seller with quarterly
financial information and other business or other summaries made
available to Purchaser by the Company (“
Confidential
Data
”). The parties agree
and acknowledge that, as a condition to making the Confidential
Data available to Seller, Seller shall execute a confidentiality
agreement restricting the disclosure or use of the Confidential
Data of the Company by Seller.
Section
4.4
Further
Assurances
. At any time or from
time to time after the Closing, each of Seller and Purchaser shall,
at the reasonable request and expense of the other party or its
counsel (unless such request is occasioned by the breach of a
representation, warranty or covenant of the other party, in which
case it shall be at the expense of such breaching party), execute
and deliver any further instruments or documents and take all such
further action in order to evidence or otherwise facilitate the
consummation of the transactions contemplated
hereby.
Section
4.5
No Other
Representations or Warranties
.
Except as set forth in this Agreement, no party is making, or is
relying on, any express or implied representations or warranties
relating to any party or to the consummation of the transactions
contemplated hereby. Each party is making its decision to
consummate the purchase and sale of the Securities described herein
on the basis of its due diligence investigation of the Company and
not on any representation warranty, statement or information made
or communicated (orally or in writing) to by the other party or any
affiliate, representative or agent thereof, other than as set forth
in this Agreement. The representations and warranties made by
Seller and Purchaser in Articles II and III, respectively, shall
survive the Closing and the delivery of the
Securities.
ARTICLE V
--
MISCELLANEOUS
Section
5.1
Expenses
.
Each party hereto shall pay its own expenses in connection with the
transactions contemplated hereby, whether or not such transactions
shall be consummated.
Section
5.2
Notices
.
All notices, requests, demands, waivers and other communications
required or permitted to be given under this Agreement shall be in
writing and shall be deemed to have been duly given if (i)
delivered personally; (ii) mailed, certified or registered mail
with postage prepaid; or (iii) sent by next-day or overnight mail
or delivery or sent by telecopy or electronic mail to the address
listed below each party’s name on the signature page hereto
or at such other address as may be specified in writing to the
other parties hereto. All such notices, requests, demands, waivers
and other communications shall be deemed to have been received (i)
if by personal delivery on the day after such delivery,
(ii) if by certified or registered mail, on the fifth business
day after the mailing thereof, (iii) if by next-day or overnight
mail or delivery, on the day delivered and (iv) if by telecopy or
electronic mail on the next day following the day on which such
telecopy was sent, provided that a copy is also sent by certified
or registered mail.
Section
5.3
Governing
Law
. This Agreement shall be
construed in accordance with and governed by the laws of the State
of California applicable to agreements made and to be performed
wholly within such jurisdiction.
Section
5.4
Binding Effect;
Assignment
. This Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. No
party hereto may assign either this Agreement or any of its rights,
interests or obligations hereunder without the prior written
approval or each or the other parties hereto.
Section
5.5
No Third Party
Beneficiaries
. Nothing in this
Agreement shall confer any rights upon any person or entity other
than the parties hereto and their respective successors and
permitted assigns.
Section
5.6
Amendment; Waivers;
Etc
. No amendment, modification
or discharge of this Agreement, and no waiver hereunder, shall be
valid or binding unless set forth in writing and duly executed by
the party against whom enforcement of the amendment, modification,
discharge or waiver is sought. Any such waiver shall constitute a
waiver only with respect to the specific matter described in such
writing and shall in no way impair the rights of the party granting
such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default
under any of the provisions of this Agreement, nor the failure by
any of the parties. on one or more occasions, to enforce any of the
provisions of this Agreement or to exercise any right or privilege
hereunder, shall be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such
provisions, rights or privileges hereunder.
Section
5.7
Entire Agreement;
Confidentiality
. This Agreement
constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof. Each of
Purchaser and Seller shall maintain the confidentiality of the
terms of the transaction described herein unless otherwise required
by law or regulatory authority, or other legal process, except that
the parties may disclose the terms of the transaction to their
respective affiliates, attorneys, accountants and other
professionals and in connection with the enforcement of the parties
respective rights and obligations hereunder.
Section
5.8
Counterparts;
Facsimile
. This Agreement may
be executed in several counterparts, each of which shall be deemed
an original and all of which shall together constitute one and the
same instrument. The reproduction of signatures by means of
telecopying or electronic device shall be treated as though such
reproductions arc executed originals.
[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK
[SIGNATURE PAGE FOR
SELLER FOLLOWS]
IN
WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed their respective authorized
signatories as of the date first indicated above.
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Number of Shares of
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Number of Warrants
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[SIGNATURE
PAGES FOR PURCHASERS FOLLOWS]
[SELLER
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
IN
WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated
above.
Name of
Purchaser:
Signature of Authorized Signatory of
Purchaser
:
Name of
Authorized Signatory:
Title
of Authorized Signatory :
Email
Address of Authorized Signatory:
Facsimile Number of
Authorized Signatory:
Address
for Notice to Purchaser:
Address
for Delivery of Securities to Purchaser (if not same as address for
notice):
[PURCHASER
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
EXCHANGE AGREEMENT
This
Agreement (“
Agreement
”) is entered into as of
September __, 2014, by and between Endra, Inc., a Delaware
corporation (the “
Company
”), and ______________
(the “
Investor
”).
RECITALS
WHEREAS
, the Investor holds a senior
promissory note (the “
Note
”) in the original principal
amount of $_________ and warrants (the “
Warrants
”) to purchase _________
shares of the Company’s common stock (the “
Warrant Shares
”) for $0.30 per
share; and
WHEREAS
, the Company and the Investor
now desire to exchange the Note and all interest accrued thereunder
and the Warrants for _________ shares of the Company’s common
stock, par value $0.0001 per share (“
Common Stock
”).
NOW, THEREFORE
, for good and valuable
consideration, the receipt and sufficiency of which are hereby
agreed and acknowledged, the parties hereby agree as
follows:
AGREEMENT
1.1
Terms.
In reliance upon the representations,
warranties, covenants, terms and conditions of this Agreement, both
the Note and the Warrants shall terminate and be of no further
force and effect for and in consideration for the issuance to the
Investor of
_________
shares of Common Stock (the
“
Exchange
”, with such shares of Common Stock being
issued, the “
Exchange
Shares
”).
1.2
Closing.
The Exchange shall be effective on the
date first set forth above (the “
Effective
Date
”). On the Effective
Date, all rights of the Investor as a holder of the Note and
Warrants shall cease and terminate, including the accrual of all
interest with respect to the Note, without further notice,
excepting only the right to receive the Exchange Shares as set
forth in Section 1.4 below.
1.3
Surrender
of Note and Warrants
. On the Effective Date, the Investor
shall deliver to the Company the Note and Warrants, marked
cancelled, or an indemnification undertaking with respect to the
Note and/or Warrants, as the case may be, in the event of the loss,
theft or destruction of the Note and/or Warrants.
1.4
Issuance
of Exchange Shares.
Upon receipt of the surrendered Note and
Warrants, the Company shall deliver to its transfer agent
irrevocable instructions to issue to the Investor the Exchange
Shares.
2.
Representations
and Warranties of the Investors
. The Investor makes the
following representations and warranties to the
Company:
2.1
Execution;
Binding Agreement
. This
Agreement has been duly authorized, validly executed and delivered
by the Investor and is a valid and binding agreement and obligation
of the Investor, enforceable against the Investor in accordance
with its terms, and the Investor has full power and authority to
execute and deliver the Agreement and the documents contemplated
hereby and to perform his obligations hereunder and
thereunder.
2.2
Securities
Laws
. The Investor understands
the Exchange Shares are being offered and sold to in reliance on
specific provisions of federal and state securities laws and that
the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and
understandings of the Investor set forth herein for purposes of
qualifying for exemptions from registration under the Securities
Act of 1933, as amended (the “
Securities
Act
”) and applicable
state securities laws.
2.3
Accredited
Investor
. The Investor is an
“accredited investor” as defined under Rule 501 of
Regulation D promulgated under the Securities
Act.
2.4
No
Bad Actors
. Neither the Investor nor, to the extent it has
them, any of its shareholders, members, managers, general or
limited partners, directors, affiliates or executive officers
(collectively with the Investor, the “
Covered Persons
”), are subject to
any of the “Bad Actor” disqualifications described in
Rule 506(d)(1)(i) to (viii) under the Securities Act (a
“
Disqualification
Event
”), except for a Disqualification Event covered
by Rule 506(d)(2) or (d)(3). The Investor has exercised reasonable
care to determine whether any Covered Person is subject to a
Disqualification Event. The receipt of the Exchange Shares by the
Investor will not subject the Corporation to any Disqualification
Event.
2.5
Acquisition
for Own Account
. The Investor
is and will be acquiring the Exchange Shares for his own account,
for investment purposes, and not with a view to any resale or
distribution in whole or in part, in violation of the Securities
Act or any applicable securities laws;
provided
,
however
, that notwithstanding the foregoing, the Investor
does not covenant to hold the Exchange Shares for any minimum
period of time other than as required by law.
2.6
Securities
Act Exemption
. The offer and
sale of the Exchange Shares is intended to be exempt from
registration under the Securities Act, by virtue of Section 3(a)(9)
and/or Section 4(2) thereof and Regulation D promulgated
thereunder. The Investor understands that the Exchange Shares
received hereunder are “restricted securities,” as that
term is defined in the Securities Act and the rules thereunder,
have not been registered under the Securities Act, and that none of
the Exchange Shares can be sold or transferred unless they are
first registered under the Securities Act and such state and other
securities laws as may be applicable or the Company receives an
opinion of counsel reasonably acceptable to the Company that an
exemption from registration under the Securities Act is available
(and then the Exchange Shares may be sold or transferred only in
compliance with such exemption and all applicable state and other
securities laws).
2.7
Ownership
of Note and Warrants.
The Investor has not assigned,
conveyed or otherwise transferred any interest in and to the Note
and Warrants beneficially owned by such Investor, as the case may
be, to any third party, and owns and holds, beneficially and of
record, the entire right, title, and interest in and to the Note
and Warrants free and clear of all rights and
encumbrances.
3.
Representations,
Warranties and Covenants of the Company
. The Company makes
the following representations and warranties to the Investor, and
covenants as follows for the benefit of the Investor:
3.1
Incorporation
.
The Company has been duly incorporated and is validly existing and
in good standing under the laws of the state of Delaware, with full
corporate power and authority to own, lease and operate its
properties and to conduct its business as currently conducted, and
is duly registered and qualified to conduct its business and is in
good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such
registration or qualification, except where the failure to register
or qualify would not have a Material Adverse Effect. For purposes
of this Agreement, “
Material Adverse
Effect
” shall mean any
material adverse effect on the business, operations, properties,
prospects, or financial condition of the Company and its
subsidiaries and/or any condition, circumstance, or situation that
would prohibit or otherwise materially interfere with the ability
of the Company to perform any of its obligations under this
Agreement.
3.2
Authorization
of Exchange Shares
. The
Exchange Shares have been duly authorized by all necessary
corporate action and, pending shareholder approval and
implementation of a reverse split of the Company’s Common
Stock, shall be validly issued, fully paid and non-assessable, free
and clear of all liens, encumbrances and rights of refusal of any
kind.
3.3
Execution;
Binding Agreement
. This
Agreement has been duly authorized, validly executed and delivered
on behalf of the Company and is a valid and binding agreement and
obligation of the Company enforceable against the Company in
accordance with its terms, and the Company has full power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder and thereunder.
3.4
No
Conflicts
. The execution and
delivery of the Agreement and the consummation of the transactions
contemplated by this Agreement will not: (i) conflict with or
result in a breach of or a default under any of the terms or
provisions of, (A) the Company's certificate of incorporation or
by-laws, or (B) of any material provision of any indenture,
mortgage, deed of trust or other material agreement or instrument
to which the Company is a party or by which it or any of its
material properties or assets is bound, (ii) result in a violation
of any provision of any law, statute, rule, regulation, or any
existing applicable decree, judgment or order by any court, federal
or state regulatory body, administrative agency, or other
governmental body having jurisdiction over the Company, or any of
its material properties or assets or (iii) result in the creation
or imposition of any material lien, charge or encumbrance upon any
material property or assets of the Company or any of its
subsidiaries pursuant to the terms of any agreement or instrument
to which any of them is a party or by which any of them may be
bound or to which any of their property or any of them is subject
except in the case of clauses (i)(B), (ii) or (iii) for any such
conflicts, breaches, or defaults or any liens, charges, or
encumbrances which would not have a Material Adverse
Effect.
3.5
Securities
Act Exemption
. The delivery and
issuance of the Exchange Shares in accordance with the terms of and
in reliance on the accuracy of the Investor’s representations
and warranties set forth in this Agreement will be exempt from the
registration requirements of the Securities
Act.
3.6
Governmental
Approvals
. No consent, approval
or authorization of or designation, declaration or filing with any
governmental authority on the part of the Company is required in
connection with the valid execution and delivery of this Agreement
or the offer, sale or issuance of the Exchange Shares or the
consummation of any other transaction contemplated by this
Agreement.
3.7
Compliance
with Securities Laws
. The
Company has complied and will comply with all applicable federal
and state securities laws in connection with the offer, issuance
and delivery of the Exchange Shares hereunder. Neither the Company
nor anyone acting on its behalf, directly or indirectly, has or
will sell, offer to sell or solicit offers to buy any of the
Exchange Shares, or similar securities to, or solicit offers with
respect thereto from, or enter into any preliminary conversations
or negotiations relating thereto with, any person, or has taken or
will take any action so as to bring the issuance and sale of any of
the Exchange Shares under the registration provisions of the
Securities Act and applicable state securities laws. Neither the
Company nor any of its affiliates, nor any person acting on its or
their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the
Securities Act) in connection with the offer or sale of any of the
Exchange Shares.
3.8
No
Solicitation
. The Company
represents that it has not paid, and shall not pay, any commissions
or other remuneration, directly or indirectly, to any third party
for the solicitation of the Exchange.
4.1
Governing
Law; Consent to Jurisdiction
.
This Agreement shall be governed by
and interpreted in accordance with the laws of the State of
Delaware without giving effect conflicts of law principles that
would result in the application of the substantive laws of another
jurisdiction. The Investor and the Company consent to the exclusive
jurisdiction of the federal courts whose districts encompass any
part of the State of Delaware in connection with any dispute
arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection
based on
forum non
conveniens
, to the bringing of
any such proceeding in such jurisdictions. THE INVESTOR AND THE
COMPANY HEREBY WAIVE ITS RIGHT TO A TRIAL BY JURY. The Investor and
the Company irrevocably consent to the service of process in any
such proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such Party at its address set
forth herein. Nothing herein shall affect the right of the Investor
or the Company to serve process in any other manner permitted by
law.
4.2
Notices.
All notices and other communications
provided for or permitted hereunder shall be made in writing by
hand delivery, express overnight courier, registered first class
mail, initially to the address set forth below, and thereafter at
such other address, notice of which is given in accordance with the
provisions of this Section 4.2. All such notices and communications
shall be deemed to have been duly given: when delivered by hand, if
personally delivered; when receipt is acknowledged, if faxed; or
when actually received or refused if sent by other
means.
If to
the Company:
Endra,
Inc.
35
Research Drive, Ste. 100
Ann
Arbor, MI 48103
Attention: Michael
Thornton, President
with a
copy to:
K&L
Gates LLP
214
North Tryon Street, 47th Floor
Charlotte, North
Carolina
Attention: Mark
Busch
If to
the Investor:
________________________
________________________
________________________
4.4
Entire
Agreement.
This Agreement constitute the entire
understanding and agreement of the Investor and the Company with
respect to the subject matter hereof and supersede all prior and/or
contemporaneous oral or written proposals or agreements relating
thereto all of which are merged herein.
4.5
Amendments.
This Agreement may not be amended or
any provision hereof waived in whole or in part, except by a
written amendment signed by the Investor and the
Company
4.6
Counterparts
.
This Agreement may be executed by facsimile signature and in
counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same
instrument.
4.7
Assignments;
Successors and Assigns
. This
Agreement shall be binding on and inure to the benefit of the
successors and assigns of the Investor and the Company. The Company
may not assign its rights and obligations hereunder to any person
or entity. The Investor may assign its rights and obligations
hereunder to any affiliate of the Investor without the consent of
the Company, and the Investor may assign any Exchange Shares to any
person or entity without the consent of the
Company.
[signature page follows]
IN
WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first set forth above.
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ENDRA,
INC.
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By:
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Name:
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Michael
Thornton
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Title:
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Chief
Executive Officer
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INVESTOR
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-5-
Endra, Inc.
SUBSCRIPTION AGREEMENT
As of
July 26, 2013
Endra,
Inc.
35
Research Drive
Ann
Arbor, MI 48103
Attention:
Michael Thornton, President
1.
Subscription
.
(a) The
undersigned (the “
Subscriber
”) hereby irrevocably
subscribes for and agrees to purchase from Endra, Inc., a Delaware
corporation (the “
Company
”), the number of shares
of the Company’s common stock, par value $0.0001 per share
(“
Shares
”), at
the price and for the aggregate consideration set forth on the
signature page hereto, together with
warrants to purchase that number of
Shares, and for the purchase price, set forth on the signature page
hereto (each a “
Warrant
”
and collectively, the “
Warrants
”).
A form of Warrant is attached hereto as
Exhibit
A
.
The
Subscriber acknowledges that this Subscription Agreement is subject
to acceptance by the Company, in whole or in part. The Subscriber
agrees that if this Subscription Agreement is not accepted in full,
any funds related to the portion of this Subscription Agreement not
accepted will be returned to the undersigned, without
interest.
2.
Subscriber Representations, Warranties
and Agreements
. By executing this Subscription Agreement,
the Subscriber represents, warrants and covenants (on its own
behalf and, if applicable, on behalf of each beneficial purchaser
for whom it is contracting hereunder) to the Company (and
acknowledges that the Company is relying thereon)
that:
(a)
it is authorized to
consummate the purchase of the Shares and Warrants (together, the
“
Securities
”);
(b)
it understands that
the Securities have not been registered under the Securities Act of
1933, as amended (the “
Securities Act
”), or any
applicable state securities laws at the time of issuance, and that
the offer and sale of Securities is being made in reliance on a
private placement exemption available under Section 4(2) of the
Securities Act, and Rule 506 of Regulation D under the Securities
Act (“
Regulation D
”) to accredited
investors (“
Accredited
Investors
”), as defined in Rule 501(a) of Regulation
D;
(c)
it has reviewed
copies of any documents considered by it to be important in making
an investment decision whether to purchase the Securities. In
addition, it has had access to such additional information, if any,
concerning the Company as it has considered necessary in connection
with its investment decision to acquire the Securities, and it
acknowledges that it has been offered the opportunity to ask
questions and receive answers from management of the Company
concerning the terms and conditions of the offering of the
Securities, and to obtain any additional information which the
Company possesses or can acquire without unreasonable effort or
expense that is necessary to verify the accuracy of the information
contained in any documents provided to it;
(d)
it has such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment in the
Securities and is able to bear the economic risks of, and withstand
the complete loss of, such investment;
(e)
it is an Accredited
Investor acquiring the Securities for its own account or, if the
Securities are to be purchased for one or more accounts
(“
Investor
Accounts
”) with respect to whom it is exercising sole
investment discretion, each such Investor Account is an Accredited
Investor on a like basis. In each case, the undersigned has
completed the Accredited Investor Status section of the
Subscriber’s signature page hereto,indicating which category
of Rule 501(a) qualifies as the Subscriber as an Accredited
Investor;
(f)
it is not acquiring
the Securities with a view to any resale, distribution or other
disposition of the Securities in violation of federal or applicable
state securities laws, and, in particular, it has no intention to
distribute either directly or indirectly any of the Securities in
the U.S. or to U.S. persons;
provided, however
, that the holder may
sell or otherwise dispose of any of the Securities pursuant to
registration thereof under the Securities Act and any applicable
state securities laws or pursuant to an exemption from such
registration requirements;
(g)
in the case of the
purchase by the Subscriber of the Securities as agent or trustee
for any other person, the Subscriber has due and proper authority
to act as agent or trustee for and on behalf of such beneficial
purchaser in connection with the transactions contemplated
hereby;
(h)
it is not
purchasing the Securities as a result of any general solicitation
or general advertising (as those terms are used in Regulation D
under the Securities Act), including advertisements, articles,
notices or other communications published in any newspaper,
magazine or similar media or broadcast over radio or television, or
any seminar or meeting whose attendees have been invited by general
solicitation or general advertising;
(i)
it understands that
the Securities are “restricted securities” as defined
in Rule 144(a)(3) under the Securities Act, and agrees that if it
decides to offer, sell or otherwise transfer the Securities, such
Securities may be offered, sold or otherwise transferred only (A)
to the Company, (B) outside of the United States in accordance with
Rule 904 of Regulation S under the Securities Act, (C) within the
United States or to or for the account or benefit of a United
States person in accordance with an exemption from the registration
requirements of the Securities Act and all applicable state
securities laws, (D) in a transaction that does not require
registration under the Securities Act or any applicable
U.S. state securities laws or (E) pursuant to an effective
registration statement under the Securities Act, and in each case
in accordance with any applicable state securities laws in the
United States or securities laws of any other applicable
jurisdiction;
provided,
however
, that with respect to sales or transfers under
clauses (C) or (D), only if the holder has furnished to the Company
a written opinion of counsel, reasonably satisfactory to the
Company, prior to such sale or transfer;
(j)
it has been
independently advised as to the applicable holding period and
resale restrictions with respect to trading imposed in respect of
the Securities, by securities legislation in the jurisdiction in
which it resides or to which it is otherwise subject, and confirms
that no representation has been made respecting the applicable
holding periods for the Securities and is aware of the risks and
other characteristics of the Securities and of the fact that the
undersigned may not be able to resell the Securities except in
accordance with applicable securities legislation and
regulations;
(k)
no person has made
to the Subscriber any written or oral representations:
(i)
that any person
will resell or repurchase any of the Securities;
(ii)
that
any person will refund the purchase price of the Securities;
or
(iii)
as
to the future price or value of any of the Securities;
(l)
it understands and
acknowledges that certificates representing the Securities shall
bear the following legend:
“THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), OR UNDER ANY STATE SECURITIES LAWS. THE HOLDER HEREOF,
BY PURCHASING THESE SECURITIES, AGREES FOR THE BENEFIT OF THE
COMPANY, THAT THESE SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) OUTSIDE THE U.S.
IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (C) IN
COMPLIANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS, (D) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE
REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAWS, OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, AND, IN THE CASE OF (C) AND
(D), THE SELLER FURNISHES TO THE COMPANY A WRITTEN OPINION OF
COUNSEL OF RECOGNIZED STANDING IN FORM AND SUBSTANCE SATISFACTORY
TO THE COMPANY TO SUCH EFFECT.”
(m)
it consents to the
Company making a notation on its records or giving instructions to
any transfer agent of the Securities in order to implement the
restrictions on transfer set forth and described
herein;
(n)
the office or other
address of the undersigned at which the undersigned received and
accepted the offer to purchase the Securities is the address listed
on the Subscriber’s signature page, attached
hereto;
(o)
if required by
applicable securities laws, regulations, rule or order or by any
securities commission, stock exchange or other regulatory
authority, it will execute, deliver and file, within the approved
time periods, all documentation as may be required thereunder, and
otherwise assist the Company in filing reports, questionnaires,
undertakings and other documents with respect to the issuance of
the Securities;
(p)
this subscription
agreement has been duly and validly authorized, executed and
delivered by and constitutes a legal, valid, binding and
enforceable obligation of the Subscriber; and
(q)
it is not an
affiliate (as defined in Rule 144 under the Securities Act) of the
Company and is not acting on behalf of an affiliate of the
Company.
3.
Representations, Warranties and
Covenants of the Company
. As a material inducement of
Subscriber to enter into this Subscription Agreement and subscribe
for the Securities, the Company represents and warrants to
Subscriber, as of the date hereof, as follows:
(a)
Organization
and Standing
. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware, has full power to carry on its business as and where
such business is now being conducted and to own, lease and operate
the properties and assets now owned or operated by it, and is duly
qualified to do business and is in good standing in each
jurisdiction where the conduct of its business or the ownership of
its properties requires such qualification, except where the
failure to be so qualified would not have a Material Adverse Effect
on the Company. “
Material
Adverse Effect
” means any circumstance, change in, or
effect on the Company that, individually or in the aggregate with
any other similar circumstances, changes in, or effects on, the
Company taken as a whole: (i) is, or is reasonably expected to be,
materially adverse to the business, operations, assets,
liabilities, employee relationships, customer or supplier
relationships, prospects, results of operations or the condition
(financial or otherwise) of the Company taken as a whole, or (ii)
is reasonably expected to adversely affect the ability of the
Company to operate or conduct the Company’s business in the
manner in which it is currently operated or conducted or proposed
to be operated or conducted by the Company;
provided
,
however
, that none of the following
shall be deemed in and of themselves, either alone or in
combination, to constitute, and none of the following shall be
taken into account in determining whether there has been or will
be, a Material Adverse Effect: (A) any change, event, state of
facts or development generally affecting the general political,
economic or business conditions of the United States, (B) any
change, event, state of facts or development generally affecting
the industry in which the Company operates, (C) any change, event,
state of facts or development arising from or relating to
compliance with the terms of this Subscription Agreement, (D) acts
of war (whether or not declared), the commencement, continuation or
escalation of a war, acts of armed hostility, sabotage or terrorism
or other international or national calamity or any material
worsening of such conditions, (E) changes in laws or generally
accepted accounting principles (“
GAAP
”) after date hereof or in
interpretations thereof, or (F) any matter disclosed in this
Subscription Agreement (including the schedules
hereto);
(b)
Authority
.
The Board of Directors of the Company has duly authorized the
execution, delivery and performance of this Subscription Agreement
by the Company, and the consummation of the transactions
contemplated hereby. This Subscription Agreement has been (or upon
delivery will be) duly executed by the Company when delivered in
accordance with the terms hereof, and will constitute, assuming due
authorization and execution and delivery by each of the parties
thereto, a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms. The Shares, when
issued, will be validly issued, fully-paid and
non-assessable;
(c)
No
Conflict
. The execution, delivery and performance of this
Subscription Agreement and the consummation of the transactions
contemplated hereby do not (i) violate or conflict with the
Company’s Certificate of Incorporation, or other
organizational documents, (ii) conflict with or result (with the
lapse of time or giving of notice or both) in a material breach or
default under any material agreement or instrument to which the
Company is a party or by which the Company is otherwise bound, or
(iii) violate any order, judgment, law, statute, rule or regulation
applicable to the Company, except where such violation, conflict or
breach would not have a Material Adverse Effect on the Company.
This Subscription Agreement when executed by the Company will be a
legal, valid and binding obligation of the Company enforceable in
accordance with its terms (except as may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws and
equitable principles relating to or limiting creditors’
rights generally);
(d)
Capitalization
.
A capitalization table setting forth the authorized and outstanding
capital stock of the Company as of the date hereof is attached as
Schedule 3(d)
. All
of such outstanding shares have been validly issued and are fully
paid and non-assessable. As of the date hereof, except as disclosed
in
Schedule 3(d)
,
and except for Securities issued pursuant to this Subscription
Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into,
any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its subsidiaries is or
may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into,
any shares of capital stock of the Company or any of its
subsidiaries, (ii) except as disclosed in
Schedule 3(d)
, there are no
agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of their
securities under the Act, (iii) there are no outstanding securities
of the Company or any of its subsidiaries which contain any
redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or
any of its subsidiaries is or may become bound to redeem a security
of the Company or any of its subsidiaries, and (iv) there are no
securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance the
Securities;
(e)
Financial
Statements
. Attached as
Schedule 3(e)
is a copy of the
latest balance sheet of the Company (the “
Balance Sheet
”). The Balance
Sheet has been prepared in accordance with GAAP, applied on a
consistent basis during the periods involved (except as may be
otherwise indicated in such Balance Sheet), and fairly presents, in
all material respects, the financial position of the Company as of
the date thereof; and
(f)
Intellectual
Property
. The Company has rights to use all patents, patent
applications, trademarks, trademark applications, service marks,
trade names, trade secrets, inventions, copyrights, licenses and
other intellectual property rights as necessary or required for use
in connection with their respective businesses as listed on
Schedule 3(f)
, and
which the failure to so have could have a Material Adverse Effect
(collectively, the “
Intellectual Property Rights
”).
The Company has not received a notice (written or otherwise) that
any of the Intellectual Property Rights has expired, terminated or
been abandoned, or is expected to expire or terminate or be
abandoned, within two (2) years from the date of this Subscription
Agreement. The Company has not received a written notice of a claim
or otherwise has any knowledge that the Intellectual Property
Rights violate or infringe upon the rights of any person, except as
could not have or reasonably be expected to not have a Material
Adverse Effect. To the knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no
existing infringement by another person of any of the Intellectual
Property Rights. The Company has taken reasonable security measures
to protect the secrecy, confidentiality and value of all of their
intellectual properties, except where failure to do so could not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.
Conditions
to Closing
.
(a) The
Company’s obligation to issue and sell the
Securities to Subscribers is subject
to the fulfillment (or waiver by the Company)of the following
conditions:
(i)
Representations
and Warranties
. The representations and warranties made by
Subscribers in this Subscription Agreement shall be true and
correct in all material respects when made, and shall be true and
correct in all material respects upon issuance of the
Securities;
(ii)
Suitability
Questionnaire
. All Subscribers shall have completed and
delivered to the Company the Accredited Investor section of the
Subscriber’s signature page attached hereto; and
(iii)
Approval
of Subscribers
. The Company, in its reasonable discretion,
shall have approved the participation and amount of participation
of any Subscribers who are either individuals that are non-United
States citizens or are entities domiciled in any jurisdiction other
than the United States.
(b) Each
Subscriber’s obligation to purchase the Securities is subject
to the fulfillment (or waiver by such Subscriber)of the following
conditions:
(i)
Representations
and Warranties
. The representations and warranties made by
the Company in this Subscription Agreement shall be true and
correct when made, and shall be true and correct in all material
respects upon issuance of the Securities; and
(ii)
Compliance
with Securities Laws
. The Company shall have obtained all
permits and qualifications required under federal and/or state law
and/or foreign law for the offer and sale of the Securities, or
shall have the availability of exemptions therefrom. Upon sale of
the Securities, the Company shall file a
Form D
with the
United States Securities and Exchange
Commission
in a timely manner as well as any “blue
sky” filings required by the states in which Subscribers are
located.
5.
Legends
.
Subscriber understands and agrees that the Company will cause any
necessary restrictive legends to be placed upon any instruments(s)
evidencing ownership of the Securities, together with any other
legend that may be required by federal or state securities laws or
deemed necessary or desirable by the Company.
6.
General
Provisions
.
(a)
Confidentiality
.
Subscriber covenants and agrees that it will keep confidential and
will not disclose or divulge any confidential or proprietary
information that such Subscriber may obtain from the Company
pursuant to financial statements, reports, and other materials
submitted by the Company to such Subscriber in connection with this
Subscription Agreement, or as a result of discussions with or
inquiry made to the Company, unless such information is known, or
until such information becomes known, to the public through no
action by Subscriber;
provided
,
however
, that a Subscriber may disclose
such information to its attorneys, accountants, consultants,
assignees or transferees and other professionals to the extent
necessary in connection with his or her investment in the Company
so long as any such professional to whom such information is
disclosed is made aware of Subscriber’s obligations hereunder
and such professional agrees to be likewise bound as though such
professional were a party hereto.
(b)
Successors
.
The covenants, representations and warranties contained in this
Subscription Agreement shall be binding on Subscriber’s and
the Company’s heirs and legal representatives and shall inure
to the benefit of the respective successors and assigns of the
Company. The rights and obligations of this Subscription Agreement
may not be assigned by any party without the prior written consent
of the other party.
(c)
Counterparts
.
This Agreement may be executed in counterparts, each of which
shall
be deemed an original
agreement
,
but all of which together
shall
constitute
one and the same instrument.
(d)
Execution
by Facsimile
.
Execution and delivery of this
Agreement by facsimile transmission (including the delivery of
documents in Adobe PDF format) shall constitute execution and
delivery of this Agreement for all purposes, with the same force
and effect as execution and delivery of an original manually signed
copy hereof.
(e)
Governing Law
and Jurisdiction
. This Subscription Agreement shall be
governed by and construed in accordance with the laws of the State
of California applicable to contracts to be wholly performed within
such state and without regard to conflicts of laws provisions. THE
PARTIES HERETO EACH HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMIT
TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS
SITTING IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO. THE PARTIES
HERETO EACH AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS SUBSCRIPTION AGREEMENT AND/OR THE OFFERING
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY MUST BE
LITIGATED EXCLUSIVELY IN ANY SUCH STATE OR FEDERAL COURT THAT SITS
IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, AND ACCORDINGLY, THE
PARTIES EACH IRREVOCABLY WAIVE ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH LITIGATION IN
ANY SUCH COURT. Each of Subscriber and Company hereby irrevocably
waive and agree not to assert, by way of motion, as a defense, or
otherwise, in every suit, action or other proceeding arising out of
or based on this Subscription Agreement and brought in any such
court, any claim that Subscriber or the Company is not subject
personally to the jurisdiction of the above named courts, that
Subscriber’s or the Company’s property, as applicable,
is exempt or immune from attachment or execution, that the suit,
action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is
improper.
(f)
Notices
.
All notices, requests, demands, claims and other communications
hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage pre-paid), guaranteed
overnight delivery, or facsimile transmission if such transmission
is confirmed by delivery by certified or registered mail (first
class postage pre-paid) or guaranteed overnight delivery, to the
following addresses and facsimile numbers (or to such other
addresses or facsimile numbers which such party shall subsequently
designate in writing to the other party):
(i) if
to the Company:
Endra,
Inc.
35
Research Drive
Ann
Arbor, MI 48103
Attention: Michael Thornton
Tel:
(617) 398-7618
(ii) if to Subscriber
to the address set forth next to its name on the signature page
hereto.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Company has executed this Subscription
Agreement as of the date first written above.
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Endra,
Inc.
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By:
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Name:
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Title:
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[SUBSCRIBER
SIGNATURE PAGE FOLLOWS]
[SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT]
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
INFORMATION
IN RESPONSE TO THIS SECTION WILL BE KEPT STRICTLY
CONFIDENTIAL
DOLLAR AMOUNT INVESTED $_____________________________
NUMBER OF WARRANTS: _________________________________
EXERCISE PRICE OF WARRANTS:
_________________________
TERM OF WARRANTS: ____________________________________
NAME IN WHICH NOTE AND WARRANT SHOULD BE
ISSUED
:
AMOUNT INVESTED TO BE SENT VIA: □ Check
(enclosed) □
Wire
Address Information
For
individual subscribers this address should be Subscriber’s
primary legal residence. For entities other than individual
subscribers, please provide address information for the entities
primary place of business. Information regarding a joint subscriber
should be included in the column at right.
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_________________________________
Legal
Address
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_________________________________
Legal
Address
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_________________________________
City,
State, and Zip Code
|
_________________________________
City,
State, and Zip Code
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Accredited Investor Status
The
Subscriber represents and warrants that it is an “accredited
investor”, as defined in Rule 501(a) under the Securities
Act, by virtue of satisfying one or more of the categories
indicated below
(please write your
initials on the line next to each applicable
category)
:
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Category
1.
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A bank,
as defined in section 3(a)(2) of the Securities Act.
A
savings and loan association or other institution, as defined in
section 3(a)(5)(A) of the Securities Act, whether acting in its
individual or fiduciary capacity.
A
broker or dealer registered pursuant to section 15 of the
Securities Exchange Act of 1934.
An
insurance company as defined in section 2(a)(13) of the Securities
Act.
An
investment company registered under the Investment Corporation Act
of 1940 or a business development company as defined in section
2(a)(48) of that Act.
A Small
Business Investment Corporation licensed by the U.S. Small Business
Administration under section 301(c) or (d) of the Small Business
Investment Act of 1958.
A plan
established and maintained by a state, its political subdivisions,
or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has
total assets in excess of $5,000,000.
An
employee benefit plan within the meaning of the Employee Retirement
Income Security Act of 1974 if the investment decision is made by a
plan fiduciary, as defined in section 3(21) of such Act, which is
either a bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan,
with investment decisions made solely by persons that are
accredited investors.
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Category
2.
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Any
private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940.
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Category
3.
|
An
organization described in Section 501(c)(3) of the Internal Revenue
Code, a corporation, a Massachusetts or similar business trust, or
a partnership, not formed for the specific purpose of acquiring the
Securities, with total assets in excess of $5,000,000.
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Category
4.
|
A
director or executive officer of the Corporation.
|
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Category
5.
|
A
natural person whose individual net worth, or joint net worth with
that person’s spouse, at the time of this purchase exceeds
$1,000,000, excluding the value of the person’s primary
residence, if any.
|
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☐
|
Category
6.
|
A
natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that
person’s spouse in excess of $300,000 in each of those years
and has a reasonable expectation of reaching the same income level
in the current year.
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Category
7.
|
A
trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the Securities, whose purchase is
directed by a sophisticated person as described in Rule
506(b)(2)(ii) of Regulation D under the U.S. Securities
Act.
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Category
8.
|
An
entity in which each of the equity owners is an accredited
investor.
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Alternate Address Information
Subscribers
who wish to receive correspondence at an address other than the
address listed above should complete the Alternate Address section
on the following page.
|
_________________________________
Tax ID
# or Social Security #
|
_________________________________
Tax ID
# or Social Security #
|
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AGREED
AND SUBSCRIBED
This
__ day of _______________, 2013
By:_________________________________
Name:
Title
(if any):
|
AGREED
AND SUBSCRIBED
SIGNATURE OF JOINT SUBSCRIBER (if any)
This
__ day of _______________, 2013
By:_________________________________
Name:
Title
(if any):
|
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__________________________________
Subscriber
Name (Typed or Printed)
|
__________________________________
Additional
Subscriber Name (Typed or Printed)
|
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Alternate Address
Information
(if applicable)
|
_________________________________
Alternate Address
for Correspondence
|
_________________________________
Alternate Address
for Correspondence
|
|
_________________________________
City,
State and Zip Code
|
_________________________________
City,
State and Zip Code
|
|
_________________________________
Telephone
|
_________________________________
Telephone
|
|
_________________________________
Facsimile
|
_________________________________
Facsimile
|
|
_________________________________
Tax ID
# or Social Security #
|
_________________________________
Tax ID
# or Social Security #
|
Schedule
3(d)
Capitalization Table
Schedule
3(e)
Balance Sheet
Schedule
3(f)
Intellectual Property
Endra, Inc.
SUBSCRIPTION
AGREEMENT
As of
December 19, 2014
Endra,
Inc.
35
Research Drive
Ann
Arbor, MI 48103
Attention:
Michael Thornton, President
1.
Subscription
.
(a) The
undersigned (the “
Subscriber
”) hereby irrevocably
subscribes for and agrees to purchase from Endra, Inc., a Delaware
corporation (the “
Company
”), the number of shares
of the Company’s common stock, par value $0.0001 per share
(“
Shares
”), at
the price and for the aggregate consideration set forth on the
signature page hereto, together with
warrants to purchase that number of
Shares, and for the purchase price, set forth on the signature page
hereto (each a “
Warrant
”
and collectively, the “
Warrants
”).
A form of Warrant is attached hereto as
Exhibit
A
.
The
Subscriber acknowledges that this Subscription Agreement is subject
to acceptance by the Company, in whole or in part. The Subscriber
agrees that if this Subscription Agreement is not accepted in full,
any funds related to the portion of this Subscription Agreement not
accepted will be returned to the undersigned, without
interest.
2.
Subscriber Representations, Warranties
and Agreements
. By executing this Subscription Agreement,
the Subscriber represents, warrants and covenants (on its own
behalf and, if applicable, on behalf of each beneficial purchaser
for whom it is contracting hereunder) to the Company (and
acknowledges that the Company is relying thereon)
that:
(a)
it is authorized to
consummate the purchase of the Shares and Warrants (together, the
“
Securities
”);
(b)
it understands that
the Securities have not been registered under the Securities Act of
1933, as amended (the “
Securities Act
”), or any
applicable state securities laws at the time of issuance, and that
the offer and sale of Securities is being made in reliance on a
private placement exemption available under Section 4(2) of the
Securities Act, and Rule 506 of Regulation D under the Securities
Act (“
Regulation D
”) to accredited
investors (“
Accredited
Investors
”), as defined in Rule 501(a) of Regulation
D;
(c)
it has reviewed
copies of any documents considered by it to be important in making
an investment decision whether to purchase the Securities. In
addition, it has had access to such additional information, if any,
concerning the Company as it has considered necessary in connection
with its investment decision to acquire the Securities, and it
acknowledges that it has been offered the opportunity to ask
questions and receive answers from management of the Company
concerning the terms and conditions of the offering of the
Securities, and to obtain any additional information which the
Company possesses or can acquire without unreasonable effort or
expense that is necessary to verify the accuracy of the information
contained in any documents provided to it;
(d)
it has such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment in the
Securities and is able to bear the economic risks of, and withstand
the complete loss of, such investment;
(e)
it is an Accredited
Investor acquiring the Securities for its own account or, if the
Securities are to be purchased for one or more accounts
(“
Investor
Accounts
”) with respect to whom it is exercising sole
investment discretion, each such Investor Account is an Accredited
Investor on a like basis. In each case, the undersigned has
completed the Accredited Investor Status section of the
Subscriber’s signature page hereto, indicating which category
of Rule 501(a) qualifies as the Subscriber as an Accredited
Investor;
(f)
it is not acquiring
the Securities with a view to any resale, distribution or other
disposition of the Securities in violation of federal or applicable
state securities laws, and, in particular, it has no intention to
distribute either directly or indirectly any of the Securities in
the U.S. or to U.S. persons;
provided, however
, that the holder may
sell or otherwise dispose of any of the Securities pursuant to
registration thereof under the Securities Act and any applicable
state securities laws or pursuant to an exemption from such
registration requirements;
(g)
in the case of the
purchase by the Subscriber of the Securities as agent or trustee
for any other person, the Subscriber has due and proper authority
to act as agent or trustee for and on behalf of such beneficial
purchaser in connection with the transactions contemplated
hereby;
(h)
it is not
purchasing the Securities as a result of any general solicitation
or general advertising (as those terms are used in Regulation D
under the Securities Act), including advertisements, articles,
notices or other communications published in any newspaper,
magazine or similar media or broadcast over radio or television, or
any seminar or meeting whose attendees have been invited by general
solicitation or general advertising;
(i)
neither the
Subscriber nor, to the extent it has them, any of its shareholders,
members, managers, general or limited partners, directors,
affiliates or executive officers (collectively with the Subscriber,
the “
Covered
Persons
”), are subject to any of the “Bad
Actor” disqualifications described in Rule 506(d)(1)(i) to
(viii) under the Securities Act (a “
Disqualification Event
”), except
for a Disqualification Event covered by Rule 506(d)(2) or (d)(3).
The Subscriber has exercised reasonable care to determine whether
any Covered Person is subject to a Disqualification Event. The
purchase of the Securities by the Subscriber will not subject the
Corporation to any Disqualification Event;
(j)
it understands that
the Securities are “restricted securities” as defined
in Rule 144(a)(3) under the Securities Act, and agrees that if it
decides to offer, sell or otherwise transfer the Securities, such
Securities may be offered, sold or otherwise transferred only (A)
to the Company, (B) outside of the United States in accordance with
Rule 904 of Regulation S under the Securities Act, (C) within the
United States or to or for the account or benefit of a United
States person in accordance with an exemption from the registration
requirements of the Securities Act and all applicable state
securities laws, (D) in a transaction that does not require
registration under the Securities Act or any applicable
U.S. state securities laws or (E) pursuant to an effective
registration statement under the Securities Act, and in each case
in accordance with any applicable state securities laws in the
United States or securities laws of any other applicable
jurisdiction;
provided,
however
, that with respect to sales or transfers under
clauses (C) or (D), only if the holder has furnished to the Company
a written opinion of counsel, reasonably satisfactory to the
Company, prior to such sale or transfer;
(k)
it has been
independently advised as to the applicable holding period and
resale restrictions with respect to trading imposed in respect of
the Securities, by securities legislation in the jurisdiction in
which it resides or to which it is otherwise subject, and confirms
that no representation has been made respecting the applicable
holding periods for the Securities and is aware of the risks and
other characteristics of the Securities and of the fact that the
undersigned may not be able to resell the Securities except in
accordance with applicable securities legislation and
regulations;
(l)
no person has made
to the Subscriber any written or oral representations:
(i)
that any person
will resell or repurchase any of the Securities;
(ii)
that
any person will refund the purchase price of the Securities;
or
(iii)
as
to the future price or value of any of the Securities;
(m)
it understands and
acknowledges that certificates representing the Securities shall
bear the following legend:
“THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), OR UNDER ANY STATE SECURITIES LAWS. THE HOLDER HEREOF,
BY PURCHASING THESE SECURITIES, AGREES FOR THE BENEFIT OF THE
COMPANY, THAT THESE SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) OUTSIDE THE U.S.
IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (C) IN
COMPLIANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS, (D) IN ANOTHER TRANSACTION THAT DOES NOT REQUIRE
REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAWS, OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, AND, IN THE CASE OF (C) AND
(D), THE SELLER FURNISHES TO THE COMPANY A WRITTEN OPINION OF
COUNSEL OF RECOGNIZED STANDING IN FORM AND SUBSTANCE SATISFACTORY
TO THE COMPANY TO SUCH EFFECT.”
(n)
it consents to the
Company making a notation on its records or giving instructions to
any transfer agent of the Securities in order to implement the
restrictions on transfer set forth and described
herein;
(o)
the office or other
address of the undersigned at which the undersigned received and
accepted the offer to purchase the Securities is the address listed
on the Subscriber’s signature page, attached
hereto;
(p)
if required by
applicable securities laws, regulations, rule or order or by any
securities commission, stock exchange or other regulatory
authority, it will execute, deliver and file, within the approved
time periods, all documentation as may be required thereunder, and
otherwise assist the Company in filing reports, questionnaires,
undertakings and other documents with respect to the issuance of
the Securities;
(q)
this subscription
agreement has been duly and validly authorized, executed and
delivered by and constitutes a legal, valid, binding and
enforceable obligation of the Subscriber; and
(r)
it is not an
affiliate (as defined in Rule 144 under the Securities Act) of the
Company and is not acting on behalf of an affiliate of the
Company.
3.
Representations, Warranties and
Covenants of the Company
. As a material inducement of
Subscriber to enter into this Subscription Agreement and subscribe
for the Securities, the Company represents and warrants to
Subscriber, as of the date hereof, as follows:
(a)
Organization
and Standing
. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware, has full power to carry on its business as and where
such business is now being conducted and to own, lease and operate
the properties and assets now owned or operated by it, and is duly
qualified to do business and is in good standing in each
jurisdiction where the conduct of its business or the ownership of
its properties requires such qualification, except where the
failure to be so qualified would not have a Material Adverse Effect
on the Company. “
Material
Adverse Effect
” means any circumstance, change in, or
effect on the Company that, individually or in the aggregate with
any other similar circumstances, changes in, or effects on, the
Company taken as a whole: (i) is, or is reasonably expected to be,
materially adverse to the business, operations, assets,
liabilities, employee relationships, customer or supplier
relationships, prospects, results of operations or the condition
(financial or otherwise) of the Company taken as a whole, or (ii)
is reasonably expected to adversely affect the ability of the
Company to operate or conduct the Company’s business in the
manner in which it is currently operated or conducted or proposed
to be operated or conducted by the Company;
provided
,
however
, that none of the following
shall be deemed in and of themselves, either alone or in
combination, to constitute, and none of the following shall be
taken into account in determining whether there has been or will
be, a Material Adverse Effect: (A) any change, event, state of
facts or development generally affecting the general political,
economic or business conditions of the United States, (B) any
change, event, state of facts or development generally affecting
the industry in which the Company operates, (C) any change, event,
state of facts or development arising from or relating to
compliance with the terms of this Subscription Agreement, (D) acts
of war (whether or not declared), the commencement, continuation or
escalation of a war, acts of armed hostility, sabotage or terrorism
or other international or national calamity or any material
worsening of such conditions, (E) changes in laws or generally
accepted accounting principles (“
GAAP
”) after date hereof or in
interpretations thereof, or (F) any matter disclosed in this
Subscription Agreement (including the schedules
hereto);
(b)
Authority
.
The Board of Directors of the Company has duly authorized the
execution, delivery and performance of this Subscription Agreement
by the Company, and the consummation of the transactions
contemplated hereby. This Subscription Agreement has been (or upon
delivery will be) duly executed by the Company when delivered in
accordance with the terms hereof, and will constitute, assuming due
authorization and execution and delivery by each of the parties
thereto, a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms. The Shares, when
issued, will be validly issued, fully-paid and
non-assessable;
(c)
No
Conflict
. The execution, delivery and performance of this
Subscription Agreement and the consummation of the transactions
contemplated hereby do not (i) violate or conflict with the
Company’s Certificate of Incorporation, or other
organizational documents, (ii) conflict with or result (with the
lapse of time or giving of notice or both) in a material breach or
default under any material agreement or instrument to which the
Company is a party or by which the Company is otherwise bound, or
(iii) violate any order, judgment, law, statute, rule or regulation
applicable to the Company, except where such violation, conflict or
breach would not have a Material Adverse Effect on the Company.
This Subscription Agreement when executed by the Company will be a
legal, valid and binding obligation of the Company enforceable in
accordance with its terms (except as may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws and
equitable principles relating to or limiting creditors’
rights generally);
(d)
Capitalization
.
A capitalization table setting forth the authorized and outstanding
capital stock of the Company as of the date hereof is attached as
Schedule 3(d)
. All
of such outstanding shares have been validly issued and are fully
paid and non-assessable. As of the date hereof, except as disclosed
in
Schedule 3(d)
,
and except for Securities issued pursuant to this Subscription
Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into,
any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its subsidiaries is or
may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into,
any shares of capital stock of the Company or any of its
subsidiaries, (ii) except as disclosed in
Schedule 3(d)
, there are no
agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of their
securities under the Act, (iii) there are no outstanding securities
of the Company or any of its subsidiaries which contain any
redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or
any of its subsidiaries is or may become bound to redeem a security
of the Company or any of its subsidiaries, and (iv) there are no
securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance the
Securities;
(e)
Financial
Statements
. Attached as
Schedule 3(e)
is a copy of the
latest balance sheet of the Company (the “
Balance Sheet
”). The Balance
Sheet has been prepared in accordance with GAAP, applied on a
consistent basis during the periods involved (except as may be
otherwise indicated in such Balance Sheet), and fairly presents, in
all material respects, the financial position of the Company as of
the date thereof; and
(f)
Intellectual
Property
. The Company has rights to use all patents, patent
applications, trademarks, trademark applications, service marks,
trade names, trade secrets, inventions, copyrights, licenses and
other intellectual property rights as necessary or required for use
in connection with their respective businesses as listed on
Schedule 3(f)
, and
which the failure to so have could have a Material Adverse Effect
(collectively, the “
Intellectual Property Rights
”).
The Company has not received a notice (written or otherwise) that
any of the Intellectual Property Rights has expired, terminated or
been abandoned, or is expected to expire or terminate or be
abandoned, within two (2) years from the date of this Subscription
Agreement. The Company has not received a written notice of a claim
or otherwise has any knowledge that the Intellectual Property
Rights violate or infringe upon the rights of any person, except as
could not have or reasonably be expected to not have a Material
Adverse Effect. To the knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no
existing infringement by another person of any of the Intellectual
Property Rights. The Company has taken reasonable security measures
to protect the secrecy, confidentiality and value of all of their
intellectual properties, except where failure to do so could not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.
Conditions
to Closing
.
(a) The
Company’s obligation to issue and sell the
Securities to Subscribers is subject
to the fulfillment (or waiver by the Company) of the following
conditions:
(i)
Representations and
Warranties
. The representations and warranties made by
Subscribers in this Subscription Agreement shall be true and
correct in all material respects when made, and shall be true and
correct in all material respects upon issuance of the
Securities;
(ii)
Suitability
Questionnaire
. All Subscribers shall have completed and
delivered to the Company the Accredited Investor section of the
Subscriber’s signature page attached hereto; and
(iii)
Approval
of Subscribers
. The Company, in its reasonable discretion,
shall have approved the participation and amount of participation
of any Subscribers who are either individuals that are non-United
States citizens or are entities domiciled in any jurisdiction other
than the United States.
(b)
Each Subscriber’s obligation to purchase the
Securities is subject to the fulfillment (or waiver by such
Subscriber) of the following conditions:
(i)
Representations
and Warranties
. The representations and warranties made by
the Company in this Subscription Agreement shall be true and
correct when made, and shall be true and correct in all material
respects upon issuance of the Securities; and
(ii)
Compliance
with Securities Laws
. The Company shall have obtained all
permits and qualifications required under federal and/or state law
and/or foreign law for the offer and sale of the Securities, or
shall have the availability of exemptions therefrom. Upon sale of
the Securities, the Company shall file a
Form D
with the
United States Securities and Exchange
Commission
in a timely manner as well as any “blue
sky” filings required by the states in which Subscribers are
located.
5.
Legends
.
Subscriber understands and agrees that the Company will cause any
necessary restrictive legends to be placed upon any instruments(s)
evidencing ownership of the Securities, together with any other
legend that may be required by federal or state securities laws or
deemed necessary or desirable by the Company.
6.
General
Provisions
.
(a)
Confidentiality
.
Subscriber covenants and agrees that it will keep confidential and
will not disclose or divulge any confidential or proprietary
information that such Subscriber may obtain from the Company
pursuant to financial statements, reports, and other materials
submitted by the Company to such Subscriber in connection with this
Subscription Agreement, or as a result of discussions with or
inquiry made to the Company, unless such information is known, or
until such information becomes known, to the public through no
action by Subscriber;
provided
,
however
, that a Subscriber may disclose
such information to its attorneys, accountants, consultants,
assignees or transferees and other professionals to the extent
necessary in connection with his or her investment in the Company
so long as any such professional to whom such information is
disclosed is made aware of Subscriber’s obligations hereunder
and such professional agrees to be likewise bound as though such
professional were a party hereto.
(b)
Successors
.
The covenants, representations and warranties contained in this
Subscription Agreement shall be binding on Subscriber’s and
the Company’s heirs and legal representatives and shall inure
to the benefit of the respective successors and assigns of the
Company. The rights and obligations of this Subscription Agreement
may not be assigned by any party without the prior written consent
of the other party.
(c)
Counterparts
.
This Agreement may be executed in counterparts, each of which
shall
be deemed an original
agreement
,
but all of which together
shall
constitute
one and the same instrument.
(d)
Execution
by Facsimile
.
Execution and delivery of this
Agreement by facsimile transmission (including the delivery of
documents in Adobe PDF format) shall constitute execution and
delivery of this Agreement for all purposes, with the same force
and effect as execution and delivery of an original manually signed
copy hereof.
(e)
Governing
Law and Jurisdiction
. This Subscription Agreement shall be
governed by and construed in accordance with the laws of the State
of California applicable to contracts to be wholly performed within
such state and without regard to conflicts of laws provisions. THE
PARTIES HERETO EACH HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMIT
TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS
SITTING IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO. THE PARTIES
HERETO EACH AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS SUBSCRIPTION AGREEMENT AND/OR THE OFFERING
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY MUST BE
LITIGATED EXCLUSIVELY IN ANY SUCH STATE OR FEDERAL COURT THAT SITS
IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, AND ACCORDINGLY, THE
PARTIES EACH IRREVOCABLY WAIVE ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH LITIGATION IN
ANY SUCH COURT. Each of Subscriber and Company hereby irrevocably
waive and agree not to assert, by way of motion, as a defense, or
otherwise, in every suit, action or other proceeding arising out of
or based on this Subscription Agreement and brought in any such
court, any claim that Subscriber or the Company is not subject
personally to the jurisdiction of the above named courts, that
Subscriber’s or the Company’s property, as applicable,
is exempt or immune from attachment or execution, that the suit,
action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is
improper.
(f)
Notices
.
All notices, requests, demands, claims and other communications
hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage pre-paid), guaranteed
overnight delivery, or facsimile transmission if such transmission
is confirmed by delivery by certified or registered mail (first
class postage pre-paid) or guaranteed overnight delivery, to the
following addresses and facsimile numbers (or to such other
addresses or facsimile numbers which such party shall subsequently
designate in writing to the other party):
(i) if
to the Company:
Endra,
Inc.
35
Research Drive
Ann
Arbor, MI 48103
Attention: Michael
Thornton
Tel:
(617) 398-7618
(ii)
if to Subscriber to the address set forth next to its name on the
signature page hereto.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Company has executed this Subscription
Agreement as of the date first written above.
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Endra, Inc.
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By:
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Name:
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Title:
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[SUBSCRIBER
SIGNATURE PAGE FOLLOWS]
[SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT]
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
INFORMATION
IN RESPONSE TO THIS SECTION WILL BE KEPT STRICTLY
CONFIDENTIAL
DOLLAR AMOUNT INVESTED $_____________________________
NUMBER OF SHARES AT $0.13/SHARE:
_________________________________
NUMBER OF WARRANTS: _________________________________
EXERCISE PRICE OF WARRANTS:
___$0.13_________________
NAME IN WHICH SHARES AND WARRANT SHOULD BE
ISSUED
:
AMOUNT INVESTED TO BE SENT VIA:
□ Check
(enclosed) □
Wire
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AGREED
AND SUBSCRIBED
This
__ day of _______________, 2014
By:_________________________________
Name:
Title
(if any):
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AGREED
AND SUBSCRIBED
SIGNATURE OF JOINT SUBSCRIBER (if any)
This
__ day of _______________, 2014
By:_________________________________
Name:
Title
(if any):
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__________________________________
Subscriber
Name (Typed or Printed)
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__________________________________
Additional
Subscriber Name (Typed or Printed)
|
Address Information
For
individual subscribers this address should be Subscriber’s
primary legal residence. For entities other than individual
subscribers, please provide address information for the entities
primary place of business. Information regarding a joint subscriber
should be included in the column at right.
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_________________________________
Legal
Address
|
_________________________________
Legal
Address
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_________________________________
City,
State, and Zip Code
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_________________________________
City,
State, and Zip Code
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_________________________________
Tax ID
# or Social Security #
|
_________________________________
Tax ID
# or Social Security #
|
Alternate Address
Information
(if applicable)
|
_________________________________
Alternate Address
for Correspondence
|
_________________________________
Alternate Address
for Correspondence
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_________________________________
City,
State and Zip Code
|
_________________________________
City,
State and Zip Code
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_________________________________
Telephone
|
_________________________________
Telephone
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_________________________________
Facsimile
|
_________________________________
Facsimile
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_________________________________
Tax ID
# or Social Security #
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_________________________________
Tax ID
# or Social Security #
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Accredited Investor Status
The
Subscriber represents and warrants that it is an “accredited
investor”, as defined in Rule 501(a) under the Securities
Act, by virtue of satisfying one or more of the categories
indicated below
(please write your
initials on the line next to each applicable
category)
:
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Category
1.
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A bank,
as defined in section 3(a)(2) of the Securities Act.
A
savings and loan association or other institution, as defined in
section 3(a)(5)(A) of the Securities Act, whether acting in its
individual or fiduciary capacity.
A
broker or dealer registered pursuant to section 15 of the
Securities Exchange Act of 1934.
An
insurance company as defined in section 2(a)(13) of the Securities
Act.
An
investment company registered under the Investment Corporation Act
of 1940 or a business development company as defined in section
2(a)(48) of that Act.
A Small
Business Investment Corporation licensed by the U.S. Small Business
Administration under section 301(c) or (d) of the Small Business
Investment Act of 1958.
A plan
established and maintained by a state, its political subdivisions,
or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has
total assets in excess of $5,000,000.
An
employee benefit plan within the meaning of the Employee Retirement
Income Security Act of 1974 if the investment decision is made by a
plan fiduciary, as defined in section 3(21) of such Act, which is
either a bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan,
with investment decisions made solely by persons that are
accredited investors.
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Category
2.
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Any
private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940.
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Category
3.
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An
organization described in Section 501(c)(3) of the Internal Revenue
Code, a corporation, a Massachusetts or similar business trust, or
a partnership, not formed for the specific purpose of acquiring the
Securities, with total assets in excess of $5,000,000.
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Category
4.
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A
director or executive officer of the Corporation.
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Category
5.
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A
natural person whose individual net worth, or joint net worth with
that person’s spouse, at the time of this purchase exceeds
$1,000,000, excluding the value of the person’s primary
residence, if any.
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Category
6.
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A
natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that
person’s spouse in excess of $300,000 in each of those years
and has a reasonable expectation of reaching the same income level
in the current year.
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Category
7.
|
A
trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the Securities, whose purchase is
directed by a sophisticated person as described in Rule
506(b)(2)(ii) of Regulation D under the U.S. Securities
Act.
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Category
8.
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An
entity in which each of the equity owners is an accredited
investor.
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Schedule
3(d)
Endra, Inc. Capitalization Table – Pro Forma
(unaudited)
Schedule
3(e)
Endra, Inc.
Balance Sheet as of December 31, 2013 (unaudited)
Schedule
3(f)
Intellectual Property
COLLABORATIVE RESEARCH AGREEMENT
THIS
AGREEMENT is made as of April
22
, 2016 (“Effective
Date”) by and between General Electric Company, acting
through its GE Healthcare business and Global Research unit
(“GE”), and ENDRA Inc. a Delaware corporation having
its principal place of business at Ann Arbor, MI
(“ENDRA”).
WHEREAS, GE and
ENDRA desire to perform certain research work and are willing to
directly collaborate and/or provide GE and ENDRA with access to
proprietary research materials;
WHEREAS, the
performance of collaborative research is consistent with the
instructional, scholarship and research objectives of
GE;
NOW,
THEREFORE, in consideration of the premises and mutual covenants
herein contained, GE and ENDRA agree as follows:
As used
in this Agreement, capitalized terms have the meanings given them
below or elsewhere in this Agreement:
1.1.
Research
Materials
means those
experimental materials one party may provide the other in
connection with and as stated in the Research
Program.
1.2.
Research
Program
means the research
program set forth in Exhibit A.
1.3.
Confidential
Information
means ENDRA or GE
owned confidential scientific, business or financial information
which will be clearly marked as such in writing provided that such
information:
1.3.1.
is not publicly known or available from other sources who are not
under a confidentiality obligation to the source of the
information;
1.3.2.
has not been made available by its owners to others without a
confidentiality obligation;
1.3.3.
is not already known by or available to the receiving party without
a confidentiality obligation;
1.3.4.
is not independently developed by the receiving party;
1.3.5.
does not relate to potential hazards or cautionary warnings
associated with the performance of the Research Program of the
Agreement or is not required to be disclosed under operation of
law.
1.4.
Invention
means all inventions, ideas,
discoveries, developments, improvements and know-how, whether or
not patentable or reduced to practice.
1.5.
Equipment
means the GE ultrasound system
identified in Exhibit A.
1.6.
Consignment
means the terms and conditions for
consignment of the Equipment set forth in Exhibit
B.
1.7.
TAEUS
FLA IP
means all intellectual
property owned or controlled by ENDRA that is necessary or useful
for commercially exploiting TAEUS technology for
FLA.
2.1.
Research
Efforts
. Provided ENDRA
performs all its obligations under this Agreement, GE will use its
reasonable efforts to conduct those activities for which it is
responsible under the Research Program.
2.2.
GE
Principal Investigator
. The
conduct of GE’s activities under the Research Program will be
under the direction of David Becker (“GE’s Principal
Investigator”).
2.3.
ENDRA’s
Principal Investigator
. The
conduct of ENDRA’s activities under the Research Program will
be under the direction of Michael Thornton (“ENDRA’s
Principal Investigator”).
2.4.
Use
of Research Materials
. Any
Research Materials of one party transferred to the other in
connection with the Research Program may only be used as stated in
the Research Program.
2.5.
GE
Equipment, Support and Options
.
To support the Research Program, GE will consign the Equipment to
ENDRA subject to the Consignment. GE will also provide support,
advice and introductions as stated in the Research Program. In
return for such consideration, ENDRA agrees to provide GE with the
Options stated in the Research Program.
2.6.
Reporting
.
The parties will generally keep one another informed of the results
of the work performed in connection with the Research Program,
principally through their respective Principal Investigators. In
addition, the parties’ respective Principal Investigators
will confer and provide reports as stated in the Research
Program.
2.7.
Changes
to the Research Program
. During
the course of the Research Program, either or both of the Principal
Investigators may find it advantageous to modify the Research
Program. Any modifications will be documented and formalized in a
written amendment to this Agreement and any such amendment will
become effective only if signed by an authorized representative of
both parties to this Agreement.
2.8.
Purposes;
Use of Facilities; No Guarantee of Results
. GE acknowledges that the primary mission of
ENDRA is education and the advancement of knowledge; and,
consequently, the Research Program will be performed in a manner
best suited to carry out that mission. Specifically, ENDRA’s
Principal Investigator will determine the manner of performance of
GE’s part in the Research Program and GE does not represent
or warrant that the Research Program will be successful in any way
or that any specific results will be obtained.
2.9.
Similar
Research
. Nothing in this
Agreement will be construed to limit the freedom of ENDRA or its
researchers who are participants under this Agreement, from
engaging in similar research made under other grants, contracts, or
research agreements with parties other than GE.
3.
CONFIDENTIAL INFORMATION
3.1.
A
party’s acceptance and use of any confidential information
supplied by the other party in the course of the Research Program
will be subject to the following:
3.1.1.
To
be considered Confidential Information, all written information
must be marked or designated in writing as CONFIDENTIAL by the
party providing the information, and oral communications must be
reduced to writing within thirty (30) days of the initial
communication of the information and such writing must be marked or
designated in writing as CONFIDENTIAL and provided to the other
party’s Principal Investigator.
3.1.2.
The
Principal Investigators will use reasonable efforts to limit the
exchange of Confidential Information.
3.1.3.
Where
the Principal Investigator does accept such information as
confidential, he agrees to use reasonable care to prevent the
unauthorized use, dissemination, or publication of the Confidential
Information.
3.1.4.
The
Principal Investigators’ obligation to hold Confidential
Information in confidence expires three (3) years after the
termination or expiration of this Agreement.
ENDRA
and GE may identify each other as collaborative research partners
in promotional materials to be disseminated to the public. Any use
of a party’s name shall be limited to statements of fact and
shall not imply endorsement of products or services.
5.1.
The
basic objective of research activities at ENDRA is the generation
of new knowledge and its expeditious dissemination for the
public’s benefit. GE will provide reasonable cooperation with
ENDRA in meeting this objective.
5.2.
As
a matter of basic policy, ENDRA retains the right at its discretion
to publish freely any results of the Research Program. Principal
Investigator agrees to provide GE a copy of any manuscript at the
time it is submitted for publication. GE may review the
manuscript:
5.2.1.
To
ascertain whether GE’s Confidential Information would be
disclosed by the publication;
5.2.2.
To
identify any potentially patentable Research Program Invention so
that appropriate steps may be taken to protect such Research
Program Invention; and
5.2.3.
To
confirm that the privacy rights of individuals are adequately
protected.
GE will
provide comments, if any, within thirty (30) days of receipt of
manuscript.
5.3.
ENDRA
will give GE the option of receiving an acknowledgment in such
publication.
6.
INTELLECTUAL PROPERTY RIGHTS
6.1.
Ownership
of Research Program Inventions
.
Research Program Inventions conceived, discovered and reduced to
practice solely by ENDRA, or its employees or agents will be owned
by ENDRA. Research Program Inventions conceived, discovered and
reduced to practice solely by GE, or its employees, or agents, will
be owned by GE (Collectively, “Sole Inventions”).
Research Program Inventions conceived, discovered and reduced to
practice jointly by at least one employee, agent, or student of
each of GE and ENDRA will be jointly owned by GE and ENDRA, without
any obligation to account to one another (“Joint
Inventions”). Inventorship will be determined according to
the principles of United States patent law. Neither party shall
make any claim to the other party’s Sole
Inventions.
6.2.
Pre-Existing
Rights
. Except to the limited
extent required to perform a party’s obligations under this
Agreement, neither party receives any right, title, or interest in
or to any Research Materials provided to it by the other party or
any technology, works or inventions of the other party that are not
Research Program Inventions, or any patent, copyright, trade secret
or other proprietary rights in any of the
foregoing.
6.3.
Patents
will mean those United States and
foreign patents and patent applications including any continuation,
reissue, or renewal thereof, or substitute therefor, and the
patents that may be issued thereon, relating to any patentable
Research Program Invention.
6.4.
Patent
Prosecution and Expenses
.
Unless the parties agree in writing otherwise, the filing,
prosecution, defense and maintenance of all Patents for Joint
Inventions will be conducted jointly in the name of both parties
and controlled by them jointly, acting reasonably and in good
faith, with all associated costs shared equally. However, if one
party desires to file, prosecute or maintain any Patents for a
Joint Invention while the other party does not, the other party
shall assign its ownership rights therein to the other party (in
which case the Joint Invention will become a Sole Invention of the
other party) in exchange for a fully paid, non-exclusive worldwide
right and license (with “have made” rights but no
sublicensing rights) under such Sole Invention and any associated
Patents, after which the other party shall have no further
obligation for cost sharing.
6.5.
Licensing
.
Each party reserves the right to license its interest in its Sole
Inventions or Joint Inventions, and neither party shall have any
right to compensation in connection with any such license granted
by the other.
6.6.
Rights
Subject to Federal Patent Policy
. To the extent that any Research Program
Invention has been partially funded by the Federal government, the
assignment of title or the granting of any license above is subject
to the rights of the Federal government and federal law set forth
in 35 U.S.C. §§ 200 et. seq., as amended, and the
regulations promulgated thereunder, as amended, or any successor
statutes or regulations (the “Federal Patent Policy”).
Any right granted in this Agreement greater than that permitted
under the Federal Patent Policy will be modified as may be required
to conform to the provisions of the Federal Patent
Policy.
7.1.
As
used herein, “Claim” includes but is not limited to
every phase of any lawsuit, loss, claim, damage or liability for
death, illness or personal injury of any person (including
employees of GE or ENDRA) and/or for property damage. This
indemnity shall not be deemed excess coverage to any insurance or
self-insurance GE may have covering Claim.
7.2.
ENDRA
hereby waives any Claim against GE, and agrees to indemnify,
defend, and hold harmless GE, and its trustees, directors,
employees, agents, students or volunteers from any Claim arising
out of or connected with this Agreement or the work done under this
Agreement to the extent such Claim is due to ENDRA’s gross
negligence or willful misconduct. GE shall promptly notify ENDRA of
any such Claim and shall cooperate with ENDRA and its insurance
carrier in the defense of the Claim.
7.3.
GE
hereby waives any Claim against ENDRA, and agrees to indemnify,
defend, and hold harmless ENDRA, and its trustees, directors,
employees, agents or students from any Claim arising out of or
connected with this Agreement or the work done under this Agreement
to the extent such Claim is due to GE’s gross negligence or
willful misconduct. ENDRA shall promptly notify GE of any such
Claim and shall cooperate with GE and its insurance carrier in the
defense of the Claim.
7.4.
ENDRA’s
indemnity shall not be limited by the amount of ENDRA’s
insurance.
8.
REPRESENTATIONS, WARRANTIES, LIABILITY LIMITS
8.1.
NO
WARRANTIES
. ENDRA ACKNOWLEDGES
AND AGREES THAT GE IS A COMMERCIAL INSTITUTION AND THAT THE
RESEARCH PROGRAM IS OF AN EXPERIMENTAL NATURE. AS A RESULT, ANY
RESULTS OF THE RESEARCH PROGRAM AND ANY RESEARCH MATERIALS ARE
PROVIDED AS IS AND WITH ALL FAULTS. GE MAKES NO WARRANTIES, EXPRESS
OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT
LIMITATION, THE RESULTS OF THE RESEARCH PROGRAM, WHETHER ANY
RESULTS WILL OBTAIN, ANY RESEARCH MATERIALS OR ANY INVENTION,
PROCESS OR PRODUCT, WHETHER TANGIBLE OR INTANGIBLE, CONCEIVED,
DISCOVERED, DEVELOPED OR REDUCED TO PRACTICE UNDER THIS AGREEMENT;
OR THE OWNERSHIP, NONINFRINGEMENT, MERCHANTABILITY, OR FITNESS FOR
A PARTICULAR PURPOSE OF THE RESEARCH, ANY RESEARCH MATERIALS OR ANY
SUCH INVENTION OR PRODUCT.
8.2.
NO
DAMAGES
. GE SHALL NOT BE LIABLE
FOR ANY DIRECT, CONSEQUENTIAL, OR OTHER DAMAGES SUFFERED BY ENDRA,
ANY LICENSEE, OR ANY OTHERS INCLUDING, BUT NOT LIMITED TO, DAMAGES
ARISING FROM LOSS OF DATA OR DELAY OR TERMINATION OF THE RESEARCH
PROGRAM, OR FROM THE USE OF THE RESULTS OF THE RESEARCH PROGRAM,
THE USE OF ANY RESEARCH MATERIALS OR ANY SUCH INVENTION OR PRODUCT.
ENDRA ACKNOWLEDGES AND AGREES THAT THIS EXCLUSION AND LIMITATION IS
REASONABLE CONSIDERING THE EXPERIMENTAL NATURE OF THE RESEARCH
PROGRAM AND THE NATURE AND TERMS OF THE PARTIES’
RELATIONSHIP.
9.1.
Term
.
This Agreement will remain in effect for twelve (12) months from
the Effective Date unless terminated sooner or extended in writing
signed by the parties in accordance with this
Agreement.
9.2.
Termination
.
Either party may terminate this Agreement for any reason within its
sole discretion upon giving sixty (60) days written notice to the
other party.
9.3.
Survival
.
The provisions of Articles 3, 4, 5, 6, 7, 8, 9, 10 and 11 and
GE’s Options stated in the Research Program will survive any
expiration or termination of this Agreement.
Any
controversy, claim or other dispute arising out of this Agreement
or relating to the subject matter of this Agreement hereof will be
decided by binding arbitration in accordance with the Rules of
Conciliation and Arbitration of The American Arbitration
Association before one or more arbitrators appointed in accordance
with those Rules. Any arbitration will take place in New York, NY,
or at any other mutually agreeable location.
11.1.
Binding
Effect; Assignment
. Neither
party may assign or delegate its rights or obligations under this
Agreement without the express written consent of the other
party.
11.2.
Entire
Agreement
. This Agreement
constitutes the entire agreement between the parties relating to
the Research Program, and any and all prior or contemporaneous
negotiations, representations, agreements and understandings are
superseded hereby. No amendment or change to this Agreement may be
made except by means of a written document signed by duly
authorized representatives of the parties.
11.3.
Notices
.
Any notice or communication required or permitted to be given
hereunder will be in writing and, except as otherwise expressly
provided in this Agreement, will be deemed given and effective (i)
when delivered personally or by fax or (ii) when received if sent
by email, overnight courier, or mail:
|
To
GE:
|
To
ENDRA:
|
|
9900
Innovation Drive
|
3600
Green Court
|
|
Attn:
Ultrasound Legal Counsel
|
Ste.
350
|
|
Wauwatosa,
WI 53226
|
Ann
Arbor, MI 48105
|
11.4.
Applicable
Law
. This Agreement will be
construed and enforced in accordance with the laws of the State of
New York, without regard to any choice or conflict of laws, rule or
principle that would result in the application of the laws of any
other jurisdiction.
11.5.
Headings
.
Headings included herein are for convenience only, and will not be
used to construe this Agreement.
11.6.
Relationship
of Parties
. For the purposes of
this Agreement, each party will be, and will be deemed to be, an
independent contractor and not an agent or employee of the other
party. Neither party will have authority to make any statements,
representations or commitments of any kind, or to take any action
that is binding on the other party, except as explicitly provided
for herein or authorized in writing.
11.7.
Severability
.
If any provision of this Agreement will be found by a court of
competent jurisdiction to be void, invalid or unenforceable, the
same will either be reformed to comply with applicable law or
stricken if not so conformable, so as not to affect the validity or
enforceability of this Agreement.
11.8.
Force
Majeure
. Neither party will be
liable for any failure to perform as required by this Agreement, if
the failure to perform is caused by circumstances reasonably beyond
a party’s control, such as labor disturbances or labor
disputes of any kind, accidents, failure of any governmental
approval required for full performance, civil disorders or
commotions, acts of aggression, acts of God, energy or other
conservation measures, explosions, failure of utilities, mechanical
breakdowns, material shortages, disease, pandemics, thefts, or
other such occurrences.
11.9.
Electronic
Copy
. The parties to this
document agree that a copy of the original signature (including an
electronic copy) may be used for any and all purposes for which the
original signature may have been used. The parties further waive
any right to challenge the admissibility or authenticity of this
document in a court of law based solely on the absence of an
original signature.
IN
WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the
Effective Date.
|
GE
Healthcare
|
|
ENDRA
Inc.
|
|
|
By: /s/
Brian McEathron
|
|
By: /s/
Francois Michelon
|
|
|
Typed
Name: Brian McEathron
|
|
Typed
Name: Francois Michelon
|
|
|
Title:
VP/GM Ultrasound
|
|
Title:
CEO
|
|
|
Date:
April 22, 2016
|
|
Date:
April 22, 2016
|
|
I,
Michael Thornton
,
named as Principal Investigator for ENDRA, acknowledge that I have
read this Agreement in its entirety and will use reasonable efforts
to uphold my obligations and responsibilities set forth
herein:
Signature:
/s/ Michael
Thornton
Date:
April 22, 2016
I,
David Becker
, named
as Principal Investigator for GE, acknowledge that I have read this
Agreement in its entirety and will use reasonable efforts to uphold
my obligations and responsibilities set forth
herein:
Signature:
/s/ David
Becker
Date:
April 22, 2016
EXHIBIT A:
RESEARCH PROGRAM COMPONENTS
ENDRA
wishes to commercialize its Thermo-Acoustic Enhanced UltraSound
(TAEUS
TM
)
technology, and GE wishes to assist ENDRA in this
goal.
To this
end, GE agrees to provide ENDRA with following:
1.
The Consignment of a cart-based GE ultrasound system,
of GE’s choosing, which ENDRA can use to develop an interface
for its TAEUS technology. The GE equipment will at all times remain
the property of GE. ENDRA may access the internal hardware and
software components of GE’s ultrasound system to develop the
TAEUS interface. ENDRA may request drawings or information from GE
to achieve a successful interface, which GE may provide under
confidentiality and the terms of this Agreement at its sole
discretion. ENDRA will take reasonable measures to protect the GE
system from damage or theft, as it would for an ENDRA-owned piece
of capital equipment.
2.
GE will provide (within its sole discretion) ad-hoc
engineering support to assist ENDRA with the development of the
TAEUS interface, and to help avoid damage to the GE ultrasound
system.
3.
GE will provide (within its sole discretion) ad-hoc
commercial advice to assist ENDRA with the development of a
TAEUS
TM
commercialization plan.
4.
GE will facilitate (within its sole discretion) introductions for
ENDRA to GE clinical ultrasound customers, as potential beta-users
and clinical advisors for ENDRA’s TAEUS technology. GE cannot
guarantee these introductions will lead to formal customer
collaborations.
In
return for GE’s assistance with development of the
TAEUS
TM
technology, ENDRA agrees to the following:
1.
ENDRA will keep GE informed of progress it makes in developing a
TAEUS-GE product interface, and any contact or collaboration ENDRA
undertakes with GE-introduced clinical customers. ENDRA will
participate in regular update telephone calls with designated GE
representatives. Within sixty (60) days following completion of the
Research Program, ENDRA will present the final results to GE of
what was accomplished during the study along with an identification
of any associated Research Program Inventions (“Final
Report”).
2.
Prior to ENDRA commercially
releasing (directly or indirectly) the TAEUS technology for a Fatty
Liver Application (“FLA”), ENDRA will offer to
negotiate in good faith an exclusive ultrasound manufacturer
relationship with GE for a period of at least one (1) year of
commercial sales (“Sales Option”). The commercial sales
will involve, within ENDRA’s sole discretion, either (1)
ENDRA commercially selling GE Healthcare ultrasound systems as the
exclusive ultrasound system with their TAEUS FLA embedded, or (2)
GE Healthcare being the exclusive ultrasound manufacturer to sell
ultrasound systems with the TAEUS FLA technology embedded.
Notwithstanding the foregoing, the Sales Option will in no way
prevent Endra from selling its TAEUS FLA technology to distributors
or directly to non-manufacturer purchasers.
3.
In addition, prior to
ENDRA offering to license any of the TAEUS FLA IP to a third party,
ENDRA will first offer to negotiate in good faith to license such
TAEUS FLA IP to GE (“License Option”).
4.
Moreover, prior to ENDRA offering to sell any equity interests to a
healthcare device manufacturer, ENDRA will first offer to negotiate
in good faith to sell such equity interests to GE (“Equity
Option”).
5.
The Sales Option, License Option and Equity Option (collectively
the “Options”) shall each start as of the Effective
Date and automatically terminate ninety (90) days after the earlier
of (i) ENDRA presenting its Final Report to GE and (ii) termination
or expiration of the Agreement (“Option
Period”).
6.
GE may exercise any of its Options by providing written notice to
ENDRA prior to the expiration of the Option Period. Upon exercise
of the Option and for a period of three (3) months thereafter, or
in the case of the Equity Option, for a period of one (1) month
thereafter (“Negotiation Period”), ENDRA and GE agree
to negotiate in good faith to draft and execute a written agreement
consistent with GE’s Option selection. If the Parties are
unable to agree on mutually acceptable terms and conditions for
such an agreement within the Negotiation Period, then ENDRA agrees
for a period of one (1) year thereafter not to enter into a similar
agreement with a third party on terms and conditions that are
materially better in any respect than, or substantially equal with
respect to, the comparable terms and conditions last proposed by GE
without first offering such materially better or substantially
equal terms and conditions to GE.
EXHIBIT
B
CONSIGNMENT TERMS
AND CONDITIONS
Article 1.
Scope
of Consignment
These
terms & conditions form part of a Collaborative Research
Agreement between GE and ENDRA entered into as of March __,
2016 (“CRA”). All capitalized terms used herein have
the meanings ascribed in the CRA unless specifically defined
otherwise below.
Article 2.
Consignment
Term
GEHC
shall deliver to ENDRA the Equipment in furtherance of the Research
Program (the “Purpose”). ENDRA further agrees to return
the Equipment to GE promptly on termination or expiration of the
CRA.
Article 3.
Use
of Equipment
GE
agrees to allow ENDRA to use the Equipment solely for the Purpose
and for no other purposes, including pre-clinical or clinical
research. ENDRA shall only use the Equipment for its intended
purpose and consistently with its labeled purpose. ENDRA shall not
use in clinical practice, display, or show the Equipment with any
device or technology that is not cleared by the United States Food
and Drug Administration. The use of the Equipment by ENDRA shall
not obligate ENDRA in any way to purchase or lease the Equipment
from GE nor is it contingent in any way on ENDRA purchasing or
leasing any other equipment, product, or services from
GE.
Article 4.
Intellectual
Property Rights
Except
for the rights granted by GE herein, ENDRA shall acquire no right
or interest in the Equipment or the patent, copyright, trademark or
other proprietary rights therein, which proprietary rights shall
remain the property of GE, and any and all goodwill associated with
the Equipment shall enure exclusively to the benefit of
GE.
Article 5.
Protected
Health Information
Prior
to return of the Equipment to GE, ENDRA agrees to remove any
Protected Health Information (“PHI”) (as that term is
defined under the Health Insurance Portability and Accountability
Act Privacy Rule) that has been saved on the Equipment during the
consignment thereof. ENDRA further agrees to indemnify, defend and
hold GE harmless against any loss, claim, damage or liability
arising as a result of ENDRA’s failure to remove all PHI from
the Equipment.
Article 6.
Reimbursement/Billing
ENDRA
agrees that the Equipment will not be used on human subjects for
any clinical diagnostic purposes. Accordingly, ENDRA agrees that it
will not submit any claims to any patient, government healthcare
program or third party payor involving the use of the
Equipment.
Article 7.
Liability
ENDRA
agrees that GE and GE representatives have no liability to ENDRA
for (1) any penal, incidental or consequential damages, (2) any
assistance not required under the CRA, or (3) anything occurring
after the termination of the CRA. EACH PARTY EXPRESSLY WAIVES ALL
RIGHTS TO A JURY TRIAL IN CONNECTION WITH ANY DISPUTE ARISING UNDER
THE CRA. GE'S (AND ITS REPRESENTATIVES') LIABILITY FOR DAMAGES
UNDER THE CRA RELATING TO THE CONSIGNMENT OF THE EQUIPMENT,
REGARDLESS OF THE FORM OF ACTION, SHALL NOT EXCEED THE LIST PRICE
OF THE CONSIGNED EQUIPMENT. ENDRA agrees to defend, indemnify and
hold GE harmless against any liability arising from ENDRA's: (i)
negligent or inappropriate use of the Equipment; and/or (ii)
allegations that a use to which the Equipment are put, other than
for Purpose, infringes the intellectual property rights of any
third party during the term of the CRA.
Article 8.
Title
and Risk of Loss
Title
and risk of loss to the Equipment will remain with GE until
delivery to the ENDRA, at which time all risk of loss and/or damage
to the Equipment will pass to ENDRA. ENDRA agrees to maintain the
Equipment in proper operating condition and return it to GE in this
condition, normal wear and tear excepted. ENDRA will not repair or
maintain the Equipment, or permit others to do so, without the
prior written consent of GE.
Article 9.
Conformity
to the Laws
The
parties agree to comply with all (1) applicable federal, state
and local laws including but not limited to: fraud and abuse
statutes; physician self-referral law; Medicare and Medicaid laws;
laws affecting the tax-exempt status of hospital (e.g. IRS
regulations); state hospital licensure regulations; and federal,
state and local civil rights laws; and (2) applicable rules
and regulations of applicable healthcare accreditation
organizations.
Article 10.
Reporting
Obligations
Consignment of GE
Equipment may be reported to the government through GE's reporting
obligations under the Patient Protection and Affordable Care Act
("Sunshine Act"). If GE Equipment is provided to ENDRA and the
Equipment is lost or misplaced by ENDRA, the total value of the
lost or misplaced items may be reported and/or allocated to ENDRA,
as required by the Sunshine Act.
3600 GREEN COURT
ANN ARBOR, MICHIGAN
GROSS LEASE
This
Lease is made between Landlord and Tenant hereinafter identified in
Sections 1(b) and 1(c) hereof, respectively, and constitutes a
Lease between the parties of the “Demised Premises” in
the “Building,” as defined in Sections 2.2 and 2.1
hereof, respectively, on the terms and conditions and with and
subject to the covenants and agreements of the parties hereinafter
set forth.
WITNESSETH:
1.
Basic Lease Provisions
.
The
following are certain basic lease provisions, which are part of,
and in certain instances referred to in subsequent provisions of,
this Lease:
|
(a)
Date
of this Lease:
|
|
|
(b)
Landlord:
|
GREEN COURT LLC,
a
Michigan limited liability company
|
|
(c)
Tenant:
|
ENDRA INC.,
a
Delaware corporation
|
|
(d)
Demised
Premises:
|
3600
Green Court, Suites 350 and 420
3,265
usable s.f. = 3,657 rentable square feet (12% factor)
|
|
(e)
Anticipated
Commencement Date:
|
January
1, 2015
|
|
(f)
Expiration
Date:
|
Five
(5) years from and after the Commencement Date
|
|
(g)
Basic
Monthly Rental
|
|
|
|
Basic Rental per
square foot
|
|
|
|
1-12
|
$
22.00
|
$
71,830.00
|
$
5,985.83
|
|
13-24
|
$
22.55
|
$
73,625.75
|
$
6,135.48
|
|
25-36
|
$
23.11
|
$
75,454.15
|
$
6,287.85
|
|
37-48
|
$
23.69
|
$
77,347.85
|
$
6,445.65
|
|
49-60
|
$
24.28
|
$
79,286.88
|
$
6,607.24
|
|
Option Term
|
|
|
|
|
61-72
|
$
25.01
|
$
81,657.65
|
$
6,804.80
|
|
73-84
|
$
25.76
|
$
84,106.40
|
$
7,008.87
|
|
85-96
|
$
26.53
|
$
86,620.45
|
$
7,218.37
|
|
97-108
|
$
27.33
|
$
89,232.45
|
$
7,436.04
|
|
109-120
|
$
28.15
|
$
91,909.75
|
$
7,659.15
|
|
(h)
Tenant’s
Use:
|
General
office and light industrial/ research, including, without
limitation, software development, general development of
electronics, micro-electronics, radio frequency wave sources and
ultrasound arrays, use of general mechanical tools, lab benches,
non-toxic solutions, gels, soldering station, electrical bench,
electrical test equipment and meters; use of optical instruments,
lenses, meters and optical elements and lasers; testing of
ultrasound instruments and devices; and use of computers, telecom
and networking equipment (including WIFI)
|
|
(i)
Security
Deposit:
|
$5,986.00
|
|
(j)
Tenant’s
Address for Notices:
|
Demised
Premises
|
|
(k)
Landlord’s
Address for Notices:
|
Green
Court LLC
25361
Dequindre Road
Madison
Heights, Michigan 48071
|
|
(l)
Notwithstanding
any terms or condition of this Lease to the contrary, this Lease is
intended to be a “Gross” lease and Tenant’s
obligation for payment of rent and any and all expenses related to
the Building and the Common Areas shall be limited to the payment
of Basic Rental hereunder (as the same increases pursuant to
Section 1(g) above).
|
2.
Building and Demised Premises
.
2.1
Landlord
is the owner of certain land and improvements known as 3600 Green
Court, Ann Arbor, Michigan, upon which Landlord has or will
construct a building (hereinafter referred to as the
“Building”), consisting of one (1) story, together with
certain exterior common and public areas and facilities, including
the surface parking facilities (hereinafter referred to as the
“Common Areas”) as may be designated by Landlord for
the use in common by tenants of the Building. The Building and
appurtenant Common Areas are hereinafter referred to as the
“Development.”
2.2
Subject
to the terms, covenants, agreements and conditions herein set
forth, Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, those certain premises (herein referred to as the
“Demised Premises”) designated in Section 1(d) hereof,
as shown on the floor plan(s) attached hereto as Exhibit
“A,” together with the nonexclusive right to use the
Common Areas. The square foot area of the Demised Premises, as well
as the Building, shall be computed based upon the BOMA-American
National Standard Z65.1-1996, and shall contain a proportionate
share of the Common Areas of the Building. As of the date hereof
and subject to Section 2.3 below, the Common Areas include the
non-exclusive use of Kiva meeting room and loading
dock.
2.3
Landlord
reserves (a) the right from time to time to make changes,
alterations, additions, improvements, repairs or replacements in or
to the Building (including the Demised Premises) and the fixtures
and equipment thereof, as well as in or to the street entrances,
and other parts of the Building, and to erect, maintain, and use
pipes, ducts and conduits in and through the Demised Premises, all
as Landlord may reasonably deem necessary or desirable, (b) the
right to eliminate, substitute and/or rearrange the Common Areas
(which may theretofore have been so designated) as Landlord deems
appropriate in its discretion and (c) the right from time to time
to construct additional stories onto the Building. Tenant’s
nonexclusive right to utilize the Common Areas shall be in common
with Landlord, other tenants and occupants of the Building and
others to whom Landlord grants such rights from time to time.
Notwithstanding anything in this Lease to the contrary, in no event
(during normal business hours or otherwise) shall Tenant, its
employees, customers, invitees and/or guests, without the prior
written consent of Landlord, utilize in excess of 18 surface lot
spaces, and Landlord reserves the right from time to time to assign
specific location(s) in which all or any portion of such parking
spaces shall be located.
2.4
Subject
to the rights of other tenants of the Building, Landlord shall have
a right of first offer to lease Suite 490 in the Building. In the
event Suite 490 becomes available for lease, Landlord shall first
offer Suite 490 to Tenant upon the same terms and conditions (rent
per sq. foot and lease term) as provided for herein with respect to
the Demised Premises. Tenant shall have fifteen (15) days from the
date of receipt of such offer to accept or reject same. If Tenant
accepts such offer, Landlord and Tenant shall enter into an
amendment reflecting same within ten (10) days of such acceptance.
If Tenant does not accept such offer, Landlord shall have the right
to lease Suite 490 to a third party tenant.
2.5
In
addition, Tenant shall lease a basement storage cage of
approximately 100 square feet and shall pay Landlord rent for such
space at $8.00 per square foot. Tenant shall pay such rent on a
monthly basis in the amount of $66.67.
3.1
The
Term shall commence on that date (hereinafter referred to as the
“Commencement Date”) being the later to occur of the
“Anticipated Commencement Date” set forth in Section
1(e) hereof and the date Landlord has substantially completed the
improvements to be constructed or installed by Landlord pursuant to
the provisions of Exhibit “B” hereto as provided in
Section 4 hereof and delivered the Demised Premises to Tenant, and,
unless sooner terminated as hereinafter provided, shall end on the
“Expiration Date” set forth in Section 1(f) hereof;
provided, however, that if Tenant, with Landlord’s prior
written approval, shall take occupancy of the Demised Premises for
any purpose whatsoever prior to the Commencement Date, as defined
above, the Commencement Date shall be deemed to have occurred on
the earlier date Tenant takes such occupancy. Notwithstanding
anything contained herein to the contrary, Tenant shall have the
right to terminate the Lease effective as of the end of the 36th
month of the Term by: (1) delivering written notice to Landlord of
such termination (the “Termination Notice”) no later
than the last day of the 32nd month of the Term, and (2) paying to
Landlord, at the time of delivery of the Termination Notice, an
amount equal to $23,800.00, which is the aggregate of: (i) all
costs of all improvements to the Demised Premises provided by
Landlord; and (ii) all leasing commissions paid by Landlord in
connection with this Lease.
3.2
If
Landlord, for any reason whatsoever, cannot deliver possession of
the Demised Premises to Tenant on the Anticipated Commencement
Date, this Lease shall not be void or voidable, nor shall Landlord
be liable to Tenant for any loss or damage resulting therefrom, and
the Expiration Date shall not be affected. Notwithstanding the
foregoing, if possession of the Demised Premises has not been
delivered to Tenant within three (3) months following the
Anticipated Commencement Date, Tenant, at its option at any time
within thirty (30) days thereafter, but prior to the delivery of
possession, may terminate this Lease by and upon written notice to
Landlord, and Landlord and Tenant shall thereupon be released from
all obligations under this Lease.
3.3
(a)
Provided
that Tenant is not in default beyond applicable cure periods Tenant
shall have one (1) option to extend the Term for additional five
(5) year period (the “Option Term”) beyond the Term.
Tenant may exercise such options to extend by giving Landlord
written notice by U.S. certified mail, return receipt requested
(the “Option Notice”) on or before the date six (6)
months prior to the expiration date of the Term or the immediately
preceding Option Term. Upon the timely giving of the Option Notice,
the Term shall be extended upon all of the terms and conditions of
the Lease, except that during the Option Term, Basic Rental shall
be in the amounts set forth in Section 1(g) above (the
“Extension Rent”).
4.
Completion of Improvements
.
(a)
Except
as provided in Section 3.2 hereof, prior to the Anticipated
Commencement Date, Landlord shall remodel the Demised Premises
consistent with the attached floor plan and pursuant to Exhibit
“B” hereto and complete the work identified thereon
(hereinafter referred to as the “Improvements”),
provided in no event shall Landlord be obligated to undertake any
other alterations or improvements except as outlined on Exhibit B.
Landlord shall not be required to incur overtime costs and expenses
in performing such construction and/or installation.
(b)
The
Demised Premises shall be deemed completed and possession delivered
to Tenant when Landlord has substantially completed its
improvements subject only to the completion of details of
construction, decorations and mechanical adjustments which do not
materially interfere with Tenant’s use of the Demised
Premises, and Tenant shall accept the same upon notice from
Landlord that such improvements have been so completed. If any
dispute shall arise as to whether Landlord has completed its
improvements, a certificate furnished by Landlord’s architect
certifying the date of such completion shall be conclusive and
binding of that fact and date upon Landlord and
Tenant.
5.1
Tenant
shall pay to Landlord as rental for the Demised Premises the Basic
Rental set forth in Section 1(g) hereof, which shall be payable in
equal monthly installments in advance, together with the rentals
provided for in Section 5.3 hereof.
5.2
The
installment of the Basic Rental provided for in Section 5.1 hereof
for the first full month of the Term (not including any free rental
period, if any) shall be paid by Tenant to Landlord upon execution
of this Lease. Basic Rental shall be paid to Landlord on or before
the first day of each and every successive calendar month in
advance after the first month during the Term. In the event the
Commencement Date is other than the first day of a calendar month,
or the Expiration Date is other than the last day of the calendar
month, then the monthly rental for the first and last fractional
months of the Term shall be appropriately prorated.
5.3
Except
as above provided, Basic Rental shall be paid to Landlord without
notice or demand and without deduction or offset, in lawful money
of the United States of America at Landlord’s address for
notices hereunder or to such other person or at such other place as
Landlord may from time to time designate in writing. All amounts
payable by Tenant to Landlord hereunder, if not paid within five
(5) days after written notice from Landlord of the date due, shall
be subject to an administrative late charge of five percent (5%) of
the amount due and, in addition, shall bear interest from the due
date until paid at the rate equal to two percent (2%) in excess of
the then current “prime rate” published in The Wall
Street Journal, but not in excess of the legal rate. If no such
prime rate is published, the prime rate shall be deemed to be
fifteen percent (15%).
6.1
The
Demised Premises shall be used only for the purposes of
“Tenant’s Use” as set forth in Section 1(h)
hereof, and for no other purpose or purposes
whatsoever.
6.2
Tenant
shall not do or permit to be done in or about the Demised Premises,
nor bring or keep or permit to be brought or kept therein, anything
which is prohibited by or will in any way conflict with any law,
statute, ordinance or governmental rule or regulation now in force
or which may hereafter be enacted or promulgated, or which is
prohibited by the standard form of fire insurance policy, or will
in any way increase the existing rate of or affect any fire or
other insurance upon the Building or any of its contents, or cause
a cancellation of any insurance policy covering the Building or any
part thereof or any of its contents, or adversely affect or
interfere with any services required to be furnished by Landlord to
Tenant, or to any other tenants or occupants of the Building, or
with the proper and economical rendition of any such service.
Tenant shall not do or permit anything to be done in or about the
Demised Premises which will in any way obstruct or interfere with
the rights of other tenants of the Building, or injure or annoy
them, or use or allow the Demised Premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor shall
Tenant cause, maintain or permit any nuisance in, on or about the
Demised Premises or commit or suffer to be committed any waste in,
on or about the Demised Premises. If anything done, omitted to be
done or suffered to be done by Tenant, or kept or suffered by
Tenant to be kept in, upon or about the Demised Premises shall
cause the rate of fire or other insurance on the Building in
companies acceptable to Landlord to be increased beyond the minimum
rate from time to time applicable to the Building, Tenant shall pay
the amount of any such increases. Tenant shall not cause or permit
the use, generation, storage or disposal in or about the Demised
Premises or the Building of any substances, materials or wastes
subject to regulation under federal, state or local laws from time
to time in effect concerning hazardous, toxic or radioactive
materials, unless Tenant shall have received Landlord’s prior
written consent, which Landlord may withhold or at any time revoke
in its sole discretion.
7.1
At
Landlord’s expense, Landlord shall maintain the Common Areas,
together with the windows and exterior walls, roofs, foundations
and structure itself of the Building and the mechanical, plumbing
and electrical equipment servicing the Building, in good order and
condition as reasonably determined by Landlord and the cost shall
be included in Expenses, except for the repairs due to fire and
other casualties (to the extent the cost of such repairs are
covered by insurance proceeds) and for the repair of damages
occasioned by the acts or omissions of Tenant, which Tenant shall
pay to Landlord in full. Landlord shall provide janitorial services
to the Demised Premises consistent with services provided to other
tenants of the Building.
7.2
Landlord
will arrange for the furnishing of electricity to the Demised
Premises and such electricity shall be separately metered to the
Demised Premises. Tenant shall pay all charges for electricity
directly to the utility company providing such service. Tenant, at
its sole cost and expense, shall be responsible for telephone
wiring and data, including hook-up costs to the Building’s
access point(s). By taking initial occupancy of the Demised
Premises, Tenant acknowledges that it is satisfied with the
adequacy and output of all the utilities and other services
provided by Landlord, including with the access provided by
Landlord thereto. Landlord makes no representations or warranties
with respect to the alarm system(s), if any, located in or about
the Demised Premises and Tenant acknowledges that any such alarm
system may be owned and operated by a third party.
7.3
Landlord
shall furnish the Demised Premises with (a) heat, ventilation and
air conditioning to the extent required for the occupancy of the
Demised Premises to standards of comfort and during such hours in
each case as reasonably determined by Landlord for the Building
(which hours, until Landlord shall otherwise designate, shall be
from 7:00 a.m. to 6:30 p.m. on weekdays and from 8:00 a.m. to 12:00
p.m. on Saturdays (as used herein, “normal business
hours”); in each case except holidays), or as may be
prescribed by any applicable policies or regulations adopted by any
utility or governmental agency. Landlord shall replace all burned
out fluorescent (only) tubes, ballasts and starters, at
Landlord’s expense. Landlord shall not be in default
hereunder or be liable for any damages directly or indirectly
resulting from, nor shall the rental herein reserved by abated by
reason of: (1) the installation, use or interruption of use of any
equipment in connection with the furnishing of any of the foregoing
services, (2) failure to furnish or delay in furnishing any such
services when such failure or delay is caused by accident or any
condition beyond the reasonable control of Landlord or by the
making of necessary repairs or improvements to the Demised Premises
or to the Building, or (3) any limitation, curtailment, rationing,
restriction on use of water, electricity, steam, gas or any other
form of energy serving the Demised Premises or the Building, or the
healthiness or quality thereof. Landlord shall use reasonable
efforts diligently to remedy any interruption in the furnishing of
such services.
7.4
After
normal business hours, Tenant shall reset the heating, ventilation
and air conditioning to such levels maintaining temperatures
between 65-75 degrees. Tenant shall notify Landlord in writing at
least twenty-four (24) hours prior to the time it requires heating,
ventilating and air conditioning during periods the same are not
otherwise furnished by Landlord. Notwithstanding the foregoing,
Landlord shall only be required to provide heating, ventilating and
air conditioning to the extent available utilizing the existing
equipment servicing the Building.
8.
Alterations and Repairs
.
8.1
Tenant
shall not make or suffer to be made any alterations, additions or
improvements to or of the Demised Premises or any part thereof, or
attach any fixtures or equipment thereto, without first obtaining
Landlord’s consent. All such alterations, additions and
improvements shall be performed by contractors and subject to
conditions specified by Landlord. If any such alterations,
additions or improvements to the Demised Premises consented to by
Landlord shall be made by Landlord for Tenant’s account,
Tenant shall reimburse Landlord for the cost thereof (including a
reasonable charge for Landlord’s overhead related thereto) as
the work proceeds within five (5) days after receipt of statements
therefor. All such alterations, additions and improvements shall
become the property of Landlord upon their installation and/or
completion and shall remain on the Demised Premises upon the
expiration or termination of this Lease without compensation to
Tenant unless Landlord elects by notice to Tenant to have Tenant
remove the same, in which event Tenant shall promptly restore the
Demised Premises to their condition after the installation of any
and all Landlord approved (in writing) alterations, additions and
improvements.
8.2
Subject
to the provisions of Section 8.1 hereof, Tenant shall keep the
Demised Premises and every part thereof in good condition, Tenant
hereby waiving all rights to make repairs at the expense of
Landlord or in lieu thereof to vacate the Demised Premises as
provided by any law, statute or otherwise now or hereafter in
effect. All repairs made by or on behalf of Tenant shall be made
and performed in such manner as Landlord may designate, by
contractors or mechanics approved by Landlord and in accordance
with the rules relating thereto annexed to this Lease as Exhibit
“C” and all applicable laws and regulations of
governmental authorities having jurisdiction. Tenant shall, subject
to the provisions of Section 9.1 hereof, at the end of the term
hereof surrender to Landlord the Demised Premises in the same
condition as when received, ordinary wear, damage by fire,
earthquake, act of God or the elements excepted. After completion
of the Improvements and delivery of the Demised Premises, Landlord
has no obligation and has made no promise to alter, remodel,
improve, repair, decorate or paint the Demised Premises or any part
thereof. No representations respecting the condition of the Demised
Premises or the Building have been made by Landlord to Tenant
except as expressly set forth herein.
Any
construction and/or mechanic’s lien filed against the Demised
Premises or the Building for work claimed to have been done or
materials claimed to have been furnished to Tenant shall be
discharged by Tenant within ten (10) days thereafter. For the
purposes hereof, the bonding of such lien by a reputable casualty
or insurance company reasonably satisfactory to Landlord shall be
deemed the equivalent of a discharge of any such lien. Should any
action, suit, or proceeding be brought upon any such lien for the
enforcement or foreclosure of the same, Tenant shall defend
Landlord therein, by counsel satisfactory to Landlord, and pay any
damages and satisfy and discharge any judgment entered therein
against Landlord.
10.
Destruction or Damage
.
10.1
In
the event the Demised Premises are damaged by fire, earthquake, act
of God, the elements or other casualty in each case insured against
by Landlord’s fire and extended coverage insurance policy
covering the Building and, if Landlord’s reasonable estimate
of the cost of making such repairs does not exceed the proceeds of
such insurance by more than One Hundred Thousand Dollars
($100,000), Landlord shall forthwith repair the same if such
repairs can, in Landlord’s opinion, be completed within
ninety (90) days after commencement of such repairs. This Lease
shall remain in full force and effect except that an abatement of
Basic Rental shall be allowed Tenant for such part of the Demised
Premises as shall be rendered unusable by Tenant in the conduct of
its business during the time such part is so unusable to the extent
Landlord is reimbursed therefor by loss of rental income or other
insurance. If such repairs cannot be made within ninety (90) days,
or if such damage or destruction is not insured against by
Landlord’s fire and extended coverage insurance policy
covering the Building or if Landlord’s reasonable estimate of
the cost of making such repairs exceeds the proceeds of such
insurance by more than One Hundred Thousand Dollars ($100,000),
Landlord may elect, upon notice to Tenant within thirty (30) days
after the date of such fire or other casualty, to repair or restore
such damage, in which event this Lease shall continue in full force
and effect, but the Basic Rental shall be partially abated as
provided in this Section 11.1. If Landlord elects not to make such
repairs, this Lease shall terminate as of the date of such election
by Landlord.
10.2
A
total destruction of the Building shall automatically terminate
this Lease.
10.3
If
the Demised Premises are to be repaired under this Article 11,
Landlord shall repair at its cost any injury or damage to the
Building itself and building standard tenant improvements in the
Demised Premises to be constructed or installed by Landlord as set
forth in Exhibit “B.” Tenant shall perform and pay the
cost of repairing any other improvement in the Demised Premises and
shall be responsible for carrying such casualty insurance as it
deems appropriate with respect to such other tenant
improvements.
Landlord and Tenant
shall each obtain from their respective insurers under all policies
of fire insurance maintained by either of them at any time during
the Term insuring or covering the Building or any portion thereof
or operations therein, a waiver of all rights of subrogation which
the insurer of one party might have against the other party, and
Landlord and Tenant shall each indemnify the other against any loss
or expense, including reasonable attorneys’ fees, resulting
from the failure to obtain such waiver and, so long as such waiver
is outstanding, each party waives, to the extent of the proceeds
received under such policy, any right of recovery against the other
party for any loss covered by the policy containing such waiver;
provided, however, that if at any time their respective insurers
shall refuse to permit waivers of subrogation, Landlord or Tenant,
in each instance, may revoke said waiver of subrogation effective
thirty (30) days from the date of such notice, unless within such
thirty (30) day period, the other is able to secure and furnish
(without additional expense) equivalent insurance with such waivers
with other companies satisfactory to the other party.
If all
or any part of the Demised Premises shall be taken as a result of
the exercise of the power of eminent domain, this Lease shall
terminate as to the part so taken as of the date of taking, and, in
the case of partial taking, either Landlord or Tenant shall have
the right to terminate this Lease as to the balance of the Demised
Premises by notice to the other within thirty (30) days after such
date; provided, however, that a condition to the exercise by Tenant
of such right to terminate shall be that the portion of the Demised
Premises taken shall be of such extent and nature as substantially
to handicap, impede or impair Tenant’s use of the balance of
the Demised Premises. In the event of any taking, Landlord shall be
entitled to any and all compensation, damages, income, rent,
awards, or any interest therein whatsoever which may be paid or
made in connection therewith, and Tenant shall have no claim
against Landlord for the value of any unexpired term of this Lease
or otherwise. In the event of a partial taking of the Demised
Premises which does not result in a termination of this Lease, the
rental thereafter to be paid shall be reduced on a per square foot
basis.
Landlord will
obtain and maintain, at all times until termination of this Lease
and surrender of the Demised Premises to Landlord, fire and
extended insurance covering the Building and the Demised premises,
including Common Areas, and all other improvements to the Building
made by Landlord but specifically excluding Tenant betterments
installed by Tenant and providing the insurance protection to
Landlord in amounts that Landlord deems appropriate. Landlord will
retain in its possession the original policy and all endorsements,
renewal certificates and new policies, if any, issued during the
term but will provide Tenant, upon request, with copies of said
policy or certificates of self insurance. Landlord will also
maintain comprehensive general liability insurance coverage against
claims for, or arising out of, bodily injury, death or property
damage occurring in, on or about the Building and the Demised
Premises or property in, on or about the street, sidewalks or
properties adjacent to the Building and the Demised Premises. The
policy shall carry limits, including coverage under umbrella
policies of not less than $500,000 per occurrence and $1,000,000
aggregate.
Tenant
shall indemnify Landlord and keep Landlord harmless from any
liability or claim for damages that may be asserted against
Landlord because of any accident or casualty occurring on or about
the Demised Premises. Tenant shall, at its own cost and expense,
obtain and keep in force a policy or policies of public liability
insurance with an insurance company approved by Landlord, with
liability coverage of not less than $500,000.00 for injury or death
to any one person, $1,000,000.00 for injury or death to more than
one person, and $250,000.00 for damage to property. Tenant shall
furnish Landlord with certificates or other evidence acceptable to
Landlord indicating that the insurance is in effect and providing
that Landlord shall be notified in writing at least 30 days before
cancellation of, any material change in, or renewal of the
policy.
Landlord shall
indemnify the Tenant and Tenant’s agents and save them
harmless from and against any and all claims, liability and expense
for damages to any personal property in, on or about the leased
premises arising out of the negligent acts or omissions of
Landlord, its employees or agents.
Notwithstanding
anything to the contrary contained elsewhere in this Lease, neither
Landlord nor Tenant shall be liable to the other or to any
insurance company (by way of subrogation or otherwise) insuring the
other party for any loss or damage to any building, structure or
other property or any resulting loss of income, or losses under
workers’ compensation laws and benefits, even though such
loss or damage might have been occasioned by the negligence of such
party, its agents or employees, if, and to the extent that, any
such loss or damage is covered by insurance which is maintained by
either party.
14.
Intentionally Deleted
.
15.
Compliance with Legal Requirements.
Tenant
shall promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or
which may hereafter be in force, with the requirements of any board
of fire underwriters or other similar body now or hereafter
constituted, with any occupancy certificate or directive issued
pursuant to any law by any public officer or officers, as well as
the provisions of all recorded documents affecting the Demised
Premises, insofar as any thereof relate to or affect the condition,
use or occupancy of the Demised Premises, excluding requirements of
structural changes not related to or affected by improvements made
by or for Tenant or not necessitated by Tenant’s
act.
16.
Assignment and Subletting
.
Tenant
shall not assign or transfer this Lease, mortgage the same, or
sublet said Demised Premises, or any part thereof, without the
prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing,
Tenant shall have the right to assign or sublet the Demised
Premises, or any portion thereof, in the event of:
a) a sale of
fifty percent (50%) or more of the capital or voting stock of
Tenant (if Tenant is a non-public corporation); or
b) transfers
aggregating fifty percent (50%) or more of Tenant’s
partnership interest (if Tenant is a partnership); or
c) transfers
aggregating fifty percent (50%) or more of the ownership interest
of Tenant (if Tenant shall be a limited liability company or other
legal entity); or
d) transfer of
fifty percent (50%) or more of the assets of Tenant;
or
e) the merger
of Tenant into an acquiring entity.
In any
such event, Tenant shall not be required to seek permission of
Landlord for the assignment of the Lease to the acquiring entity
under terms as described herein.
In the
event that Tenant shall request the consent of Landlord to any
assignment or subletting, then Tenant shall pay Landlord’s
reasonable fees and processing fees incurred in connection
therewith.
Tenant
shall faithfully observe and comply with the rules and regulations
annexed to this Lease as Exhibit “C” and, after notice
thereof, all reasonable modifications thereof and additions thereto
from time to time promulgated in writing by Landlord. Landlord
shall uniformly enforce all rules and regulations.
18.1
Landlord
and its designees may enter the Demised Premises at reasonable
hours to (a) inspect the same, (b) exhibit the same to prospective
purchasers, lenders or tenants, (c) determine whether Tenant is
complying with all of its obligations hereunder, (d) supply
janitor service consistent with such services provided to other
tenants of the Building and supply other services, (e) post notices
of nonresponsibility, and (f) make repairs required of Landlord
under the terms hereof or repairs to any adjoining space or utility
services or make repairs, alterations or improvements to any other
portion of the Building; provided, however, that all such work
shall be done as promptly as reasonably possible. Notwithstanding
anything contained herein to the contrary, certain rooms within the
Demised Premises as designated by Tenant shall have limited access
and may only be entered with prior notice by Landlord’s
building manager (except in the event of an
emergency).
18.2
Landlord
shall at all times have and retain a key with which to unlock all
of the doors in, on or about the Demised Premises (excluding
Tenant’s vaults, safes and similar areas designated in
writing by Tenant in advance); and Landlord shall have the right to
use any and all means which Landlord may deem proper to open said
doors in any emergency in order to obtain entry to the Demised
Premises, and any entry to the Demised Premises obtained by
Landlord by any of said means, or otherwise, shall not under any
circumstances be construed or deemed to be a forcible or unlawful
entry into or a detainer of the Demised Premises or an eviction,
actual or constructive, of Tenant from the Demised Premises, or any
portion thereof
19.1
Subject
to Tenant’s Right to Cure after notice, the occurrence of any
one or more of the following events (hereinafter referred to as
“Events of Default”) shall constitute a breach of this
Lease by Tenant: (a) if Tenant shall fail to pay the Basic Rental
within five (5) days of the date same becomes due and payable; or
(b) if Tenant shall fail to pay any other sum when and as the same
becomes due and payable and such failure shall continue for more
than ten (10) days; or (c) if Tenant shall fail to perform or
observe any other term hereof or of the rules and regulations
referred to in Article 18 hereof to be performed or observed by
Tenant, such failure shall continue for more than thirty (30) days
after notice thereof from Landlord, and Tenant shall not within
such thirty (30) day period commence with due diligence and
dispatch the curing of such default, or, having so commenced, shall
thereafter fail or neglect to prosecute or complete with due
diligence and dispatch the curing of such default; or (d) if Tenant
shall make a general assignment for the benefit of creditors, or
shall admit in writing its inability to pay its debts as they
become due or shall file a petition in bankruptcy, or shall be
adjudicated as insolvent or shall file a petition in any proceeding
seeking any reorganization, arrangements, composition,
readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, or shall file an
answer admitting or fail timely to contest or acquiesce in the
appointment of any trustee, receiver or liquidator of Tenant or any
material part of its properties; or (e) if within ninety (90) days
after the commencement of any proceeding against Tenant seeking any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceeding shall not have
been dismissed, or if, within ninety (90) days after the
appointment without the consent of acquiescence of Tenant, of any
trustee, receiver or liquidator of Tenant or of any material part
of its properties, such appointment shall not have been vacated; or
(g) if this Lease or any estate of Tenant hereunder shall be levied
upon under any attachment or execution and such attachment or
execution is not vacated within ten (10) days.
If any
of the Events of Default shall occur, then Landlord shall have the
following remedies:
(a)
Landlord
at any time after the Event of Default, at Landlord’s option,
may give to Tenant seven (7) days’ notice of termination of
this Lease, and in the event such notice is given, this Lease shall
come to an end and expire (whether or not the Term shall have
commenced) upon the expiration of such three (3) days, but Tenant
shall remain liable for damages as provided in Article 22
hereof.
(b)
After
terminating this Lease, Landlord may immediately or at any time
after the Event of Default or after the date upon which this Lease
shall expire, reenter the Demised Premises or any part thereof,
without notice, either by summary proceedings or by any other
applicable action or proceeding, or by force or otherwise (without
being liable to indictment, prosecution or damages therefor), and
may repossess the Demised Premises and remove any and all of
Tenant’s property and effects from the Demised
Premises.
(c)
Either
with or without terminating this Lease, Landlord may relet the
whole or any part of the Demised Premises from time to time, either
in the name of Landlord or otherwise, to such tenant or tenants,
for such term or terms ending before, on or after the Expiration
Date, at such rental or rentals and upon such other conditions,
which may include concessions and free rent periods, as Landlord,
in its sole discretion, may determine. In the event of any such
reletting, Landlord shall not be liable for the failure to collect
any rental due upon any such reletting, and no such failure shall
operate to relieve Tenant of any liability under this Lease or
otherwise to affect any such liability; and Landlord may make such
repairs, replacements, alterations, additions, improvements,
decorations and other physical changes in and to the Demised
Premises as Landlord, in its sole discretion, considers advisable
or necessary in connection with any such reletting or proposed
reletting, without relieving Tenant of any liability under this
Lease or otherwise affecting such liability.
(d)
Landlord
shall have the right to recover the rental and all other amounts
payable by Tenant hereunder as they become due (unless and until
Landlord has terminated this Lease) and all other damages incurred
by Landlord as a result of an Event of Default.
(e)
The
remedies provided for in this Lease are in addition to any other
remedies available to Landlord at law or in equity by statute or
otherwise.
(f)
For
purposes hereof, any default by Tenant may be cured by payment or
performance by Tenant.
21.
Termination upon Default
.
Upon
termination of this Lease by Landlord pursuant to Article 21
hereof, Landlord shall be entitled to recover from Tenant the
aggregate of: (a) the worth at the time of award of the unpaid
rental which had been earned at the time of termination; (b) the
worth at the time of award of the amount by which the unpaid rental
which would have been earned after termination until the time of
award exceeds the then reasonable rental value of the Demised
Premises during such period; (c) the worth at the time of the award
of the amount by which the unpaid rental for the balance of the
term of this Lease after the time of award exceeds the reasonable
rental value of the Demised Premises for such period; and (d) any
other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant’s failure to perform its
obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom. The “worth at the
time of award” of the amounts referred to in clauses (a) and
(b) above is computed from the date such rent was due or would have
been due, as the case may be, by allowing interest at the rate of
two percent (2%) in excess of the prime rate as published in The
Wall Street Journal or, if a higher rate is legally permissible, at
the highest rate legally permitted. The “worth at the time of
award” of the amount referred to in clause (c) above is
computed by discounting such amount at the discount rate of the
Federal Reserve Bank of Chicago at the time of award, plus one
percent (1%).
22.
Landlord’s Right to Cure Defaults
.
All
covenants, terms and conditions to be performed by Tenant under any
of the terms of this Lease shall be at its sole cost and expense
and without any abatement of rental. If Tenant shall fail to
perform any other act on its part to be performed hereunder and
such failure shall continue for thirty (30) days after notice
thereof by Landlord, Landlord may, but shall not be obligated so to
do, and without waiving or releasing Tenant from any obligations of
Tenant, make perform any such other act on Tenant’s part to
be made or performed as in this Lease provided. All sums so paid by
Landlord and all necessary incidental costs shall be deemed
additional rental hereunder and shall be payable to Landlord on
demand, and Landlord shall have (in addition to any other right or
remedy of Landlord) the same rights and remedies in the event of
the nonpayment thereof by Tenant as in the case of default by
Tenant in the payment thereof by Tenant as in the case of default
by Tenant in the payment of Basic Rental.
If
either party uses the services of an attorney in connection with
(i) any breach or default in the performance of any of the
provisions of this Lease, in order to secure compliance with such
provisions or recover damages therefor, or to terminate this Lease,
or (ii) any action brought by Tenant against Landlord or Landlord
against Tenant, the non-prevailing party shall reimburse the
prevailing party upon demand for any and all attorneys’ fees
and expenses so incurred by the prevailing party.
24.1
This
Lease is and shall be subject and subordinate, at all times, to (a)
the lien of any mortgage or mortgages which may now or hereafter
affect the Building, and to all advances made or hereafter to be
made upon the security thereof and to the interest thereon, and to
any agreements at any time made modifying, supplementing, extending
or replacing any such mortgages, and (b) any ground or underlying
lease which may now or hereafter affect the Building, including all
amendments, renewals, modifications, consolidation, replacements
and extensions thereof, provided any future mortgagee agrees not to
disturb Tenant’s tenancy and to recognize this Lease so long
as Tenant is not in default hereunder. Tenant shall attorn to any
such mortgagee and/or ground or underlying lessor upon the date it
acquires title to the Building. Tenant shall not have the right or
option to terminate this Lease in the event title to the Building
is acquired by such mortgagee or lessor. Provided Tenant is not in
default, any such mortgagee acquiring title to the Building through
foreclosure, exercise of a power of sale or deed in lieu of
foreclosure shall, upon acquiring title to the Building, accept
this Lease on all of its terms and conditions. Notwithstanding the
foregoing, at the request of the holder of any of the aforesaid
mortgage or mortgages or the lessor under the aforesaid ground or
underlying lease, this Lease may be made prior and superior to such
mortgage or mortgages and/or such ground or underlying
lease.
24.2
At
the request of Landlord, Tenant shall execute and deliver such
further instruments as may be reasonably required to implement the
provisions of this Article 25. Tenant hereby irrevocably, during
the term of this Lease, constitutes and appoints Landlord as
Tenant’s agent and attorney-in-fact to execute any such
instruments if Tenant shall failure or refuse to execute the same
within ten (10) days after notice from Landlord.
The
voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation hereof, shall not work a merger, and shall, at the
option of Landlord, terminate all or any existing subleases or
subtenancies, or may, at the option of Landlord, operate as an
assignment to it of any or all such subleases or
subtenancies.
26.
Nonliability of Landlord
If
Landlord shall fail to perform any covenant, term or condition of
this Lease upon Landlord’s part to be performed, and, if as a
consequence of such default, Tenant shall recover a money judgment
against Landlord, such judgment shall be satisfied only against the
right, title and interest of Landlord in the building and out of
rents or other income from the building receivable by Landlord, or
out of the consideration received by Landlord from the sale or
other disposition of all or any part of Landlord’s right,
title and interest in the Building, and neither Landlord nor any of
the members or partners of Landlord shall be liable for any
deficiency.
27.
Estoppel Certificate
.
At any
time and from time to time upon ten (10) days’ prior request
by Landlord, Tenant will promptly execute, acknowledge and deliver
to Landlord, a certificate indicating (a) that this Lease is
unmodified and in full force and effect (or, if there have been
modifications, that this Lease is in full force and effect, as
modified, and stating the date and nature of each modification),
(b) the date, if any, to which rental and other sums payable
hereunder have been paid, (c) that no notice has been received by
Tenant of any default which has not been cured, except as to
defaults specified in said certificate, and (d) such other matters
as may be reasonably requested by Landlord. Any such certificate
may be relied upon by any prospective purchaser, mortgagee or
beneficiary under any deed of trust of the Building or any part
thereof.
28.
No
Light
,
Air
or View Easement
.
Any
diminution or shutting off of light, air or view by any structure
which may be erected on lands adjacent to the Building shall in no
way affect this Lease or impose any liability on
Landlord.
It is
hereby agreed that in the event of Tenant holding over after the
termination of this Lease in violation of the Lease, thereafter the
tenancy shall be treated as a tenancy from month to month in the
absence of a written agreement to the contrary, and Tenant shall
pay to Landlord a daily occupancy charge equal to seven percent
(7%) of the monthly rental under Paragraph 5 hereof for the last
lease year (plus all other charges payable by Tenant under this
Lease) for each day from the expiration or termination of this
Lease until the date the Demised Premises are delivered in the
condition required herein, and Landlord’s right to damages
for such illegal occupancy shall survive.
If
Tenant shall abandon or surrender the Demised Premises, or be
dispossessed by process of law or otherwise, any personal property
belonging to Tenant and left on the Demised Premises shall be
deemed to be abandoned, or, at the option of Landlord, may be
removed by Landlord at Tenant’s expense.
Upon
the execution of this Lease, Tenant has deposited with Landlord the
“Deposit” in the amount set forth in Section 1 hereof.
The Deposit shall be held by Landlord as security for the faithful
performance by Tenant. If Tenant fails to pay rent or other charges
due hereunder, or otherwise defaults with respect to any provision
of this Lease, Landlord may, but shall have no obligation to, use,
apply or retain all or any portion of the Deposit for the payment
of any rent or other charge in default or for the payment of any
other sum to which Landlord may become obligated by reason of
Tenant’s default, or to compensate Landlord for any loss or
damage which Landlord may suffer thereby. If Landlord so uses or
applies all or any portion of the Deposit, Tenant shall within ten
(10) days after demand therefor deposit cash with Landlord in an
amount sufficient to restore the deposit to the full amount
thereof. Landlord shall not be required to keep the deposit
separate from its general accounts. If Tenant performs all of
Tenant’s obligations hereunder, the Deposit or so much
thereof as has not theretofore been applied by Landlord, shall be
returned, without payment of interest or other increment for its
use, to Tenant (or, at Landlord’s option, to the last
assignee, if any, of Tenant’s interest hereunder) at the
expiration of the Term, and after Tenant has vacated the Demised
Premises.
The
waiver by Landlord of any agreement, condition or provision herein
contained shall not be deemed to be a waiver of any subsequent
breach of the same or any other agreement, condition or provision
herein contained, nor shall any custom or practice which may grow
up between the parties in the administration of the terms hereof be
construed to waive or to lessen the right of Landlord to insist
upon the performance by Tenant of the terms hereof in strict
accordance with said terms. The subsequent acceptance of rental
hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any agreement, condition or provision
of this Lease, other than the failure of Tenant to pay the
particular rental so accepted, regardless of Landlord’s
knowledge of such preceding breach at the time of acceptance of
such rental.
All
notices, consents, requests, demands, designations or other
communications which may or are required to be given by either
party to the other hereunder shall be in writing and shall be
deemed to have been duly given when personally delivered or
deposited in the United States mail, certified or registered,
postage prepaid, and addressed as follows: to Tenant at the address
set forth in section 1(l) hereof, or to such other place as Tenant
may from time to time designate in a notice to Landlord; to
Landlord at the address set forth in Section 1(m) hereof, or to
such other place as Landlord may from time to time designate in a
notice to Tenant; or, in the case of Tenant, delivered to Tenant at
the Demised Premises.
There
are no oral agreements between Landlord and Tenant affecting this
Lease, and this Lease supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements and
understandings, if any, between Landlord and Tenant or displayed by
Landlord to Tenant with respect to the subject matter of this Lease
or the Building. There are no representations between Landlord and
Tenant other than those contained in this Lease and all reliance
with respect to any representations is solely upon such
representations.
35.
Corporate Authority
.
If
Tenant signs as a corporation, each of the persons executing this
Lease on behalf of Tenant does hereby covenant and warrant that
Tenant is a fully authorized and existing corporation, that Tenant
has and is qualified to do business in Michigan, that the
corporation has full right and authority to enter into this Lease,
and that each and all of the persons signing on behalf of the
corporation are authorized to do so.
36.
Inability to Perform
.
If, by
reason of the occurrence of unavoidable delays due to acts of God,
governmental restrictions, strikes, labor disturbances, shortages
of materials or supplies or for any other cause or event beyond
Landlord’s reasonable control, Landlord is unable to furnish
or is delayed in furnishing any utility or service required to be
furnished by Landlord under the provisions of Article 8 hereof or
any other provisions of this Lease or any collateral instrument, or
is unable to perform or make or is delayed in performing or making
any installations, decorations, repairs, alterations, additions, or
improvements, whether required to be performed or made under this
Lease or under any collateral instrument, or is unable to fulfill
or is delayed in fulfilling any of Landlord’s other
obligations under this Lease or any collateral instrument, no such
inability or delay shall constitute an actual or constructive
eviction in whole or in part, or entitle Tenant to any abatement or
diminution of rental or other charges due hereunder or relieve
Tenant from any of its obligations under this Lease, or impose any
liability upon Landlord or its agents by reason of inconvenience or
annoyance to Tenant, or injury to or interruption of Tenant’s
business, or otherwise.
37.
Covenant of Quiet Enjoyment
.
So long
as Tenant pays rent and otherwise complies with the Lease,
Tenant’s possession of the Premises will not be disturbed by
Landlord, its successors or assigns, and Tenant shall be entitled
to quiet enjoyment of the Demised Premises.
38.1
The
words “Landlord” and “Tenant” as used
herein shall include the plural as well as the singular. If there
be more than one Tenant, the obligations hereunder imposed upon
Tenant shall be joint and several.
38.2
Submission
of this instrument for examination or signature by Tenant does not
constitute a reservation of or option for lease, and it is not
effective as a lease or otherwise until execution and delivery by
both Landlord and Tenant.
38.3
The
agreements, conditions and provisions herein contained shall,
subject to the provisions as to assignment, set forth in Article 17
hereof, apply to and bind the heirs, executors, administrators,
successors and assigns of the parties hereto.
38.4
Tenant
shall not without the consent of Landlord, use the name of the
Building for any purpose other than as the address of the business
to be conducted by Tenant in the Demised Premises. Landlord
reserves the right to select the name of the Building and to make
such changes of name as it deems appropriate from time to
time.
38.5
If
any provisions of this Lease shall be determined to be illegal or
unenforceable, such determination shall not affect any other
provisions of this Lease and all such other provisions shall remain
in full force and effect.
38.6
This
Lease shall be governed by and construed pursuant to the laws of
the State of Michigan.
IN WITNESS WHEREOF
, the parties hereto
have executed this Lease as of the date set forth in Section
1(a).
GREEN
COURT LLC,
a
Michigan limited liability company
By:
/s/ James D.
Hooberman
Name:
James D. Hooberman
Its:
Member
“LANDLORD”
ENDRA
INC.,
a
Delaware corporation
By:
/s/ Michael
Thornton
Name:
Michael Thornton, President
“TENANT”
EXHIBITS:
A
— Floor Plan
B
— List of Improvements
C
— Rules and Regulations
EXHIBIT A
FLOOR PLAN (attachment
)
EXHIBIT B
LIST OF IMPROVEMENTS
Prior to delivery of possession by Landlord to
Tenant, Landlord, at Landlords sole cost and expense, shall
construct the Demised Premises, as outlined on floor plan attached
as Exhibit B and complete the improvements set forth below
.
Landlord to pay for all clean up
associated with stated improvements
.
1
.
Remove
and replace carpeting with building standard
materials
.
2
.
Install
Anti-Static Flooring in location on Plan
3
.
Replace
Lay-in Light Fixtures with Parabolic Lens
Fixtures
4
.
Install
Fan
(
minimum 350cfm
)
In Lab and Out To
Roof
5
.
Install
New Cabinets In Lunch Room w/ Formica Tops
6
.
Move
Sink In Lunch Room and Install Two New Dedicated
Circuits
7
.
Install
Four New Solid Core Single Doors and One Solid Core Double
Door
8
.
Install
One New Step Down Transformer -240 V a/a Single NEMA
Receptacle
9
.
East
Wall-Install One Run of Exterior Mounted Electrical
Supply
10
.
Labor and Material For Demolition
and Carpentry Per Plan
11
.
Paint Entire Office
Walls
12
.
Clean Up of
Space
Notwithstanding anything contained in the
Lease to the contrary, Tenant’s obligation for payment of
rent and any and all expenses hereunder shall be limited to Basic
Rent as outlined in Article 1 of the Lease
.
EXHIBIT C
RULES AND REGULATIONS
Tenant
shall comply with the following schedule of rules and regulations
and take such actions as are necessary to ensure compliance by its
agents, contractors and invitees. All rules and regulations set
forth in this schedule shall be in addition to, and shall in no way
limit, the provisions of the Lease.
1.
The
common areas of the Building shall not be used for any purposes
other than those for which they are designated by
Landlord.
2.
Landlord
has the right to control access to the Building and refuse access
to any person who does not have satisfactory
identification.
3.
Soliciting,
peddling and canvassing is prohibited in the Building.
4.
Vending
machines may be operated in the Demised Premises, but not in the
other portions of the Building or in the Common Areas.
5.
Except
as otherwise provided in the Lease, nothing shall be attached to
the interior or exterior of the Building.
6.
No
bicycles, vehicles or animals of any kind (other than wheelchairs
and seeing-eye dogs) shall be brought into the
Building.
7.
No
marking, drilling, boring, cutting or defacing of the walls, floors
or ceilings of the Building (other than the hanging of art work,
diplomas and similar objects) shall be permitted, except as
expressly provided to the contrary in the Lease.
8.
The
toilets and other plumbing fixtures shall not be used for any
purpose other than that for which they are designed.
9.
Smoking
is prohibited outside the Building near the entry and exit ways, or
in any other areas designed by Landlord.
10.
Do
not obstruct sidewalks, entrances, halls, elevators or stairways in
or about the Building.
11.
Do
not place objects against glass partitions, doors or windows, which
may be unsightly from the Building’s corridors, or from other
areas of the Building.
12.
Except
as set forth in the Lease, do not install or change locks without
providing Landlord copies of the new keys simultaneously
therewith.
13.
Machinery
or mechanical devices which are not directly related to
Tenant’s ordinary use of the Demised Premises shall not be
installed or operated.
14.
Landlord
shall not be responsible for any lost or stolen money or
property.
15.
The
Demised Premises shall not be used for sleeping or for any immoral
or illegal purpose.
16.
Building
windows may be cleaned at any time.
17.
Landlord
must approve any contractor rendering any service in the Demised
Premises before performance of any contractual services. All
contractors must have a certificate of insurance on file with
Landlord. No contractor shall interfere with other work being
performed at the Development, nor allow its employees or agents to
interfere with such work.
18.
Tenants
must not unreasonably annoy other tenants in the Building, by
excess noise or otherwise, within any such tenant’s demised
premises.
19.
Parking
Regulations:
(a)
Vehicles
WILL NOT park in the designed “Reserved” spaces, unless
they are reserved for the tenant, its employees or invitees
pursuant to a written agreement between the tenant and Landlord.
There will be no parking in any area of the Development other than
those areas clearly marked and defined for parking.
(b)
Parking
will be on the basis of first-come, first-served except for
reserved spaces.
(c)
Parkers
will be expected to park their vehicles in an orderly manner within
the marked stalls provided.
(d)
It
is recommended that vehicles be left in a “brakes on, doors
locked” condition at all times.
(e)
No
vehicles will be allowed to park in any driveway area or in any
manner which will interfere with the normal flow of
traffic.
(f)
Vehicles
parked illegally will be towed at the vehicles owner’s
expense.
(g)
Tenant
agrees that all its employees have been fully informed as to the
content of these regulations.
(h)
Landlord
or Landlord’s agents and employees shall not be liable for
and Tenant waives all claims through Tenant resulting from any
accident or occurrence in and upon the parking area.
(i)
All
vehicles parked in the parking areas shall be in good condition and
repair, driven and handled at the risk of the owner.
(j)
Vehicle
owner or owner’s agents shall not wash, wax or otherwise
clean or prep the interior/exterior of vehicles or perform any
maintenance whatsoever on vehicles within the parking area or on
any part of the parking lot servicing the Building.
(k)
In
the event that vehicle owner’s use of the parking area
violates any local, county or state law, regulation or ordinance,
automobile owner’s right to utilize the parking area shall
immediately cease.
(l)
Parking
areas shall not be used to store vehicles or for parking unduly
large commercial or recreational vehicles. Notwithstanding the
foregoing, Tenant may park its delivery trucks in the parking areas
overnight and/or over weekends in the normal course of its business
operations.
20.
The
rules and regulations must be observed unless they are waived in
writing by Landlord.
21.
Landlord
shall have the right to make other reasonable rules from time to
time.
Tenant
shall be responsible for the observance of all the foregoing rules
and regulations by Tenant’s agents, contractors and invitees.
Landlord shall not be responsible for any violation of the
foregoing rules and regulations by other tenants of the Building
and shall have no obligation to enforce the same against other
tenants. Landlord shall have the right to amend these rules and
regulations from time to time in accordance with the terms of the
Lease.
Endra-Optosonics
Sublicense
Exhibit 10.19
SUBLICENSE AGREEMENT
This Sublicense Agreement (“Agreement”) is entered as
of the 2nd day of August, 2007 (“Effective Date”) by
and between Optosonics, Inc. (“Optosonics”), a Delaware
Corporation, with a place of business at 351 West 10
th
Street, Suite 250,
Indianapolis, Indiana and Endra, Inc. (“Endra”), a
Massachusetts corporation with a place of business at 222 Berkeley
Street, Boston, Massachusetts
02116.
WHEREAS, Optosonics is the exclusive licensee of the patents and
applications set forth in Exhibit A which is attached to and made a
part of this Agreement; and
WHEREAS, Optosonics and Sentron
executed
a license agreement dated May 16, 2003 (“2003
Agreement”) attached to and made a part of this Agreement as
Exhibit B; and
WHEREAS, the 2003 Agreement was amended March 22, 2007 which
amendment is attached to and made a part of this Agreement as
Exhibit C; and
WHEREAS, Optosonics wishes to grant to Endra an exclusive
sublicense to the patent applications and patents set forth
i
n Exhibit A within the Field (as defined below)
an
d Endra wishes to accept such
grant.
WHEREAS, a consent
to sublicense required by the 2003 Agreement has been executed by
Sentron, and Optosonics and Sentron have further amended this
Agreement, as an inducement to Optosonics to enter this Agreement,
by providing for the survival of the sublicense granted by this
Agreement if the 2003 Agreement is terminated and other matters
which consent and amendment are attached to and made a part of this
Agreement as Exhibit D; and
NOW, THEREFORE, the parties agree as follows:
1
.
Definitions.
Whenever used in this Agreement, the terms defined in this Section
1 shall have the meanings specified.
1
.1
“Affiliate”
means any corporation or other legal
entity owning, directly or indirectly, fifty percent (50%) or more
of the voting capital shares or similar voting securities of Endra
or Optosonics; any corporation or other legal entity fifty percent
(50%) or more of the voting capital shares or similar voting rights
of which is owned, directly or indirectly, by Endra or Optosonics
or any corporation or other legal entity fifty percent (50%) or
more of the voting capital shares or similar voting rights of which
is owned, directly or indirectly, by a corporation or other legal
entity which owns, directly or indirectly, fifty percent (50%) or
more of the voting capital shares or similar voting securities of
Endra or Optosonics.
1
.2
“Field”
means development and
comme
rcialization with respect to ph
oto-acoustic and thermo-acoustic imaging devices
and methods for the diagnosis, prevention and treatment of all
disease states in human beings and animals with the exception of
all applications involving the human breast.
1
.3
“Technology”
means and includes all materials,
technology, technical information, know-how, expertise and trade
secrets
within the Field owned
by Optosonics or licensed to Optosonics as of the Effective Date,
if any, which are conveyed to Endra during the term of this
Agreement.
1
.4
“Confidential
Information”
means all
information about any element of the Technology or its development
which is disclosed by either party to the other and designated
“Confidential” in writing by the disclosing party at
the time of disclosure to the extent that such information as of
the date of disclosure is not (i) known to the receiving party
other than by virtue of a prior confidential disclosure by the
disclosing party; or (ii) disclosed in published literature, or
otherwise generally known to the public through no fault or
omission of the receiving party; or (iii) obtained from a third
party free from any obligation of confidentiality to the disclosing
party.
Endra-Optosonics
Sublicense
1
.5
“Valid
Claim”
means a claim
within Patent Rights so long as such claim shall not have been
disclaimed by Sentron, Optosonics and Endra, or shall not have been
held invalid in a final decision rendered by a tribunal of
competent jurisdiction from which no appeal has been or can be
taken.
1
.6
“Patent
Rights”
shall mean the
Valid Claims of the patents and patent applications listed in
Exhibit A, and patents issuing on them, including any division,
continuation, continuation-in-part, renewal, extension,
re-examination, reissue or foreign counterpart
thereof.
1
.7
“Product”
means any product in the Field, the
manufacture use, sale, offer for sale or import of which would
infringe Patent Rights in the absence of a
license.
1
.8
"
Net Sales
" means the gross amount invoiced by Endra, its
Affiliates, or any sublicensee of Endra for sales to a third party
or parties of
Products, less
normal and customary trade discounts actually allowed, rebates,
returns, credits, taxes the legal incidence of which is on the
purchaser and separately shown on Endra's or any sublicensee of
Endra's invoices and transportation, insurance and postage charges,
if prepaid by Endra or any sublicensee of Endra and billed on
Endra's or any sublicensee of Endra's invoices as a separate
item.
Endra-Optosonics
Sublicense
2
.
Grant of Sublicenses, Term,
Rights and Obligations.
2
.1
Sublicense
Granted to Endra under the Patent Rights and Technology.
Optosonics, with the consent of its
licensor, Sentron, hereby grants to Endra an exclusive, worldwide
license, including the right to grant sublicenses, without
limitation, to manufacture, use, sell, import and offer for sale
Products under all Optosonics's right, title and interest in the
Patent Rights and Technology
(“License”).
2
.2
Term of
License
. Unless terminated
earlier as provided below, the License shall commence on the
Effective Date and shall terminate on the expiration of the last to
expire of the Patent Rights.
2
.3
Endra
Obligations:
2
.3
.1
Endra shall attempt to exploit
Products commercially employing similar effort to that applied in
the industry to other products similarly situated by other entities
of the same size possessing similar financial
resources.
2
.3
.2
If Endra grants a sublicense
pursuant to Section
2.1,
Endra shall guarantee that any
sublicensee fulfills all of Endra’s obligations under this
Agreement; provided, however, that, to the extent that sublicensee
fails to fulfill Endra’s obligations under this agreement,
Endra shall not be relieved of its obligations pursuant to this
Agreement.
2
.4
Technical
Assistance.
Optosonics shall
provide to Endra, or sublicensees of Endra, at Endra’s
request and expense, any technical assistance reasonably necessary
to enable Endra or such sublicensee to manufacture, use or sell
each Product to enjoy fully all the rights granted to Endra
pursuant to his Agreement.
Endra shall compensate Optosonics for such
services at such reasonable hourly or per diem rates as Optosonics
may establish from time to time. Optosonics obligation under this
Section 2.4 shall be limited so that it is not unduly disruptive of
its other business activities.
Endra-Optosonics
Sublicense
3
.
Royalties, Payments of
Royalties, Account Records, Other Payments.
3
.1
Patent
Rights
. Endra shall pay
Optosonics a royalty based on the Net Sales of each Product. Such
royalty shall be paid with respect to each country of the world
from the date of the first commercial sale to a third party (the
date of the invoice) of Endra on any Product in each such country
until the expiration of the last Patent Right to expire with
respect to each country and each such Product.
3
.2
Royalty
Rates
. Endra shall pay the
royalties described above at the rates of three percent (3%) of Net
Sales for human applications and four and one-half of one percent
(4.5%) of Net Sales for all other applications.
3
.3
Payment
Dates.
Royalties shall be paid
by Endra on Net Sales within sixty (60) days after the end of each
calendar quarter in which such Net Sales are
made
. Such
payments shall be accompanied by a statement
showing the Net Sales of each Product by Endra
and each
sublicensee of
Endra, respectively,
in each country, the applicable royalty rate for
such
Net
Sales
, and a calculation of the
amount of royalty due.
3
.4
Accounting.
The Net Sales used for computing the royalties
payable to Optosonics by Endra shall be computed and paid in U.S.
dollars by wire transfer. For purposes of determining the amount of
royalties due, the amount of Net Sales in any foreign currency
shall be computed by (a) converting such amount into dollars at a
rate equal to the prevailing commercial rate of exchange for
purchasing dollars with such foreign currency as published in
the
Wall Street
Journal
for the close of the
last business day of the calendar quarter for which the relevant
royalty payment is to be made by Endra and (b) deducting the amount
of any governmental tax, duty, charge, or other fee actually paid
in respect of such conversion into, and remittance of
dollars.
Endra-Optosonics
Sublicense
3
.5
Records.
Endra shall keep for three (3) years from the date
of each payment of royalties complete and accurate records of sales
by
Endra, its Affiliates and
sublicensees
of each Product in
sufficient detail to allow the accruing royalties to be determined
accurately. Optosonics shall have the right for a period of three
(3) years after receiving any report or statement with respect to
royalties due and payable to appoint at its expense an independent
certified public accountant reasonably acceptable to Endra to
inspect the relevant records of Endra to verify such report or
statement. Endra shall make its records available for inspection by
such independent certified public accountant during regular
business hours at such place or places where such records are
customarily kept, upon reasonable notice from Optosonics, to verify
the accuracy of the reports and payments. Such inspection right
shall not be exercised more than once in any calendar year nor more
than once with respect to sales in any given period. Optosonics
agrees to hold as Confidential Information all information
concerning royalty payments and reports, and all information
learned in the course of any audit or inspection, except to the
extent necessary for Optosonics to reveal such information in order
to enforce its rights under this Agreement or if disclosure is
required by law. The failure of Optosonics to request verification
of any report or statement during said three-year period shall be
considered acceptance of the accuracy of such report, and Endra
shall have no obligation to maintain records pertaining to such
report or statement beyond said three-year period. The results of
each inspection, if any, shall be binding on both parties.
Should the results of inspection
require a correction in favor of Optosonics of more than 5% of the
royalties credited by Endra to Optosonics for any 12 month period,
Endra shall (in addition to promptly paying such deficiency) pay
interest at 6% per annum for the period during which such payment
was delinquent
and shall reimburse Optosonics for the costs
of inspection
. Should the results of
inspection not require a correction in favor of Optosonics of more
than 5% of the royalties credited by Endra to Optosonics for any 12
month period, Optosonics shall reimburse Endra for the costs of
inspection.
Endra-Optosonics
Sublicense
3
.6
Additional
Payments and Expenditures
.
3
.6
.1
License Fee. Endra shall pay
Optosonics a license fee of one hundred thousand dollars
($100,000.00) upon execution of this Agreement by Optosonics less
five thousand dollars ($5,000.00) previously paid by Endra to
Optosonics.
3
.6
.2
Sales Milestone. If aggregate
Net Sales for all Products during the term reach twenty-five
million
dollars ($25,000,000.00), Endra
shall pay Optosonics the sum of two hundred fifty thousand dollars
($250,000.00) no later than January 31 of the year following this
occurrence. This payment shall be made only once
and shall be in
addition to any other payments due under this
Agreement
.
3
.6
.3
Diligence
Expenditures.
(i
)
The
diligence requirement described in Section 2.3.1 will be fulfilled
for the first year of the term of
this Agreement, if
during such
year
Endra
spends five hundred thousand dollars ($500,000.00) on the
development of one or more
Products. This sum shall be
determined by including all direct and indirect costs
reasonably related to
the development of Products and all sums paid to Optosonics under
the Research and Development Agreement ("R&D Agreement"). Endra
shall report such expenditures in reasonable detail to Optosonics
promptly following the first year of the term.
Endra-Optosonics
Sublicense
(ii
)
The
diligence requirement will likewise be satisfied if Endra installs
a prototype of any Product for any third party within twenty-four
(24) months of the Effective Date.
(iii
)
The
diligence requirement will likewise be satisfied if Endra makes a
commercial sale of any Product to any third party no later than
forty-two (42) months from the Effective Date.
(iv
)
Failure
to
make the expenditure
described in (i) or the installations described in (ii) or (iii)
will be Events of Termination described in Section
11.1.
(v
)
Endra’s duty to perform pursuant to
subsections (ii) and (iii) shall depend upon the
delivery
by Optosonics to Endra of a serviceable prototype
device in good working order constructed pursuant to the
R&D
Agreement
in the case of
subsection (ii) and, if the parties enter a subsequent
manufacturing agreement, devices which meet the
specifications
stipulated in such manufacturing agreement,
in the case of subsection (iii). If
Optosonics fails in either or both cases to make such deliveries,
Endra’s diligence obligation shall be that set forth in
Section 2.3.1.
(vi
)
In any
event, Endra shall report to Optosonics
on its progress in developing and commercializing
Products, exclusive of its work with Optosonics, every six (6)
months from the Effective Date until the date of first commercial
sale of a Product.
4
.
Provisions Concerning the
Filing, Prosecution and Maintenance of Patent Rights.
The following provisions relate to the
filing, prosecution and maintenance of Patent Rights during the
term of this Agreement.
4.1
Filing, Prosecution and
Maintenance by Optosonics
.
Optosonics shall have the exclusive right and
obligation:
Endra-Optosonics
Sublicense
(a
)
to take
all reasonable steps to prosecute all pending and new patent
applications included within Patent Rights;
(b
)
to
respond to oppositions, nullity actions, re-examinations,
revocation actions and similar proceedings filed by third parties
against the grant of letters patent for such
applications;
(c
)
to
maintain in force any letters patent included in Patent Rights by
duly filing all necessary papers and paying any fees required by
the patent laws of the particular country in which such letters
patent were granted; and
(d
)
to
cooperate fully with, and take all necessary actions requested by,
and letters patent included in Patent Rights. Optosonics shall
notify Endra in a timely manner of any decision to abandon a
pending application or an issued patent included in Patent Rights.
Thereafter, Endra shall have the option, at its expense, of
continuing to prosecute any such pending patent application or of
keeping the issued patent in force.
4.1.1
Copies of
Documents
. Optosonics shall
provide to Endra copies of all
patent applications, and related supporting
documentation, that are a part of Patent Rights prior to filing,
for the purpose of obtaining substantive comment of Endra patent
counsel. Optosonics shall also provide to Endra copies of all
documents, either upon receipt or prior to filing, relating to
prosecution of all such patent applications in a timely manner and
shall provide to Endra every six (6) months a report detailing
their status and Optosonics’ plans for filing for the next
six (6) month period.
Endra-Optosonics
Sublicense
4.1.2
Reimbursement of Costs for
Filing, Prosecuting and Maintaining Patent Rights.
Subject to Section 4.1.3, within
thirty (30) days of receipt of invoices from Optosonics, Endra
shall reimburse Optosonics for all the costs of filing,
prosecuting, responding to opposition and maintaining patent
applications and patents in countries where Endra requests that
patent applications be filed, prosecuted and maintained. However,
Endra may, upon sixty (60) days notice, request that Optosonics
discontinue filing or prosecution of patent applications in any
country and discontinue reimbursing Optosonics for the costs of
filing, prosecuting, responding to opposition or maintaining such
patent application or patent in any country. Optosonics shall pay
all costs in those countries in which Endra does not request
that
Optosonics file,
prosecute or maintain patent applications and patents,
(or in which Endra requests
such
protection be
discontinued)
but in which
Optosonics, at its option, elects to do so and Endra shall
have
no license in each of such countries
and all licenses of Endra theretofore
in existence under this Agreement in any such country shall
forthwith terminate.
4.1
.3
Endra’s obligations to
reimburse Optosonics’ or Sentron’s patent prosecution
expenses
(with respect to
patent applications initially listed on Exhibit A and patents
issuing in respect thereof)
shall be limited to an average of ten thousand
dollars ($10,000.00) a year calculated over each consecutive three
(3) year period during the term and no more than fifteen thousand
dollars ($15,000.00) in any such year
.
4.2
Endra
shall have the right to file on behalf of and as an agent for
Sentron and Optosonics all applications and take all actions
necessary to obtain patent extensions pursuant to 35 U.S.C. Section
156 and foreign counterparts for Patent Rights sublicensed to
Endra. Optosonics agrees to sign, at Endra’s expense, such
further documents and take such further actions as may be requested
by Endra in this regard and to obtain same from
Sentron
.
Endra-Optosonics
Sublicense
4.3
Neither party may disclaim a Valid Claim within
Patent Rights without the consent of the other and
Sentron.
4.4
Hold Harmless.
Optosonics agrees to defend, protect,
indemnify and hold harmless Endra and any sublicensee of Endra,
from and against any loss or expense arising from any proved claim
of a third party that has been granted rights by Optosonics or
Sentron that Endra or any sublicensee of Endra in exercising their
rights granted to Endra by Optosonics or Sentron pursuant to this
Agreement, has infringed upon such rights granted to such third
party by Optosonics or Sentron.
4.5
Third Party Licenses.
If the manufacture, use, sale, offer
for sale or import by Endra of a Product in any country would, in
the opinion of Endra, infringe a patent owned by a third party,
Endra shall attempt to obtain a license under such patent. If Endra
obtains a license under such patent, fifty percent (50%) of any
payments made by Endra to such third party shall be deductible from
royalty payments due from Endra to Optosonics pursuant to this
Agreement; provided, however, that in no event shall royalties
payable to Optosonics be reduced by more than thirty-three and
one-third percent (33 1/3%) as a result of all such deductions. All
such computations, payments and adjustments shall be on a country
by country and patent by patent basis.
5
.
Representation and
Warranty.
Optosonics represents
and warrants to Endra that it has the right to grant the License
granted pursuant to this Agreement, and that the License so granted
does not conflict with or violate the terms of any agreement
between Optosonics and any third party.
6
.
Legal
Action.
6
.1
Actual or
Threatened Disclosure or Infringement.
When information comes to the attention of Endra
to the effect that any Patent Rights relating to a Product have
been or are threatened to be unlawfully infringed, Endra shall have
the right at its expense to take such action as it may deem
necessary to prosecute or prevent such unlawful infringement,
including the right to bring or defend any suit, action or
proceeding involving any such infringement. Endra shall notify
Optosonics and Sentron promptly of the receipt of any such
information and of the commencement of any such suit, action or
proceeding.
If
Endra determines that it is necessary
or desirable for Optosonics or Sentron or both to join any such
suit, action or proceeding, Optosonics and Sentron shall, at
Endra’s expense, execute all papers and perform such other
acts as
may be reasonably required to permit Endra to act in
Optosonics’ and Sentron’s name. If Endra brings a suit,
it shall have the right first to reimburse itself out of any sums
recovered in such suit or in its settlement for all costs and
expenses, including attorney’s fees, related to such suit or
settlement, and fifteen (15%) percent of any funds that shall
remain from said recovery shall be paid to Optosonics and the
balance of such funds shall be retained by Endra. If
Endra does not, within one hundred twenty (120)
days after giving notice to Optosonics of the above-described
information, notify Optosonics of Endra’s intent to bring
suit against any infringer, Optosonics shall have the right to
bring suit for such alleged infringement, but it shall not be
obligated to do so, and may join Endra as party plaintiff, if
appropriate, in which event Optosonics shall hold Endra free, clear
and harmless from any and all costs and expenses of such
litigation, including attorney’s fees, and any sums recovered
in any such suit or in its settlement shall belong to
Optosonics.
However, fifteen
(15%) percent of any such sums received by Optosonics after
deduction of all costs and expenses
related to such suit or
settlement
, including
attorney’s
fees
paid, shall be paid to Endra.
Each party shall always have the right
to be represented by counsel of its own selection and
at
its own expense in any suit instituted by the
other for infringement under the terms of this section. If Endra
lacks standing and Sentron or Optosonics has standing to bring any
such suit, action or proceeding, Sentron or Optosonics or both, as
the case may be shall do so at the request of Endra and at
Endra’s
expense or for all costs and expenses,
including attorney’s fees, related to such suit or
settlement.
Endra-Optosonics
Sublicense
6
.2
Defense of
Infringement Claims.
Optosonics
and Sentron will cooperate with
Endra at Endra’s
expense in the defense of any suit, action or proceeding against
Endra or any sublicensee of Endra alleging the i
nfringement of the intellectual property rights of
a third party by reason of the use of Patent Rights in the
manufacture, use, import or offer for sale of a Product. Endra
shall give Optosonics and Sentron prompt written notice of the
commencement of any such suit, action or proceeding or claim of
infringement and will furnish Optosonics and Sentron a copy of each
communication relating to the alleged infringement. Optosonics and
Sentron shall give to Endra full authority (including the right to
exclusive control of the defense of any such suit, action or
proceeding and the exclusive right, to compromise, litigate, settle
or otherwise dispose of any such suit, action or proceeding),
information and assistance necessary to defend or settle any such
suit, action or proceeding. If the parties agree that Optosonics or
Sentron or both should institute or join any suit, action or
proceeding pursuant to this section, Endra may, at Endra’s
expense, join Optosonics or Sentron or both as defendants if
necessary or desirable, and Optosonics and Sentron shall execute
all documents and take all other actions, including giving
testimony, which may reasonably be required in connection with the
prosecution of such suit, action or proceeding.
7
.
New Optosonics Inventions
within the Field.
7
.1
Notice and
Documents.
Within thirty (30)
days of filing a new patent application
in the Field, Optosonics will send a copy of such
application to Endra. In addition, upon receipt of each such
application, Endra may request and Optosonics will provide within
fifteen (15) days of such request, additional documents reasonably
necessary to determine whether to obtain a license from
Optosonics to such patent in the Field.
Endra-Optosonics
Sublicense
7
.2
Upon receipt of the application
and documents, Endra shall have sixty (60) days to determine
whether to obtain a license. If Endra determines that it wishes to
obtain a license, it shall so notify Optosonics. Upon receipt of
such notice, the application and resulting rights
shall be
licensed to Endra solely within the Field and pursuant to the terms
and conditions of this Agreement and subject to the same royalty
obligations as those set forth in this
Agreement and this Agreement shall be modified
accordingly.
8
.
Human Breast Imaging
Applications.
8
.1
Notice
.
If Optosonics determines it wishes to
contract with a third party to develop its remaining rights in the
Patent Rights and Technology with respect to human breast
applications, it will first notify Endra of that fact and the
proposed terms and conditions of such contract. Upon receipt of
such notice, Endra shall have a right of first refusal for a period
of thirty (30) days to determine whether to enter into a license
and/or development agreement with Optosonics relating to
Optosonics’ remaining rights on the same terms and conditions
as the terms and conditions proposed by such third party. If Endra
does not give timely notice of its exercise of its right of first
refusal, Optosonics shall have no further obligation pursuant to
this Section.
8
.2
Negotiation.
If Endra timely notifies Optosonics
that it will exercise its right of first refusal, it will so notify
Optosonics. Optosonics will negotiate exclusively in good faith
with Endra to reach a definitive agreement on the terms proposed by
the offering third party regarding Optosonics remaining rights for
a period of sixty (60) days. If the parties fail to reach agreement
in the sixty (60) day period, neither party shall have any further
obligation to the other pursuant to this Section.
Endra-Optosonics
Sublicense
9
.
Treatment of Confidential
Information
.
9
.1
Confidentiality
.
9
.1
.1
Subject to Endra’s rights
and obligations to commercialize Products pursuant to this
Agreement, Endra and Optosonics each agree that for a period of
five (5) years, it will keep confidential, and will cause its
Affiliates to keep confidential, all Confidential Information that
is disclosed to it or to any of its Affiliates pursuant to this
Agreement.
9
.1
.2
Subject to Endra’s rights
and obligations to commercialize Products pursuant to this
Agreement, Endra and Optosonics each agree that any disclosure of
the other’s Confidential Information to any officer, employee
or agent of the other party or of any of its Affiliates shall be
made only if and to the extent necessary to carry out its
responsibilities under this Agreement and shall be limited to the
maximum extent possible consistent with such responsibilities. Each
party shall take such action, and shall cause its Affiliates to
take such action, to preserve the confidentiality of each
other’s Confidential Information as it would customarily take
to preserve the confidentiality of its own Confidential
Information. Upon termination of this agreement, each party, upon
the other’s request, will return all the Confidential
informati
on disclosed to the other party pursuant to this
Agreement, including all copies and extracts of documents, within
sixty (60) days of the request except for one (1) copy which may be
kept for the purpose of complying with continuing obligations under
this Agreement.
Endra-Optosonics
Sublicense
9
.2
Publicity
. Except as required by law, neither party may
disclose the terms of this Agreement without the written consent of
the other party, which consent shall not be unreasonably
withheld.
10
.
No Other
Agreements.
10
.1
This Agreement, t
he 2003
Agreement as amended and the
R&D Agreement
of even
date with this Agreement are the sole
agreements with respect to the subject matter and supersede all
other agreements and understandings between the parties with
respect to same. If there is any inconsistency or discrepancy
between this Agreement and the 2003 Agreement the terms and
conditions of this Agreement shall prevail.
10
.2
If, for any reason, the 2003
Agreement expires or is terminated, this Agreement shall
survive
and
Sentron or its successor shall have the same rights and duties
pursuant to this Agreement as Optosonics had.
11
.
Termination and
Disengagement
.
11
.1
Events of
Termination
. The following
events shall constitute events of termination (“Events of
Termination”):
Optosonics or
Endra shall fail in any material respect to
perform or observe any material term, covenant or understanding
contained in this Agreement or in any of the other documents or
instruments delivered pursuant to, or concurrently with, this
Agreement, and any such failure shall remain unremedied for sixty
(60) days after written notice to the failing
party.
11
.2
Termination
. Upon the occurrence of any Event of Termination,
the party not responsible may, by notice to the other party,
terminate this Agreement.
11
.3
Termination of this Agreement
for any reason shall be without prejudice to:
Endra-Optosonics
Sublicense
(a
)
the
rights and obligations of the parties set forth in sections which
provide performance by either party subsequent to
termination;
(b
)
Optosonics’s right to receive all accrued
royalty payments; or
(c
)
any
other remedies which either party may otherwise
have.
11
.4
Endra may discontinue selling
any or
all Products in any country and such discontinuance
shall not be an Event of Termination. Nonetheless, if Endra
discontinues sales of Products in any country for a period of 12
months after such sales commence, Endra’s license hereunder
within such country shall forthwith terminate.
12
.
Indemnification
.
Endra will indemnify Optosonics for damages, settlements, costs,
legal fees and other expenses incurred in connection with a claim
against Optosonics based on any action or omission of Endra, its
agents or employees related to the obligations of Endra under this
Agreement; provided, however, that the foregoing shall not apply
(i)
if the claim is
found to be
based upon the negligence, recklessness or willful misconduct of
Optosonics or (ii)
if
Optosonics fails to give Endra prompt notice of
any claim it receives and such failure materially prejudices Endra
with respect to any claim or action which Endra’s obligation
pursuant to this Section applies. Endra, in its sole discretion,
shall choose legal counsel, shall control the defense of such claim
or action and shall have the right to settle same on such terms and
conditions it deems advisable
and at its cost
.
13
.
Notices
. All notices shall be in writing mailed via
certified mail, return receipt requested, courier, or facsimile or
electronic transmission addressed as follows, or to such other
address as may be designated from time to time:
Endra-Optosonics
Sublicense
If to
Endra:
Endra,
Inc.
with a copy
to:
:
Joshua A. Kalkstein, Esq.
If to
Optosonics:
OptoSonics,
Inc.
Indianapolis, IN 46202
Attn: President
with a copy
to
:
Eric R. M
oy, Esq.
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, IN 46204
If to
Sentron:
Clifford
Mentrup
, Esq.
Notices shall be deemed given as of the date received.
14
.
Governing
Law
. This Agreement shall be
governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.
15
.
Miscellaneous
.
15
.1
Binding
Effect
. This Agreement shall be
binding upon and inure to the benefit of the parties and their
respective legal representatives, successors and permitted
assigns.
15
.2
Headings
. Paragraph headings are inserted for convenience
of reference only and do not form a part of this
Agreement.
Endra-Optosonics
Sublicense
15
.3
Counterparts
. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an
original.
15
.4
Amendment,
Waiver
. This Agreement may be
amended, modified, superseded or canceled, and any of the terms may
be waived, only by a written instrument executed by each party or,
in the case of waiver, by the party or parties waiving compliance.
The delay or failure of any party at any time or times to require
performance of any provisions shall in no manner affect the rights
at a later time to enforce the same. No waiver by any party of any
condition or of the breach of any term contained in this Agreement,
whether by conduct, or otherwise, in any one or more instances,
shall be deemed to be, or considered as, a further or continuing
waiver of any such condition or of the breach of such term or any
other term of this Agreement.
15
.5
No Third
Party Beneficiaries
. No third
party including any employee of any party to this Agreement, shall
have or acquire any rights by reason of this Agreement. Nothing
contained in this Agreement shall be deemed to constitute the
parties partners with each other or any third
party.
15
.6
Assignment
and Successors
. This Agreement
may not be assigned by either party, except tha
t each party
may assign this Agreement and the
rights and interests o
f
such party, in
whole or in part, to
any of its Affiliates, any purchaser of all or substantially all of
its assets or to any successor corporation resulting from any
merger or consolidation of such party with or into such
corporations.
15
.7
Force
Majeure
. Neither Endra nor
Optosonics shall be liable for failure of delay in performing
obligations set forth in this Agreement, and neither shall be
deemed in breach of its obligations, if such failure or delay is
due to
natural disasters o
r any
causes reasonably beyond the control of Endra or
Optosonics.
15
.8
Severability
. If any provision of this Agreement is or becomes
invalid or is ruled invalid by any court of competent jurisdiction
or is deemed unenforceable, it is the intention of the parties that
the remainder of the Agreement shall not be
affected.
Endra-Optosonics
Sublicense
IN WITNESS WHEREOF
, the parties
have caused this Agreement to be executed by their duly authorized
representatives.
ENDRA
INC.
OPTOSONICS, INC.
By:
/s/ David
Steinberg
By:
/s/ Robert
Kruger
Title:
President
Title
President
Date:
August 2,
2007
Date:
August 2,
2007
Endra-Optosonics
Sublicense
Exhibit A
Patent
Applications and Patents
Endra-Optosonics
Sublicense
Exhibit B
Sentron
– Optosonics License Agreement May 16, 2003
Endra-Optosonics
Sublicense
Exhibit C
Sentron
– Optosonics License Amendment March 22, 2007
Endra-Optosonics
Sublicense
Exhibit D
Sentron
Consent to Sublicense and Survival
Exhibit 10.20
AMENDMENT
TO SUBLICENSE AGREEMENT
This
Amendment (“
Amendment
”) to the
Sublicense Agreement dated as of August 2, 2007 (the
“
Agreement
”) by and among
Endra, Inc., a Delaware corporation (“
Endra
”), and Optosonics,
Inc. (“
Optosonics
”) is entered
into on this 18th day of January, 2011 (the “
Amendment Effective
Date
”). For purposes hereof, all capitalized terms
used herein but not defined herein shall have the meanings given to
them in the Agreement.
Pursuant to Section
15.4 of the Agreement, Endra and Optosonics hereby agree as
follows:
1.
Section
3 .6.3(iii) of the Agreement is hereby deleted and replaced in its
entirety as follows:
“(iii) The
diligence requirement will likewise be satisfied if Endra makes a
commercial sale of any Product to any third party no later than
forty-five (45) months from the Effective Date (the
“
Commercialization
Date
”); provided however that Endra may, in its sole
discretion, extend the Commercialization Date on a month-by-month
basis for up to 9 months beyond the forty-five (45) month
anniversary of the Effective Date by paying to Optosonics $5,000
for each month that the Commercialization Date is so
extended.”
2.
The
Agreement is hereby confirmed and continues in all respects expect
as set forth in Section 1 above. This Amendment shall not
constitute or imply a waiver of any rights or obligations under the
Agreement or an admission as to any facts related to the
Agreement.
3.
Any
determination that any provision of this Amendment or any
application thereof is invalid, illegal, or unenforceable in any
respect in any instance shall not affect the validity, legality, or
enforceability of such provision in any other instance, or the
validity, legality, or enforceability of any other provision of
this Amendment.
4.
No
modification, amendment or waiver of any provision of this
Amendment shall be effective unless executed in writing by Endra
and Optosonics.
5.
All
rights and obligations hereunder, including matters of
construction, validity, and performance, shall be governed by and
construed in accordance with the internal laws of the Commonwealth
of Massachusetts and are intended to take effect as sealed
instruments.
6.
This
Amendment may be executed simultaneously in two or more
counterparts, each of which shall be deemed an
original.
[Remainder
of Page Intentionally Blank.]
IN
WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their duly authorized representatives as of the
Amendment Effective Date.
ENDRA,
INC.
By:
/s/
Michael
Thornton
Name:
Michael Thornton
Title:
Chief Operating Officer, ENDRA INC.
OPTOSONICS,
INC.
By:
/s/
Robert
Kruger
Name:
Robert Kruger
Title:
President, OPTOSONICS, INC.
2
Exhibit
23.1
Consent
of Independent Registered Public Accounting Firm
We
hereby consent to the reference to our firm under the caption
“Experts” and the use of our report dated July 15, 2016
(except for the effect of the restatement discussed in Note 3 to
the financial statements, for which the date is August 4, 2016),
which includes an explanatory paragraph regarding the substantial
doubt about the Company’s ability to continue as a going
concern, on the financial statements of ENDRA Life Sciences, Inc.
which appears in this Registration Statement on Form
S-1.
/s/
RBSM LLP
Henderson,
Nevada
November 18,
2016
