As filed with the Securities and Exchange Commission on
December 6, 2016
Registration No. 333-214724
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
ENDRA LIFE SCIENCES INC.
(
Exact name of registrant as
specified in its charter
)
Delaware
|
|
3845
|
|
26-0579295
|
(
State or other jurisdiction
of
|
|
(
Primary Standard
Industrial
|
|
(
I.R.S. Employer
|
incorporation or organization)
|
|
Classification Code Number)
|
|
Identification No.)
|
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
:
Mark R.
Busch
K&L
Gates LLP
214
North Tryon St., 47th Floor
Charlotte,
North Carolina 28202
Telephone:
(704) 331-7440
|
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
|
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):
Large
accelerated filer [ ]
|
|
Accelerated
filer
[ ]
|
Non-accelerated
filer [ ]
|
|
Smaller
reporting company [X]
|
(
Do not check if a smaller reporting
company
)
|
|
|
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of Securities to be Registered
|
|
Proposed Maximum
Aggregate Offering Price Per Share
|
Proposed
Maximum
Aggregate
Offering Price
(1)
|
Amount
of
Registration
Fee
|
Common Stock, par
value $0.0001 per share
(2)
|
2,300,000
|
$
5.50
|
$
12,650,000
|
$
1,466.14
|
Warrants to
purchase Common Stock
(3)
|
--
|
--
|
$
--
|
$
--
|
Common Stock
Underlying Warrants
(2)
|
1,150,000
|
$
6.60
|
$
7,590,000
|
$
879.68
|
Underwriter’s
Warrant
(3)(4)
|
--
|
--
|
$
--
|
$
--
|
Shares of Common
Stock Underlying Underwriter’s
Warrant
(3)
|
184,000
|
$
6.60
|
$
1,214,000
|
$
140.75
|
Total Registration
Fee
(5)
|
|
|
$
21,454,000
|
$
2,486.56
|
(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.
(5)
The
registrant previously paid $1,159 in registration fees in
connection with a previous filing of this Registration
Statement.
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 DECEMBER
6, 2016
ENDRA Life
Sciences Inc.
2,000,000 Shares of Common Stock
Warrants to Purchase up to 1,000,000 Shares of Common
Stock
This is
our initial public offering. We are offering 2,000,000
shares of our common stock and warrants to purchase up to
1,000,000 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, which
numbers reflect our proposed one for 2.50 reverse stock split
described in this prospectus (the
“
reverse stock split
”
).
The warrants will have an exercise price
per share of common stock equal to 120%
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 been authorized 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
$5.00 and $5.50 per share of common stock
and related warrant (assuming the reverse stock split). After
the effectiveness of the registration statement of which this
prospectus is a part, and concurrently with the
pricing of this offering, we will effect the reverse stock
split.
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
|
|
Public offering
price
|
$
|
$
|
Underwriting
discount
(1)
|
$
|
$
|
Proceeds, before
expenses, to us
(2)
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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
300,000 additional shares of our common stock
(assuming the reverse stock split) and a 30-day
option to purchase additional warrants, exercisable for up to
150,000 shares of our common stock, 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
|
83
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INDEX TO FINANCIAL STATEMENTS
|
F-1
|
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.
Prospectus
Summary
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.
|
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.
To demonstrate the
capabilities of our TAEUS platform, we have conducted various
internal ex-vivo laboratory experiments and have also conducted
limited internal in-vivo large animal studies. However, we have not
yet conducted any human studies and these capabilities are not
supported by clinical data that we have gathered in pursuit of
obtaining regulatory approvals or that was subject to regulatory
oversight and guidance.
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.
|
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.
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.
|
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.
Reverse Stock Split
In December
2016, our board of directors and stockholders holding a majority of
the outstanding shares of our common stock approved resolutions
authorizing our board of directors to effect a reverse split of our
common stock at certain exchange ratios ranging from 1:2.00 to
1:3.00, with our board of directors retaining the discretion as to
whether to implement the reverse stock split and which exchange
ratio to implement. Following the effectiveness of the registration
statement of which this prospectus is a part, and prior to the
closing of this offering, we anticipate that we will effect the
reverse stock split at a ratio of 1 share for each 2.50
shares.
Except
as otherwise indicated and except in our financial statements, all
information regarding share amounts of common stock and prices per
share of common stock contained in this prospectus assume the
consummation of the reverse stock split to be effected following
effectiveness of the registration statement of which this
prospectus is a part, and prior to the closing of this
offering.
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
|
2,000,000
shares (or
2,300,000 shares if the underwriters exercise their
option to purchase additional shares in
full).
|
Warrants offered by us
|
Warrants to
purchase up to 1,000,000 shares of our common
stock
(or warrants to
purchase up to 1,150,000 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. The
warrants will have an exercise price per share
of common stock equal to 120% of 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
|
|
Over-allotment option(3)
|
We
have granted the underwriters a 30-day option to
purchase up to 300,000 additional shares of our common
stock and a 30-day option to purchase additional
warrants, exercisable for up to 150,000
additional shares of our common stock, in each case,
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
|
We have
received approval for listing our common stock on the Nasdaq
Capital Market under the symbol
“NDRA,” subject to the closing of
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.
|
(1)
The number of
shares of our common stock to be outstanding after this offering is
based on 2,443,213 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 1,430,490
shares of our common stock at a conversion price of
$1.00 per share immediately prior to the completion of
this offering, and excludes the following
:
●
213,937
shares of common stock
issuable upon the exercise of outstanding warrants, at a weighted
average exercise price of $
13.53
per share;
●
213,452 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
$
7.15
per share
and an estimated 641,307 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
435,891 shares of
our common stock that will be reserved for future issuance under
our Incentive Plan;
●
up to
1,150,000 shares of our common stock that may be
issued under warrants to be sold to the public in this
offering; and
●
up to
184,000 shares of our common stock issuable upon exercise of
the underwriter’s warrant.
(2) Except as
otherwise indicated herein, all information in this prospectus
assumes or gives effect to:
●
the reverse
stock split;
●
the conversion of
the outstanding principal and accrued interest on our outstanding
convertible promissory notes as of September 30, 2016 into an
aggregate of
1,430,490 shares of our common stock
at a conversion price of $1.00 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 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.
|
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.”
Income Statement Data
|
|
|
|
Nine Months
|
Nine Months
|
|
|
|
Ended
|
Ended
|
|
|
|
September 30,
2016
|
September 30,
2015
|
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
|
|
|
|
|
As of
|
As of
|
As of
|
|
December 31,
|
December 31,
|
September 30,
|
|
2015
|
2014
|
2016
|
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
Stockholders' Equity
|
|
|
|
Current
Liabilities
|
$
230,316
|
$
111,296
|
$
908,778
|
Stockholders'
Equity
|
$
72,124
|
$
361,650
|
$
(409,202
)
|
Total Liabilities
and Stockholders' Equity
|
$
302,440
|
$
472,946
|
$
499,576
|
Statements of Cash Flows Data
|
|
|
Nine Months
|
Nine Months
|
|
Year Ended
|
Year Ended
|
Ended
|
Ended
|
|
December 31,
2015
|
December 31,
2014
|
September 30,
2016
|
September 30,
2015
|
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 services' 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
payors' 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
“Business-Competition.”
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 120%
of 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
7.7% of our common stock, as calculated in accordance
with Rule 13d-3. In addition, before this offering,
Blue Earth Fund, LP, Erick Richardson, Jeffrey and
Margaret Padnos, Benjamin Padnos and Robert Clifford
and their affiliates beneficially own approximately 22.2%,
15.0%, 16.4%, 10.2% and 10.0%
of our common stock, respectively,
and after this offering will beneficially own approximately
8.7%, 5.4%, 5.9%, 3.6% and
3.4% 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 substantial 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
4,443,213 shares of common
stock
(or 4,743,213
shares if the underwriters exercise their option to purchase
additional shares in full)
.
Of these
outstanding shares, all of the 2,000,000 shares of common stock
(or
2,300,000 shares if the underwriters exercise their option to
purchase additional shares in full)
and warrants
exercisable for
1,000,000 shares of common stock (1,150, 000 shares if the
underwriters exercise their option to purchase additional warrants
in full)
sold in this offering will be freely tradable. In
addition, we expect that the shares issued upon exercise of the
warrants issued in this offering will be freely tradeable. The
remaining outstanding shares of our common stock will
be
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 $5.25 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
$2.53 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
$9,060,000 from this offering, or approximately
$10,509,000 if the underwriters exercise their
over-allotment option in full, based on an assumed initial public
offering price of $5.25, 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
$0.25 increase (decrease) in the combined initial
public offering price of $5.25 per share and related
warrant would increase (decrease) the net proceeds to us from this
offering by approximately $460,000, 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 hundred thousand shares in the
number of shares of common stock 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
$483,000, assuming the combined initial public
offering price of $5.25 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 give effect to the reverse stock split, 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
1,430,490 shares of our common stock at a conversion
price of $1.00 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 a combined initial public
offering price of $5.25 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 Forma As Adjusted (1)(2)
|
|
|
Cash
|
$
75,543
|
$
75,543
|
$
8,675,543
|
|
|
|
|
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; 1,012,723 shares issued and
outstanding
actual; 50,000,000 shares authorized and
2,229,426 shares issued and outstanding, pro forma,
and 50,000,000 shares authorized and shares issued and outstanding,
pro forma as adjusted
|
101
|
124
|
315
|
Stock
payable(3)
|
72,000
|
72,000
|
--
|
Additional
paid-in capital
|
11,518,145
|
12,904,722
|
21,505,531
|
Accumulated
deficit
|
(11,999,600
)
|
(11,999,600
)
|
(11,999,600
)
|
Total
stockholders equity
|
(409,202
)
|
977,246
|
9,505,247
|
|
|
|
|
Total
capitalization
|
$
977,246
|
$
977,246
|
9,505,247
|
__________
(1)
A
$0.25 increase (decrease) in the assumed combined
initial public offering price of $
5.25
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
$460,000, 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
hundred thousand share increase (decrease) in the
number of shares 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
$483
,000
, assuming the assumed
combined initial public offering price of $
5.25
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
1,012,723
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 1,430,490 shares of our common stock at a
conversion price of $1.00 per share immediately prior
to the completion of this offering, and excludes the
following:
●
213,937
shares of common stock
issuable upon the exercise of outstanding warrants, at a weighted
average exercise price of $
13.53
per share;
●
213,452
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 $
7.15
per share
and an estimated
641,307 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
435,891 shares of
our common stock that will be reserved for future issuance under
our Incentive Plan;
●
up to
1,150,000 shares of our common stock that may be issued
under warrants to be sold in this offering;
and
●
up to
184,000 shares of our common stock issuable upon exercise of
the underwriter's warrant.
(3)
Stock Payable is to be issued at the closing of this offering to
StoryCorp Consulting (d/b/a Wells Compliance Group) in an amount of
13,714 shares of common stock.
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 $(0.40) 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
1,430,490 shares of our common stock at a conversion
price of $1.00 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
$0.96 per share. After giving effect to the assumed
sale of 2,000,000 shares of our common stock and
warrants to purchase up to 1,000,000 shares of our
common stock in this offering at the assumed combined initial
public offering price of $5.25 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 $9,505,247, or $2.72 per share.
This represents an immediate increase in pro forma as adjusted net
tangible book value of $1.75 per share to existing
stockholders and an immediate dilution in pro forma as adjusted net
tangible book value of $2.53 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
|
|
$
5.25
|
Historical net
tangible book value per share as of September 30, 2016
|
$
(0.40
)
|
|
Pro forma increase
in net tangible book value per share attributable to conversion of
convertible promissory notes
|
$
1.37
|
|
Pro forma net
tangible book value per share as of September 30, 2016
|
$
0.97
|
|
Pro forma increase
in net tangible book value per share attributable to new
investors
|
$
1.75
|
|
Pro forma as
adjusted tangible book value per share, after giving effect to this
offering
|
|
2,72
|
Dilution of pro
forma as adjusted net tangible book value per share to new
investors
|
|
$
2.53
|
If the
underwriters exercise in full their option to purchase
300,000 additional shares of our common stock and
warrants to purchase up to 150,000 shares of common
stock at the combined initial public offering price of
$5.25 per share and related warrant, the pro forma as
adjusted net tangible book value per share after giving effect to
this offering would be $2.92 per share, which amount
represents an immediate increase in pro forma as adjusted net
tangible book value of $1.95 per share of our common
stock to existing stockholders and an immediate dilution in pro
forma as adjusted net tangible book value of $2.33 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 and with respect
shares acquired since 2013, 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
(including
holders of our convertible promissory notes upon the converion
thereof) and by new investors purchasing shares of common
stock and warrants in this offering at the assumed combined initial
public offering price of $5.25 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.
|
|
|
|
|
|
|
|
|
|
Existing
stockholders
|
2,162,891
|
52.0
|
$
5,802,928
|
35.6
|
$
2.68
|
New
investors
|
2,000,000
|
48.0
|
$
10,500,000
|
64.4
|
$
5.25
|
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 2,443,213 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 1,430,490 shares of our common
stock at a conversion price of $1.00 per share
immediately prior to the completion of this offering, and excludes
the following:
●
213,937 shares of common stock issuable upon the exercise of
outstanding warrants, at a weighted average exercise price of
$12.83 per share;
●
213,452 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 $7.15 per
share and an estimated
641,307
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 435,891 shares of our common stock that will
be reserved for future issuance under our Incentive
Plan;
●
up to
1,150,000 shares of our common stock that may be issued
under warrants to be sold to the public in this
offering; and
●
up to 184,000 shares of our common stock issuable upon
exercise of the underwriter’s
warrant.
A
$0.25 increase (decrease) in the assumed initial
public offering price of $5.25 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 $0.01 per share and the dilution of pro
forma as adjusted net tangible book value per share to new
investors by approximately $0.07 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 hundred thousand 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 $0.01 and
$(0.01) respectively and the dilution of pro forma as
adjusted net tangible book value per share to new investors by
approximately $0.0
5
and $(0.0
5
) respectively, assuming the
assumed initial public offering price of $5.25 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.
To demonstrate the
capabilities of our TAEUS platform, we have conducted various
internal ex-vivo laboratory experiments and have also conducted
limited internal in-vivo large animal studies. However, we have not
yet conducted any human studies and these capabilities are not
supported by clinical data that we have gathered in pursuit of
obtaining regulatory approvals or that was subject to regulatory
oversight and guidance.
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
$231,918, 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 common stock issued
for note conversion 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.
To
demonstrate the capabilities of our TAEUS platform, we have
conducted various internal ex-vivo laboratory experiments and have
also conducted limited internal in-vivo large animal studies.
However, we have not yet conducted any human studies and these
capabilities are not supported by clinical data that we have
gathered in pursuit of obtaining regulatory approvals or that was
subject to regulatory oversight and guidance.
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, or approximately $40,000 to
$50,000, 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:
Illustration of a typical
cart-based ultrasound system
(left) with our TAEUS technology depicted 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 Mr. DiGiandomenico, Mr. Harsh
and Mr. Tokman serve as members of the Audit Committee
and Compensation Committee. Mr. Gambhir, Mr.
Harsh and Mr. Tokman serve as members of the Nominating and
Corporate Governance Committee. Our board of directors has
determined that
Mr.
DiGiandomenico
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
(6)
|
-
|
-
|
-
|
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 5,556 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.
(6)
Represents
fees earned by StoryCorp Consulting (d/b/a Wells Compliance Group)
pursuant to the consulting agreement described below. $36,000 of
this was paid in cash and the balance will be paid in shares of
restricted stock upon completion of this
offering.
Outstanding
Equity Awards at 2015 Fiscal Year-End
The
following table provides information regarding equity awards held
by the named executive officers as of December 31,
2015.
Name and Principal Position
|
Number of Securities Underlying Unexercised Options Exercisable
(#)
|
Number of Securities Underlying Unexercised Options Unexercisable
(#)
|
Option Exercise Price ($)
|
|
Francois
Michelon
|
16,566
|
33,133
(1)
|
$
5.72
|
|
Chief Executive Officer
|
|
|
|
|
Michael
Thornton
|
41,260
|
-
|
$
5.72
|
|
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 49,699 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 41,260 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 6.2% 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
1,012,723 shares of common stock outstanding on that
date (adjusted for the reverse stock
split). The percentage ownership after the
offering is based on shares of common stock
outstanding.
Name
of Beneficial Owner (1)
|
Number of
Shares
Beneficially
Owned
(2)
|
Percentage
Owned
Prior
to the Offering
|
Percentage
Owned
After
the Offering
|
Francois
Michelon
|
52,019
(3)(4)
|
4.9
%
|
*
|
Michael
Thornton
|
102,445
(4)(5)
|
9.2
%
|
|
David R.
Wells
|
-
(6)
|
*
|
*
|
Dr. Sanjiv Sam
Gambhir
|
27,759
(7)
|
2.7
%
|
*
|
Michael
Harsh
|
7,518
(8)
|
*
|
*
|
Alexander
Tokman
|
17,032
(9)
|
1.7
%
|
*
|
Anthony
DiGiandomenico
|
93,582
(4)(10)
|
8.9
%
|
3.1%
|
All
directors and named executive officers as a group (7
individuals)
|
300,355
|
24.0
%
|
7.3%
|
|
|
|
|
5% or More Shareholders
|
|
|
|
Blue Earth Fund, LP
(11)
|
283,806
(4)(12)
|
22.9
%
|
8.7%
|
Jeffrey S. Padnos
and Margaret M. Padnos (13)
|
166,839
(4)(16)
|
15.0
%
|
5.4%
|
Erick
Richardson (15)
|
188,439
(4)(14)
|
16.4
%
|
5.9%
|
Benjamin L. Padnos
(17)
|
111,391
(4)(18)
|
10.2
%
|
3.6%
|
|
104,876
(4)(20)
|
10.0
%
|
3.4%
|
Peter Appel (21)
|
96,926
(4)(22)
|
9.0
%
|
3.2%
|
Daniel Landry
(23)
|
91,638
(24)
|
8.7
%
|
3.0%
|
Don Miloni
(25)
|
86,752
(4)(26)
|
8.1
%
|
2.8%
|
ENDRA Holdings LLC
(27)
|
|
8.1
%
|
2.7%
|
Andreas Typaldos
(28)
|
85,115
(4)(29)
|
8.0
%
|
2.8%
|
Mark L. Baum
(30)
|
74,286
(31)
|
7.3
%
|
2.5%
|
* 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
16,566 shares of common stock issuable upon the
exercise of options held directly that are presently exercisable
and 35,453
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
$1.00 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.
69
(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 Erick Richardson is 11290 Chalon Road, Los Angeles,
CA 90049.
(16)
Consists of (a) 126,171 shares of common stock held directly; (b)
39,337 shares of common stock held jointly by Erick and Molly
Richardson; (c) 28,411 shares of common stock issuable upon the
exercise of warrants held jointly by Mr. and Mrs. Richardson; (d)
68,182 shares of common stock issuable upon the exercise of
warrants held by DALA LLC (as to which Mr. Richardson has shared
voting and investment power); and (e) 154,997 shares issuable upon
the conversion of a promissory note held
directly.
(17)
The address of Benjamin L. Padnos is 1088
West 27th Street, Holland, MI 49423.
(18)
Consists of (a) 72,134 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.
(19)
The
address of Robert C. Clifford is 1057 Corsica Drive, Pacific
Palisades, CA 90272.
(20)
Consists of (a)
52,082 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) 19,714 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) 12,944 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) 20,136 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).
(21)
The
address of Peter Appel is 77 Oregon Road, Bedford Corners, NY
10549.
(22)
Consists of (a)
34,965 shares of common stock held by Lone Wolf Holdings, LLC (as
to which Mr. Appel has voting and investment power); (b) 26,224
shares of common stock issuable upon the exercise of warrants held
by Lone Wolf Holdings, LLC (as to which Mr. Appel has voting and
investment power); and (c) 35,737 shares of common stock issuable
upon the conversion of a promissory note held by Lone Wolf
Holdings, LLC (as to which Mr. Appel has voting and investment
power).
(23)
The
address of Daniel Landry is 216 Avenue B, Redondo Beach, CA
90277.
(24)
Consists of (a)
54,880 shares of common stock held directly; (b)
8,811 shares of common stock issuable upon the
exercise of options held directly that are presently exercisable;
(c) 2,098 shares of common stock issuable upon the
exercise of warrants held directly that are presently exercisable;
and (d) 25,849 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).
(25)
The
address of Don Miloni is 1425 E. Greenwood Lane, Greenwood Village,
CO 80121.
(26)
Consists of (a)
24,476 shares of common stock held by RCHER Financial LLC (as to
which Mr. Miloni has voting and investment power); (b) 10,490
shares of common stock issuable upon the exercise of warrants held
by RCHER Financial LLC (as to which Mr. Miloni has voting and
investment power); and (c) 51,786 shares of common stock issuable
upon the conversion of a convertible promissory note held
directly.
(27)
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 82,338 shares of common
stock.
(28)
The
address of Andreas Typaldos is 666 Greenwich Street, Suite 734, New
York, NY 10014.
(29)
Consists of (a)
27,972 shares of common stock held by Andreas Typaldos LTD
Partnership (as to which Mr. Typaldos has voting and investment
power); and (b) 57,143 shares of common stock issuable upon the
conversion of a convertible promissory note held by Andreas
Typaldos LTD Partnership (as to which Mr. Typaldos has voting and
investment power).
(30)
The
address of Mark L. Baum is 1127 Cuchara Drive, Del Mar, CA
92014.
(31)
Consists of (a)
65,474 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) 8,811 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
4,196 shares of the Company's common stock at an
exercise price of $7.15 that expire in May 2017. Mr. Tokman also
received options exercisable for 5,000 shares of the
Company's common stock at an exercise price of $7.15 that expire in
May 2019 in satisfaction of an outstanding obligation of the
Company to Mr. Tokman.
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.
In September 2014, the Company issued to Mr. DiGiandomenico
19,025 shares 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 5,556 shares of the
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 1,399
shares of the Company's common stock at an exercise price of
$3.58. On January 19, 2016, Mr. Thornton exercised
these warrants, and received an additional 1,399
warrants at an exercise price of $14.30 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
$1.00 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
$1.00 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
1,012,723 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 1,012,723 shares of common stock outstanding as
of September 30, 2016, and assuming (1) the conversion of
$1,386,448
aggregate principal
amount of our convertible notes (plus accrued interest thereon as
of
September
30, 2016 into
1,430,490 shares of our common stock) and a conversion
date of
September
30, 2016 and
(2) the issuance by us of 2,000,000 shares of common
stock in this offering, there will be 4,443,213 shares
of common stock outstanding upon the closing of this offering
(or 4,743,213
shares if the underwriters exercise their option to purchase
additional shares in full)
.
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 warrants to the investors, all of
which will be governed by a warrant agreement.
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 120% of 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:
●
213,937 shares of common stock
issuable upon the exercise of outstanding warrants, at a weighted
average exercise price of $13.53 per
share;
●
213,937
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 $7.15 per
share and an estimated
641,307
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;
and
●
an estimated
435,891 shares of
our common stock that will be reserved for future issuance under
our Incentive Plan.
Convertible Promissory Notes
As of
September 30, 2016, we had reserved an estimated
1,430,490 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
$1.00 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 have 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 and warrant agent for our
warrants included in this offering is Corporate Stock
Transfer, Inc., 3200 Cherry Creek Dr. South, Suite 430, Denver, CO
80209. Its telephone number is (303) 282-4800.
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
4,443,213 shares of our common stock outstanding (or
4,743,213 shares if the underwriters exercise their
option to purchase additional shares in full), and a total of
5,443,213 shares of our common stock outstanding if
the warrants sold in this offering are exercised in full (or
5,893,213 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
2,443,213 shares of our common stock outstanding as of
September 30, 2016, 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 1,430,490 shares of common stock
at a conversion price of $1.00 per share. Of these
outstanding shares, all of the 2,000,000 shares of
common stock and 1,000,000 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
180 or 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 September 30, 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, approximately
530,000 additional shares of common stock will become
eligible for sale in the public market, of which 2,797
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 48,432 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, our executive
officers, and our directors
and substantially all our shareholders 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
|
2,000,000
|
1,000,000
|
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
300,000 shares of our common stock and an
option, exercisable for 30 days from the date of this prospectus,
to purchase additional warrants to purchase up to
150,000 shares of our common stock, in each
case, 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.
Underwriter's
Warrant
We
have also agreed to issue an
underwriter's warrant 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 warrant will have an
exercise price equal to 120% of 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
warrant is not redeemable by us. The warrant also
provides for one demand registration of the shares of
common stock underlying the warrant at our expense and
an additional demand at the warrant holder's expense
during the five year period commencing one
year after the date of this prospectus. The warrant will
provide for adjustment in the number and price of such warrant (and
the shares of common stock underlying such warrant) in the event of
recapitalization, merger or other fundamental transaction. The
warrant 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’s warrant nor any shares of our
common stock issued upon exercise of the underwriter's
warrant 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's warrant is 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's warrant 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, 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; provided,
that the lock-up period applicable to persons other than our
officers and directors with respect to shares purchased from us
prior to the date hereof for a purchase price per share of $7.15 or
more is 180 days. 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
Our
common stock has been approved for listing 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. Corporate Stock Trasfer, Inc. will
also 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
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
●
|
Increase of accrued
liabilities of $144,629; and
|
|
●
|
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 and 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-18
|
Condensed
Statements of
Operations for the Three and Nine Months Ended
September
30, 2016 and 2015 (unaudited)
|
F-19
|
Condensed
Statements of
Cash Flows for the
Nine Months Ended September
30, 2016 and 2015
(unaudited)
|
F-20
|
Notes
to the unaudited condensed financial statements
|
F-21
|
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.
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
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 tocontinue 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
4 – 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
5 – 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
6 – 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 and 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.
2,000,000 Shares of Common Stock
Warrants to Purchase up to
1,000,000 Shares of Common
Stock
PROSPECTUS
Sole Book-Running
Manager
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
|
$
2,261
|
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
|
$
100,749
|
|
|
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 384,625 shares
of our common stock at a price of $7.15 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
34,968 shares of common stock at an exercise price of
$14.30 and warrants to purchase 305,951
shares of common stock at an exercise price of $3.58
per share.
In
September 2014, we issued to certain accredited investors an
aggregate of 108,714 shares of our common stock at a
price of $7.15 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)
27,273 shares of our common stock and (ii) a warrant
to purchase 27,273 shares of common stock at an
exercise price of $7.15 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 34,966 shares of our common
stock at a price of $7.15 per share, for gross
proceeds of $250,000, to 3 accredited investors. Additionally, we
issued warrants to purchase 8,742 shares of common
stock at an exercise price of $7.15 per
share.
From
May 2015 through January 2016, pursuant to a warrant exercise
program, we issued 166,217 shares of our common stock
at a price of $3.58 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 166,217 shares
of common stock at an exercise price of $14.30 per
share in connection with a warrant exercise program.
On June
23, 2015, we issued an aggregate of 10,606 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 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
92,808 shares of our common stock under our Amended
and Restated 2013 Stock Incentive Plan at an exercise price of
$7.15 per share, to our executive officers, employees,
certain advisors and members of our Board of Directors.
78,932 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
27,658 shares of our common stock at an exercise price
of $7.15 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
1,364 shares of our common stock under our Second
Amended and Restated 2013 Stock Incentive Plan at an exercise price
of $7.15 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 49,699
shares of our common stock under our Second Amended and Restated
2013 Stock Incentive Plan at an exercise price of
$7.15 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
5,000 shares of our common stock under our Second
Amended and Restated 2013 Stock Incentive Plan, which options have
an exercise price of $7.15 per share to a new member
of our Board of Directors.
In July
2015, we granted stock options to purchase 23,076
shares of common stock under our Second Amended and Restated 2013
Stock Incentive Plan at an exercise price of $7.15 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
13,847 shares of common stock under our Second Amended
and Restated 2013 Stock Incentive Plan at an exercise price of
$7.15 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
|
|
Form of Fourth Amended and Restated Certificate of
Incorporation of the Registrant, to be in effect upon completion of
this offering
|
3.4
|
|
Form of 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*
|
3.6
|
|
Form of Certificate
of Amendment to Certificate of Incorporation of the Registrant, to
be in effect upon completion of this offering
|
4.1
|
|
Specimen Certificate representing shares of common stock of the
Registrant*
|
4.2
|
|
Form of Warrant Agreement and 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
|
|
Form of Opinion of K&L Gates LLP
|
10.1
|
|
ENDRA Life Sciences Inc. Second Amended and Restated 2013 Stock
Incentive Plan*†
|
10.2
|
|
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
|
|
Form of 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
|
|
Collaborative 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*
|
|
|
|
*Previously filed.
†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 Amendment No.1 to the 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 6th day of December,
2016.
|
ENDRA
Life Sciences Inc.
/s/
Francois
Michelon
Francois
Michelon
Chief
Executive Officer and Director
(Principal
Executive Officer)
|
Pursuant to the
requirements of the Securities Act of 1933, this Amendment
No.1 to the registration statement has been signed by
the following persons in the capacities and on the dates
indicated.
Dated:
December 6, 2016
|
/s/
Francois
Michelon
Francois
Michelon
Chief
Executive Officer and Director
(Principal
Executive Officer)
|
Dated:
December 6, 2016
|
/s/
David R.
Wells
David
R. Wells
Interim
Chief Financial Officer
(Principal
Financial and Accounting Officer)
|
Dated:
December 6, 2016
|
/s/
***
Anthony
DiGiandomenico, Director
|
Dated:
December 6, 2016
|
/s/
***
Sanjiv
Gambhir, M.D., Ph.D, Director
|
Dated:
December 6, 2016
|
/s/
***
Michael
Harsh, Director
|
Dated:
December 6, 2016
|
/s/
***
Alexander Tokman,
Director
|
***
By: /s/ Francios
Michelon
Francois
Michelon
Attorney-in-fact
|
[●] Shares of Common Stock
1
and
Warrants to Purchase [●] Shares of Common
Stock
ENDRA LIFE SCIENCES INC.
UNDERWRITING AGREEMENT
[●], 2016
DOUGHERTY &
COMPANY LLC
As Representative
of the several Underwriters
Named in Schedule
I hereto
c/o Dougherty
& Company LLC
90 South Seventh
Street, Suite 4300
Minneapolis,
Minnesota 55402
Ladies and
Gentlemen:
ENDRA Life
Sciences Inc., a Delaware corporation (the
“Company”
),
proposes to sell to the several Underwriters named in Schedule I
hereto (the
“Underwriters”
)
(i) an aggregate of [●]
authorized but unissued shares
(the
“Firm
Shares”
) of Common Stock, par value $0.0001 per share
(the
“Common
Stock”
), of the Company, and (ii) warrants of the
Company, to be issued pursuant to a warrant agreement to be entered
into by and between the Company and Corporate Stock Transfer, Inc.,
as warrant agent, in the form set forth in Exhibit A hereto (the
“Warrant
Agreement”
), to purchase [●] shares of Common
Stock (“
Firm Warrant
Shares
”) at an exercise price of [●] per share
(the “
Firm
Warrants
”). Each Firm Share is being sold together
with a Firm Warrant to purchase one-half of one share of Common
Stock. The Company also has granted to the several Underwriters an
option to purchase up to [●]
additional shares of Common Stock
on the terms and for the purposes set forth in Section 3
hereof (the
“Option
Shares”
) and warrants of the Company, to be issued
pursuant to the Warrant Agreement, to purchase [●] shares of
Common Stock (the “
Option Warrant
Shares
” and, together with the Firm Warrant Shares,
the “
Warrant
Shares
”) at an exercise price of [●] per share
(the “
Option
Warrants
,” and, together with the Firm Warrants, the
“
Warrants
”) in
each case on the terms and for the purposes set forth in Section 3
hereof. The Firm Shares, the Firm Warrants, the Warrant Shares, any
Option Shares and any Option Warrants purchased pursuant to this
Underwriting Agreement are herein collectively called the
“Securities.”
The Company hereby
confirms its agreement with respect to the sale of the Securities
to the several Underwriters, for whom Dougherty & Company LLC
is acting as representative (the
“Representative”
or
“you”
).
1
Plus
an option to cover over-allotments to purchase up to [●]
additional shares and warrants to purchase up to [●]
additional shares at an exercise price of
[●].
1.
Registration Statement and
Prospectus
. A registration statement on Form S-1
(File No. 333-214724) with respect to the Securities,
including a preliminary form of prospectus, has been prepared by
the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the
“Act”
),
and the rules and regulations (
“Rules and
Regulations”
) of the Securities and Exchange
Commission (the
“Commission”
)
thereunder and has been filed with the Commission. Such
registration statement, including the amendments, exhibits and
schedules thereto, as of the time it became effective, including
the Rule 430A Information (as defined below), is referred to herein
as the
“Registration
Statement.”
The Company will prepare and file a
prospectus pursuant to Rule 424(b) of the Rules and
Regulations that discloses the information previously omitted from
the prospectus in the Registration Statement in reliance upon
Rule 430A of the Rules and Regulations, which information will
be deemed retroactively to be a part of the Registration Statement
in accordance with Rule 430A of the Rules and Regulations
(
“Rule
430A Information”
). If the Company has elected to rely
upon Rule 462(b) of the Rules and Regulations to increase the
size of the offering registered under the Act, the Company will
prepare and file with the Commission a registration statement with
respect to such increase pursuant to Rule 462(b) of the Rules
and Regulations (such registration statement, including the
contents of the Registration Statement incorporated by reference
therein is the
“Rule 462(b)
Registration Statement”
). References herein to the
“Registration
Statement”
will be deemed to include the Rule 462(b)
Registration Statement at and after the time of filing of the Rule
462(b) Registration Statement.
“Preliminary
Prospectus”
means any prospectus included in the
Registration Statement prior to the effective time of the
Registration Statement, any prospectus filed with the Commission
pursuant to Rule 424(a) under the Rules and Regulations and each
prospectus that omits Rule 430A Information used after the
effective time of the Registration Statement.
“Prospectus”
means the prospectus that discloses the public offering price and
other final terms of the Securities and the offering and otherwise
satisfies Section 10(a) of the Act.
All
references in this Agreement to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or
supplement to any of the foregoing, is deemed to include the copy
filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval System or any successor system
thereto (
“EDGAR”
).
All references
herein to the Registration Statement, any Preliminary Prospectus or
a Prospectus shall be deemed as of any time to include the
documents and information incorporated therein by reference in
accordance with the Rules and Regulations.
2.
Representations and
Warranties of the Company
.
(a)
Representations and Warranties of the
Company
. The Company represents and warrants to, and agrees
with, the several Underwriters as follows:
(i)
Registration Statement and
Prospectuses
. The Registration Statement and any
post-effective amendment thereto has become effective under the
Act. No stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereto has been issued,
and no proceeding for that purpose has been initiated or, to the
Company’s knowledge, threatened by the Commission. No order
preventing or suspending the use of any Preliminary Prospectus or
the Prospectus (or any supplement thereto) has been issued by the
Commission and no proceeding for that purpose has been initiated
or, to the Company’s knowledge, threatened by the Commission.
As of the time each part of the Registration Statement (or any
post-effective amendment thereto) became or becomes effective, such
Registration Statement (or any post-effective amendment thereto)
conformed or will conform in all material respects to the
requirements of the Act and the Rules and Regulations. Upon the
filing or first use within the meaning of the Rules and
Regulations, each Preliminary Prospectus and the Prospectus (or any
supplement to either) conformed or will conform in all material
respects to the requirements of the Act and the Rules and
Regulations.
(ii)
Accurate Disclosure
. Each Preliminary
Prospectus, at the time of filing thereof or the time of first use
within the meaning of the Rules and Regulations, did not contain an
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading. Neither the Registration Statement nor
any amendment thereto, at the effective time of each part thereof,
at the First Closing Date (as defined below) or at the Second
Closing Date (as defined below), contained, contains or will
contain an untrue statement of a material fact or omitted, omits or
will omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. As of the
Time of Sale (as defined below), neither (A) the Time of Sale
Disclosure Package (as defined below) nor (B) any issuer free
writing prospectus (as defined below), when considered together
with the Time of Sale Disclosure Package, included an untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Neither
the Prospectus nor any supplement thereto, as of its issue date, at
the time of any filing with the Commission pursuant to Rule 424(b)
of the Rules and Regulations, at the First Closing Date or at the
Second Closing Date, included, includes or will include an untrue
statement of a material fact or omitted, omits or will omit to
state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading. The representations and warranties in this
Section 2(a)(ii) shall not apply to statements in or omissions
from any Preliminary Prospectus, the Registration Statement (or any
amendment thereto), the Time of Sale Disclosure Package or the
Prospectus (or any supplement thereto) made in reliance upon, and
in conformity with, written information furnished to the Company by
you, or by any Underwriter through you, specifically for use in the
preparation of such document, it being understood and agreed that
the only such information furnished by any Underwriter consists of
the information described as such in Section
6(e).
“Time of Sale
Disclosure Package”
means the Preliminary Prospectus
dated [●], 2016 and the information on Schedule III, all
considered together.
Each reference to
a
“free
writing prospectus”
herein means a free writing
prospectus as defined in Rule 405 of the Rules and
Regulations.
“Time of
Sale”
means [●] [a/p]m (Eastern time) on the
date of this Agreement.
(iii)
No Other Offering Materials
. The
Company has not distributed and will not distribute any prospectus
or other offering material in connection with the offering and sale
of the Securities other than any Preliminary Prospectus, the Time
of Sale Disclosure Package or the Prospectus or other materials
permitted by the Act to be distributed by the Company
; provided, further, that the Company has
not made and will not make any offer relating to the Securities
that would constitute a free writing prospectus
.
(iv)
Financial
Statements
. The financial statements of the Company,
together with the related notes, set forth in the Registration
Statement, the Time of Sale Disclosure Package and Prospectus
comply in all material respects with the requirements of the Act
and the Rules and Regulations and fairly present the financial
condition of the Company as of the dates indicated and the results
of operations, cash flows and changes in stockholders’ equity
for the periods therein specified. The financial statements of the
Company, together with the related notes, set forth in the
Registration Statement, the Time of Sale Disclosure Package and
Prospectus are in accordance with generally accepted accounting
principles in the United States (
“GAAP”
)
consistently applied throughout the periods involved, except in the
case of unaudited interim financial statements, which are subject
to normal year-end adjustments and do not contain certain footnotes
as permitted by the applicable rules of the Commission. The
supporting schedules, if any, of the Company included in the
Registration Statement present fairly the information required to
be stated therein. All non-GAAP financial information included in
the Registration Statement, the Time of Sale Disclosure Package and
the Prospectus complies with the requirements of Regulation G and
Item 10 of Regulation S-K under the Act. Except as disclosed in the
Registration Statement, the Time of Sale Disclosure Package and the
Prospectus, there are no material off-balance sheet arrangements
(as defined in Regulation S-K under the Act, Item 303(a)(4)(ii)) or
any other relationships with unconsolidated entities or other
persons, that may have a material current or, to the
Company’s knowledge, material future effect on the
Company’s financial condition, results of operations,
liquidity, capital expenditures, capital resources or significant
components of revenue or expenses. No other financial statements or
schedules, if any, are required to be included in the Registration
Statement, the Time of Sale Disclosure Package or the Prospectus.
RBSM LLP, which has expressed its opinion with respect to the
financial statements of the Company and related schedules filed as
a part of the Registration Statement and included in the
Registration Statement, the Time of Sale Disclosure Package and the
Prospectus, is (x) an
independent registered public accounting
firm within the meaning of the Act and the Rules and Regulations,
(y) a registered public accounting firm (as defined in Section
2(a)(12) of the Sarbanes-Oxley Act of 2002 (the
“Sarbanes-Oxley
Act”
)) and (z) not
in violation of the auditor independence requirements of the
Sarbanes-Oxley Act
.
(v)
Organization and Good
Standing
.
The
Company has been duly organized and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation. The Company has full corporate power and authority
to own its properties and conduct its business as currently being
carried on and as described in the Registration Statement, the Time
of Sale Disclosure Package and Prospectus, and is duly qualified to
do business as a foreign corporation in good standing in each
jurisdiction in which the ownership or lease of real property or
the conduct of its business requires such qualification and in
which the failure to so qualify would have a material adverse
effect upon the business, prospects, management, properties,
operations, condition (financial or otherwise) or results of
operations of the Company, taken as a whole (
“Material Adverse
Effect”
).
(vi)
Absence of Certain Events
. Except as
contemplated in the Registration Statement, the Time of Sale
Disclosure Package and in the Prospectus, subsequent to the date of
the most recent financial statements of the Company included in the
Time of Sale Disclosure Package, the Company has not incurred any
material liabilities or obligations, direct or contingent, or
entered into any material transactions, or declared or paid any
dividends or made any distribution of any kind with respect to its
capital stock; and there has not been any change in the capital
stock (other than a change in the number of outstanding shares of
Common Stock due to the issuance of shares upon the exercise of
outstanding options or warrants or conversion of convertible
securities), or any material change in the short-term or long-term
debt (other than as a result of the conversion of convertible
securities), or any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock, of the
Company, or any material adverse change in the business, prospects,
management, properties, operations, condition (financial or
otherwise) or results of operations of the Company, taken as a
whole (
“Material Adverse
Change”
), or any development which would reasonably be
expected to result in any Material Adverse
Change.
(vii)
Absence of
Proceedings
. Except as set forth in
the Time of Sale Disclosure Package and in the Prospectus, there is
not pending or, to the knowledge of the Company, threatened or
contemplated, any action, suit or proceeding (a) to which the
Company is a party or (b) which has as the subject thereof any
officer or director of the Company, any employee benefit plan
sponsored by the Company or any property or assets owned or leased
by the Company before or by any court or Governmental Authority (as
defined below), or any arbitrator, which, individually or in the
aggregate, would reasonably be expected to result in any Material
Adverse Change, or would materially and adversely affect the
ability of the Company to perform its obligations under this
Agreement or the Underwriter’s Warrant (as defined below) or
which are otherwise material in the context of the sale of the
Securities. There are no current or, to the knowledge of the
Company, pending, legal, governmental or regulatory actions, suits
or proceedings (x) to which the Company is subject or (y) which has
as the subject thereof any officer or director of the Company, any
employee plan sponsored by the Company or any property or assets
owned or leased by the Company, that are required to be described
in the Registration Statement, Time of Sale Disclosure Package and
Prospectus by the Act or by the Rules and Regulations and that have
not been so described.
(viii)
Authorization; No Conflicts;
Authority
. This Agreement has been duly authorized, executed
and delivered by the Company. The Underwriter’s Warrant has
been duly authorized and, at the First Closing Date and, if
applicable, the Second Closing Date, will be duly executed and
delivered by the Company. This Agreement constitutes, and the
Underwriter’s Warrant will constitute at the First Closing
Date and, if applicable, the Second Closing Date, a valid, legal
and binding obligation of the Company, enforceable in accordance
with its terms, except as rights to indemnity hereunder may be
limited by federal or state securities laws and except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity. The
execution, delivery and performance of this Agreement and the
Underwriter’s Warrant and the consummation of the
transactions herein contemplated will not (A) conflict with or
result in a breach or violation of any of the terms or provisions
of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company pursuant to any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the
Company is a party or by which the Company is bound or to which any
of the property or assets of the Company is subject, (B) result in
any violation of the provisions of the Company’s charter or
by-laws or (C) result in the violation of any law or statute or any
judgment, order, rule, regulation or decree of any court or
arbitrator or federal, state, local or foreign governmental agency
or regulatory authority having jurisdiction over the Company or any
of its properties or assets (each, a
“Governmental
Authority”
), except in the case of clauses (A) and (C)
as would not, individually or in the aggregate, reasonably be
likely to result in a Material Adverse Effect. No consent,
approval, authorization or order of, or registration or filing
with, any Governmental Authority is required for the execution,
delivery and performance of this Agreement or the
Underwriter’s Warrant or for the consummation of the
transactions contemplated hereby, including the issuance or sale of
the Securities by the Company or the issuance of shares of Common
Stock upon the exercise of the Underwriter’s Warrant, except
such as may be required under the Act, the rules of the Financial
Industry Regulatory Authority, Inc.
(
“FINRA”
),
The NASDAQ Stock Market Rules or state securities or blue sky laws;
and the Company has full corporate power and authority to enter
into this Agreement and the Underwriter’s Warrant and to
consummate the transactions contemplated hereby, including the
authorization, issuance and sale of the Securities as contemplated
by this Agreement and the issuance of shares of Common Stock upon
the exercise of the Underwriter’s
Warrant.
(ix)
Capitalization; the Securities; Registration
Rights
. All of the issued and outstanding shares of capital
stock of the Company, including the outstanding shares of Common
Stock, are duly authorized and validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and
state securities laws, and were not issued in violation of or
subject to any preemptive rights or other similar rights to
subscribe for or purchase securities that have not been waived in
writing (a copy of which has been delivered to counsel to the
Representative), and the holders thereof are not subject to
personal liability by reason of being such holders. The Securities
which may be sold hereunder (other than the Warrant Shares and the
shares of Common Stock which may be sold pursuant to the
Underwriter’s Warrant by the Company) have been duly
authorized and, when issued, delivered and paid for in accordance
with the terms of this Agreement, will have been validly issued and
will be fully paid and nonassessable, and the holders thereof will
not be subject to personal liability by reason of being such
holders. The Warrant Shares and the shares of Common Stock which
may be sold pursuant to the Underwriter’s Warrant by the
Company, when issued in accordance with the terms of this
Agreement, the Warrant Agreement, the Warrants and the
Underwriter’s Warrant (including, without limitation, payment
of the exercise price therefor), will have been validly issued and
will be fully paid and nonassessable, and the the holders thereof
will not be subject to personal liability by reason of being such
holders. The capital stock of the Company, including the Common
Stock, conforms to the description thereof in the Registration
Statement, in the Time of Sale Disclosure Package and in the
Prospectus. Except as otherwise stated in the Registration
Statement, in the Time of Sale Disclosure Package and in the
Prospectus, (A) there are no preemptive rights or other rights
to subscribe for or to purchase, or any restriction upon the voting
or transfer of, any shares of Common Stock pursuant to the
Company’s charter, by-laws or any agreement or other
instrument to which the Company is a party or by which the Company
is bound, (B) none of the filing of the Registration Statement, the
offering, the sale of the Securities or the Underwriter’s
Warrant as contemplated by this Agreement, or the issuance of
shares of Common Stock upon exercise of the Underwriter’s
Warrant, give rise to any rights (other than rights in favor of the
holders of the Underwriter’s Warrant) for or relating to the
registration of any shares of Common Stock or other securities of
the Company (collectively
“Registration
Rights”
) and (C) any person to whom the Company
has granted Registration Rights has agreed not to exercise such
rights until after expiration of the Lock-Up Period (as defined
below). The Company has an authorized and outstanding
capitalization as set forth in the Registration Statement, in the
Time of Sale Disclosure Package and in the Prospectus under the
caption “Description of Securities We Are Offering.”
The Common Stock (including the Securities) conforms in all
material respects to the descriptions thereof contained in the Time
of Sale Disclosure Package and the Prospectus.
(x)
Stock Options
. Except as described in
the Registration Statement, in the Time of Sale Disclosure Package
and in the Prospectus, there are no options, warrants, agreements,
contracts or other rights in existence to purchase or acquire from
the Company any shares of the capital stock of the Company. The
description of the Company’s stock option, stock bonus and
other stock plans or arrangements (the
“Company Stock
Plans”
), and the options (the
“Options”
)
or other rights granted thereunder, set forth in the Time of Sale
Disclosure Package and the Prospectus, accurately and fairly
presents in all material respects the information required to be
shown with respect to such plans, arrangements, options and rights.
Each grant of an Option (A) was duly authorized by all necessary
corporate action, including, as applicable, approval by the board
of directors of the Company (or a duly constituted and authorized
committee thereof) and any required stockholder approval by the
necessary number of votes or written consents, and the award
agreement governing such grant (if any) was duly executed and
delivered by each party thereto and (B) was made in accordance
with the terms of the applicable Company Stock Plan, and all
applicable laws and regulatory rules or requirements, including all
applicable federal securities laws.
(xi)
Compliance with Laws
. Except as would
not, individually or in the aggregate, reasonably be likely to have
a Material Adverse Effect, the Company holds, and is operating in
compliance with, all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates and orders of any
Governmental Authority or self-regulatory body required for the
conduct of its business and all such franchises, grants,
authorizations, licenses, permits, easements, consents,
certifications and orders are valid and in full force and effect;
and except as would, individually or in the aggregate, reasonably
be likely to have a Material Adverse Effect, the Company has not
received notice of any revocation or modification of any such
franchise, grant, authorization, license, permit, easement,
consent, certification or order or has reason to believe that any
such franchise, grant, authorization, license, permit, easement,
consent, certification or order will not be renewed in the ordinary
course; and except as would not, individually or in the aggregate,
reasonably be likely to have a Material Adverse Effect, the Company
is in compliance with all applicable federal, state, local and
foreign laws, regulations, orders and decrees.
(xii)
Ownership of Assets
. The Company has
good and marketable title to all property (whether real or
personal) described in the Registration Statement, in the Time of
Sale Disclosure Package and in the Prospectus as being owned by it,
in each case free and clear of all liens, claims, security
interests, other encumbrances or defects except such as are
described in the Registration Statement, in the Time of Sale
Disclosure Package and in the Prospectus. The property held under
lease by the Company is held by it under valid, subsisting and
enforceable leases with only such exceptions with respect to any
particular lease as do not interfere in any material respect with
the conduct of the business of the Company.
(xiii)
Intellectual Property
. The Company
owns, possesses, or to the knowledge of the Company can acquire on
reasonable terms, all material Intellectual Property necessary for
the conduct of the Company’s business as now conducted or as
described in the Registration Statement, the Time of Sale
Disclosure Package and the Prospectus to be conducted. Furthermore,
(A) to the knowledge of the Company, there is no infringement,
misappropriation or violation by third parties of any such
Intellectual Property owned or licensed by the Company; (B) there
is no pending or, to the knowledge of the Company, threatened,
action, suit, proceeding or claim by others challenging the
Company’s rights in or to any such Intellectual Property
owned or licensed by the Company, and to the knowledge of the
Company, there are no facts that would form a reasonable basis for
any such claim; (C) the Intellectual Property owned by the Company,
and to the knowledge of the Company, the Intellectual Property
licensed to the Company, has not been adjudged invalid or
unenforceable, in whole or in part, and there is no pending or, to
the knowledge of the Company, threatened action, suit, proceeding
or claim by others challenging the validity or scope of any such
Intellectual Property, and to the knowledge of the Company, there
are no material facts that would form a reasonable basis for any
such claim; (D) there is no pending or, to the knowledge of the
Company, threatened action, suit, proceeding or claim by others
that the Company infringes, misappropriates or otherwise violates
any Intellectual Property or other proprietary rights of others,
the Company has not received any written notice of such claim and
to the knowledge of the Company, there are no material facts that
would form a reasonable basis for any such claim; and (E) to the
Company’s knowledge, no employee of the Company is in or has
ever been in violation of any term of any employment contract,
patent disclosure agreement, invention assignment agreement,
non-competition agreement, non-solicitation agreement,
nondisclosure agreement or any restrictive covenant to or with a
former employer where the basis of such violation relates to such
employee’s employment with the Company or actions undertaken
by the employee while employed with the Company, except as such
violation would not result in a Material Adverse Effect.
“Intellectual
Property”
shall mean all patents, patent applications,
trade and service marks, trade and service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets,
domain names, technology and other intellectual
property.
(xiv)
No Violations or Defaults
. The Company
is not in violation of its charter, by-laws or other organizational
documents or in breach of or otherwise in default under any bond,
debt, note, indenture, loan agreement or any other contract, lease
or other instrument to which it is subject or by which it may be
bound, or to which any of the property or assets of the Company is
subject, except for any such violation, breach or default that has
been waived by the other party. No event has occurred which, with
notice or lapse of time or both, would constitute such a default in
the performance of any obligation, agreement or condition contained
in any bond, debenture, note, indenture, loan agreement or any
other contract, lease or other instrument to which it is subject or
by which any of them may be bound, or to which any of the property
or assets of the Company is subject, except for such breach or
default as is not, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect.
(xv)
Taxes
. The Company has timely filed
all federal, state, local and foreign income and franchise tax
returns required to be filed (taking into account valid extensions
of time to file) and is not in default in the payment of any taxes
which were payable pursuant to said returns or any assessments with
respect thereto, other than any which the Company is contesting in
good faith. There is no pending dispute with any taxing authority
relating to any of such returns, and the Company has no knowledge
of any proposed liability for any tax to be imposed upon the
properties or assets of the Company for which there is not an
adequate reserve reflected in the Company’s financial
statements included in the Registration Statement, the Time of Sale
Disclosure Package and the Prospectus.
(xvi)
Exchange
Listing and Exchange Act Registration
. The Common Stock has
been approved for listing on The NASDAQ Capital Market upon
official notice of issuance and, on the date the Registration
Statement became effective, the Company’s Registration
Statement on Form 8-A or other applicable form under the Securities
Exchange Act of 1934, as amended (the
“Exchange
Act”
), became effective. Except as previously
disclosed to counsel for the Underwriters or as set forth in the
Time of Sale Disclosure Package and the Prospectus, there are no
affiliations with members of FINRA among the Company’s
officers or directors or, to the knowledge of the Company, any five
percent or greater stockholders of the Company or any beneficial
owner of the Company’s unregistered equity securities that
were acquired during the 180-day period immediately preceding the
initial filing date of the Registration Statement. The
Company’s board of directors has, subject to the exceptions,
cure periods and the phase-in periods specified in the applicable
stock exchange rules (the
“Exchange
Rules”
), validly appointed an audit committee to
oversee internal accounting controls whose composition satisfies
the applicable requirements of the Exchange Rules and the
Company’s board of directors and/or the audit committee has
adopted a charter that satisfies the requirements of the Exchange
Rules.
(xvii)
Ownership of Other Entities
. The
Company, directly or indirectly, owns no capital stock or other
equity or ownership or proprietary interest in any corporation,
partnership, association, trust or other
entity.
(xviii)
Internal Controls
. The Company
maintains a system of internal accounting controls sufficient to
provide reasonable assurances that (i) transactions are
executed in accordance with management’s general or specific
authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP
and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management’s
general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect
to any differences. Except as disclosed in the Registration
Statement, in the Time of Sale Disclosure Package and in the
Prospectus, the Company’s internal control over financial
reporting is effective and none of the Company, its board of
directors and audit committee is aware of any “significant
deficiencies” or “material weaknesses” (each as
defined by the Public Company Accounting Oversight Board) in its
internal control over financial reporting, or any fraud, whether or
not material, that involves management or other employees of the
Company who have a significant role in the Company’s internal
controls; and since the end of the latest audited fiscal year,
there has been no change in the Company’s internal control
over financial reporting (whether or not remediated) that has
materially affected, or is reasonably likely to materially affect,
the Company’s internal control over financial reporting. The
Company’s board of directors has, subject to the exceptions,
cure periods and the phase-in periods specified in the applicable
stock exchange rules (
“Exchange
Rules”
), validly appointed an audit committee to
oversee internal accounting controls whose composition satisfies
the applicable requirements of the Exchange Rules and the
Company’s board of directors and/or the audit committee has
adopted a charter that satisfies the requirements of the Exchange
Rules.
(xix)
No Brokers or Finders
. Other than as
contemplated by this Agreement, the Company has not incurred and
will not incur any liability for any finder’s or
broker’s fee or agent’s commission in connection with
the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
(xx)
Insurance
. The Company carries, or is
covered by, insurance from reputable insurers in such amounts and
covering such risks as is adequate for the conduct of its business
and the value of its properties and as is customary for companies
engaged in similar businesses in similar industries; all policies
of insurance and any fidelity or surety bonds insuring the Company
or its business, assets, employees, officers and directors are in
full force and effect; the Company is in compliance with the terms
of such policies and instruments in all material respects; there
are no claims by the Company under any such policy or instrument as
to which any insurance company is denying liability or defending
under a reservation of rights clause; the Company has not been
refused any insurance coverage sought or applied for; and the
Company has no reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not,
individually or in the aggregate, have a Material Adverse
Effect.
(xxi)
Investment Company Act
. The Company is
not and, after giving effect to the offering and sale of the
Securities, will not be an “investment company,” as
such term is defined in the Investment Company Act of 1940, as
amended.
(xxii)
Sarbanes-Oxley Act
. The Company is in
compliance with all applicable provisions of the Sarbanes-Oxley Act
and the rules and regulations of the Commission
thereunder.
(xxiii)
Disclosure Controls
. The Company has
established and maintains disclosure controls and procedures (as
defined in Rules 13a-14 and 15d-14 under the Exchange Act) and such
controls and procedures are effective in ensuring that material
information relating to the Company is made known to the principal
executive officer and the principal financial officer. The Company
has utilized such controls and procedures in preparing and
evaluating the disclosures in the Registration Statement, in the
Time of Sale Disclosure Package and in the
Prospectus.
(xxiv)
Anti-Bribery and Anti-Money Laundering
Laws
. Each of the Company, its officers, directors,
supervisors, managers and employees, and to the knowledge of the
Company, its affiliates or agents and any of their respective
officers, directors, supervisors, managers, agents and employees,
has not violated, its participation in the offering will not
violate, and the Company has instituted and maintains policies and
procedures designed to ensure continued compliance with, each of
the following laws: (A) anti-bribery laws, including but not
limited to, any applicable law, rule, or regulation of any
locality, including but not limited to any law, rule, or regulation
promulgated to implement the OECD Convention on Combating Bribery
of Foreign Public Officials in International Business Transactions,
signed December 17, 1997, including the U.S. Foreign Corrupt
Practices Act of 1977, as amended, the U.K. Bribery Act 2010, or
any other law, rule or regulation of similar purposes and scope or
(B) anti-money laundering laws, including but not limited to,
applicable federal, state, international, foreign or other laws,
regulations or government guidance regarding anti-money laundering,
including, without limitation, Title 18 US. Code section 1956 and
1957, the Patriot Act, the Bank Secrecy Act, and international
anti-money laundering principles or procedures by an
intergovernmental group or organization, such as the Financial
Action Task Force on Money Laundering, of which the United States
is a member and with which designation the United States
representative to the group or organization continues to concur,
all as amended, and any executive order, directive, or regulation
pursuant to the authority of any of the foregoing, or any orders or
licenses issued thereunder. The Company has instituted, maintains
and enforces policies and procedures designed to ensure compliance
with anti-bribery laws.
(xxv)
OFAC
.
(A) Neither
the Company nor any of its directors or officers, nor, to the
Company’s knowledge, any employee, agent, affiliate or
representative of the Company, is an individual or entity that is,
or is owned or controlled by an individual or entity that
is:
(1) the
subject of any sanctions administered or enforced by the U.S.
Department of Treasury’s Office of Foreign Assets Control,
the United Nations Security Council, the European Union, Her
Majesty’s Treasury, or other relevant sanctions authority
(collectively,
“Sanctions”
),
nor
(2) located,
organized or resident in a country or territory that is the subject
of Sanctions (including, without limitation, the Crimea Region of
the Ukraine, Cuba, Iran, North Korea, Sudan and Syria).
(B) The
Company will not, directly or indirectly, use the proceeds of the
offering, or lend, contribute or otherwise make available such
proceeds to any subsidiary, joint venture partner or other
individual or entity:
(1) to
fund or facilitate any activities or business of or with any
individual or entity or in any country or territory that, at the
time of such funding or facilitation, is the subject of Sanctions;
or
(2) in
any other manner that will result in a violation of Sanctions by
any individual or entity (including any individual or entity
participating in the offering, whether as underwriter, advisor,
investor or otherwise).
(C) For
the past five years, neither the Company nor any of its
subsidiaries, whether or not currently existing, has knowingly
engaged in, and is not now knowingly engaged in, any dealings or
transactions with any individual or entity, or in any country or
territory, that at the time of the dealing or transaction is or was
the subject of Sanctions.
(xxvi)
Compliance with Environmental Laws
.
Except as disclosed in the Registration Statement, the Time of
Disclosure Package and the Prospectus, the Company is not in
violation of any statute, any rule, regulation, decision or order
of any Governmental Authority or any court, domestic or foreign,
relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the
environment or human exposure to hazardous or toxic substances
(collectively,
“Environmental
Laws”
), owns or operates any real property
contaminated with any substance that is subject to any
Environmental Laws, is liable for any off-site disposal or
contamination pursuant to any Environmental Laws, or is subject to
any claim relating to any Environmental Laws, which violation,
contamination, liability or claim would individually or in the
aggregate, have a Material Adverse Effect; and the Company is not
aware of any pending investigation which would reasonably be
expected to lead to such a claim. The Company does not anticipate
incurring any material capital expenditures relating to compliance
with Environmental Laws.
(xxvii)
Compliance with Occupational
Laws
. The Company (A) is in compliance with any and all
applicable foreign, federal, state and local laws, rules,
regulations, treaties, statutes and codes promulgated by any and
all Governmental Authorities (including pursuant to the
Occupational Health and Safety Act) relating to the protection of
human health and safety in the workplace (
“Occupational
Laws”
); (B) has received all permits, licenses or
other approvals required of it under applicable Occupational Laws
to conduct its business as currently conducted; and (C) is in
compliance with all terms and conditions of such permits, licenses
or approvals, except in the case of each of clauses (A), (B) and
(C) above where such noncompliance with Occupational Laws, failure
to receive required permits, licenses or other approvals or failure
to comply with the terms and conditions of such permits, licenses
or other approvals would not have a Material Adverse Effect. No
action, proceeding, revocation proceeding, writ, injunction or
claim is pending or, to the Company’s knowledge, threatened
against the Company relating to Occupational Laws, and the Company
does not have knowledge of any facts, circumstances or developments
relating to its operations or cost accounting practices that would
reasonably be expected to form the basis for or give rise to such
actions, suits, investigations or proceedings.
(xxviii)
ERISA
and Employee Benefits Matters
. (A) To the knowledge of the
Company, no “prohibited transaction” as defined under
Section 406 of ERISA or Section 4975 of the Code and not exempt
under ERISA Section 408 or the regulations or published
interpretations thereunder has occurred with respect to any
Employee Benefit Plan. At no time has the Company or any ERISA
Affiliate maintained, sponsored, participated in, contributed to or
has or had any liability or obligation in respect of any Employee
Benefit Plan subject to Part 3 of Subtitle B of Title I of ERISA,
Title IV of ERISA, or Section 412 of the Code or any
“multiemployer plan” as defined in Section 3(37) of
ERISA or any multiple employer plan for which the Company or any
ERISA Affiliate has incurred or could incur liability under Section
4063 or 4064 of ERISA. No Employee Benefit Plan provides or
promises, or at any time provided or promised, retiree health,
retiree life insurance, or other retiree welfare benefits except as
may be required by the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, or similar state law. Each Employee
Benefit Plan is and has been operated in material compliance with
its terms and all applicable laws, including but not limited to
ERISA and the Code and, to the knowledge of the Company, no event
has occurred (including a “reportable event” as such
term is defined in Section 4043 of ERISA) and no condition exists
that would subject the Company or any ERISA Affiliate to any
material tax, fine, lien, penalty or liability imposed by ERISA,
the Code or other applicable law. Each Employee Benefit Plan
intended to be qualified under Code Section 401(a) is so qualified
and has a favorable determination or opinion letter from the IRS
upon which it can rely, and any such determination or opinion
letter remains in effect and has not been revoked; to the knowledge
of the Company, nothing has occurred since the date of any such
determination or opinion letter that is reasonably likely to
adversely affect such qualification; (B) with respect to each
Foreign Benefit Plan (if any), such Foreign Benefit Plan (1) if
intended to qualify for special tax treatment, meets, in all
material respects, the requirements for such treatment, and (2) if
required to be funded, is funded to the extent required by
applicable law, and with respect to all other Foreign Benefit
Plans, adequate reserves therefor have been established on the
accounting statements of the Company; and (C) the Company does not
have any obligations under any collective bargaining agreement with
any union and, to the knowledge of the Company, no organization
efforts are underway with respect to Company employees. As used in
this Agreement,
“Code”
means the Internal Revenue Code of 1986, as amended;
“Employee Benefit
Plan”
means any “employee benefit plan”
within the meaning of Section 3(3) of ERISA, including, without
limitation, all stock purchase, stock option, stock-based
severance, employment, change-in-control, medical, disability,
fringe benefit, bonus, incentive, deferred compensation, employee
loan and all other employee benefit plans, agreements, programs,
policies or other arrangements, whether or not subject to ERISA,
under which (x) any current or former employee, director or
independent contractor of the Company has any present or future
right to benefits and which are contributed to, sponsored by or
maintained by the Company and (y) the Company has had or has any
present or future obligation or liability;
“ERISA”
means the Employee Retirement Income Security Act of 1974, as
amended;
“ERISA
Affiliate”
means any member of the company’s
controlled group as defined in Code Section 414(b), (c), (m) or
(o); and
“Foreign Benefit
Plan”
means any Employee Benefit Plan established,
maintained or contributed to outside of, and subject to applicable
laws other than those of, the United States of America or any state
thereof, or which covers any employee working or residing outside
of the United States who is subject to applicable laws other than
those of the United States or any state thereof with respect to
such Employee Benefit Plan.
(xxix)
Business
Arrangements
. Except as disclosed in the Registration
Statement, the Time of Sale Disclosure Package and the Prospectus,
the Company has not granted any rights to develop, manufacture,
produce, assemble, distribute, license, market or sell its products
to any other person and is not bound by any agreement that affects
the exclusive right of the Company to develop, manufacture,
produce, assemble, distribute, license, market or sell its
products.
(xxx)
Labor
Matters
. No labor problem or dispute with the employees of
the Company exists or is threatened or imminent, and the Company is
not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, contractors or
customers, that would, individually or in the aggregate, reasonably
be expected to result in a Material Adverse
Effect.
(xxxi)
Disclosure
of Legal Matters
. There are no statutes, regulations, legal
or governmental proceedings or contracts or other documents
required to be described in the Time of Sale Disclosure Package or
in the Prospectus or included as exhibits to the Registration
Statement that are not described or included as
required.
(xxxii)
Statistical
Information
. Any third-party statistical and market-related
data included in the Registration Statement, the Time of Sale
Disclosure Package and the Prospectus are based on or derived from
sources that the Company believes to be reliable and accurate in
all material respects.
(xxxiii)
Forward-looking Statements
. No
forward-looking statement (within the meaning of Section 27A
of the Act and Section 21E of the Exchange Act) contained in
the Registration Statement, the Time of Sale Disclosure Package or
the Prospectus has been made or reaffirmed without a reasonable
basis or has been disclosed other than in good
faith.
(xxxvi)
Emerging
Growth Company
. From the time of the initial confidential
submission of the Registration Statement to the Commission through
the date hereof, the Company has been and is an “emerging
growth company,” as such term is defined in Section 2(a) of
the Act (an
“Emerging Growth
Company”
).
(xxxvii)
Related
Party Transactions
.
To
the Company’s knowledge, no transaction has occurred between
or among the Company, on the one hand, and any of the
Company’s officers, directors or five percent or greater
stockholders or any affiliate or affiliates of any such officer,
director or five percent or greater stockholders that is required
to be described that is not so described in the Registration
Statement, the Time of Sale Disclosure Package and the Prospectus.
The Company has not, directly or indirectly, extended or maintained
credit, or arranged for the extension of credit, or renewed an
extension of credit, in the form of a personal loan to or for any
of its directors or executive officers in violation of applicable
laws, including Section 402 of the Sarbanes-Oxley
Act.
(b)
Effect of Certificates
. Any
certificate signed by any officer of the Company and delivered to
you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as
to the matters covered thereby.
3.
Purchase, Sale and
Delivery of Securities
.
(a)
Firm Shares
. On the basis of the
representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company
agrees to issue and sell the Firm Shares to the several
Underwriters, and each Underwriter agrees, severally and not
jointly, to purchase from the Company the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto.
The purchase price for each Firm Share shall be $[●] per
share. In making this Agreement, each Underwriter is contracting
severally and not jointly; except as provided in paragraph (f) of
this Section 3, the agreement of each Underwriter is to purchase
only the respective number of Firm Shares specified in
Schedule I.
(b)
Firm Warrants
. On the basis of the
representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company
agrees to issue and sell Firm Warrants to purchase [●] shares
of Common Stock to the several Underwriters, and each Underwriter
agrees to purchase from the Company the Firm Warrants set forth
opposite the name of such Underwriter in Schedule I hereto. The
purchase price shall be $[●] for each Firm Warrant to
purchase [●] of a share of Common Stock.
(c)
Option Shares
. On the basis of the
representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company
hereby grants to the several Underwriters an option to purchase all
or any portion of the Option Shares at the same purchase price as
the Firm Shares, for use solely in covering any over-allotments
made by the Underwriters in the sale and distribution of the Firm
Shares. The option granted hereunder may be exercised in whole or
in part at any time within 30 days after the effective date of this
Agreement upon notice (confirmed in writing) by the Representative
to the Company setting forth the aggregate number of Option Shares
as to which the several Underwriters are exercising the option and
the date and time, as determined by you, when the Option Shares are
to be delivered, but in no event earlier than the First Closing
Date (as defined below) nor earlier than the second business day or
later than the tenth business day after the date on which the
option shall have been exercised. The number of Option Shares to be
purchased by each Underwriter shall be the same percentage of the
total number of Option Shares to be purchased by the several
Underwriters as the number of Firm Shares to be purchased by such
Underwriter is of the total number of Firm Shares to be purchased
by the several Underwriters, as adjusted by the Representative in
such manner as the Representative deems advisable to avoid
fractional shares. No Option Shares shall be sold and delivered
unless the Firm Shares previously have been, or simultaneously are,
sold and delivered.
(d)
Option Warrants
. On the basis of the
representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company,
with respect to the Option Warrants hereby grants to the several
Underwriters an option to purchase all or any portion of the Option
Warrants at the same purchase price as the Firm Warrants, for use
solely in covering any over-allotments made by the Underwriters in
the sale and distribution of the Firm Warrants. The option granted
hereunder may be exercised in whole or in part at any time within
30 days after the effective date of this Agreement upon notice
(confirmed in writing) by the Representative to the Company setting
forth the aggregate number of Option Warrants as to which the
several Underwriters are exercising the option and the date and
time, as determined by the Representative, when the Option Warrants
are to be delivered, but in no event earlier than the First Closing
Date (as defined below) nor earlier than the second business day or
later than the tenth business day after the date on which the
option shall have been exercised. No Option Warrants shall be sold
and delivered unless the Firm Warrants previously have been, or
simultaneously are, sold and delivered.
(e)
Payment and
Delivery
.
(i)
The Securities to be purchased by each Underwriter hereunder, in
book-entry form in such authorized denominations and registered in
such names as you may request upon at least forty-eight
hours’ prior notice to the Company, shall be delivered by or
on behalf of the Company to you, through the facilities of the
Depository Trust Company (
“DTC”
),
for the account of such Underwriter, with any transfer taxes
payable in connection with the transfer of the Securities to the
Underwriters duly paid, against payment by or on behalf of such
Underwriter of the purchase price therefor by wire transfer of
Federal (same-day) funds to the account specified by the Company to
you at least forty-eight hours in advance. The time and date of
such delivery and payment shall be, with respect to the Firm Shares
and Firm Warrants, 9:30 a.m., New York City time, on [●]
or such other time and date as you and the Company may agree upon
in writing, and, with respect to the Option Shares and/or Option
Warrants, as applicable, 9:30 a.m., New York City time, on the
date specified by you in each written notice given by you of the
election to purchase such Option Shares and/or Option Warrants, or
such other time and date as you and the Company may agree upon in
writing. Such time and date for delivery of the Firm Shares and
Firm Warrants is herein called the
“First Closing
Date,”
each such time and date for delivery of the
Option Shares and/or Option Warrants, if not the First Closing
Date, is herein called a
“Second Closing
Date,”
and each such time and date for delivery is
herein called a
“Closing.”
(ii)
The documents to be delivered at each Closing by or on behalf of
the parties hereto pursuant to Section 5 hereof, including the
cross receipt for the Securities and any additional documents
requested by the Underwriters pursuant to Section 5(j) hereof,
will be delivered at the offices of the Company, and the Securities
will be delivered to you, through the facilities of the DTC, for
the account of such Underwriter, all at such
Closing.
(f)
Purchase by Representative on Behalf of
Underwriters
. It is understood that you, individually and
not as Representative of the several Underwriters, may (but shall
not be obligated to) make payment to the Company, on behalf of any
Underwriter for the Securities to be purchased by such Underwriter.
Any such payment by you shall not relieve any such Underwriter of
any of its obligations hereunder. Nothing herein contained shall
constitute any of the Underwriters an unincorporated association or
partner with the Company.
4.
Covenants
. The
Company covenants and agrees with the several Underwriters as
follows:
(a)
Required Filings
. The Company will
prepare and file a Prospectus with the Commission containing the
Rule 430A Information omitted from the Preliminary Prospectus
within the time period required by, and otherwise in accordance
with the provisions of, Rules 424(b) and 430A of the Rules and
Regulations. If the Company has elected to rely upon
Rule 462(b) of the Rules and Regulations to increase the size
of the offering registered under the Act and the Rule 462(b)
Registration Statement has not yet been filed and become effective,
the Company will prepare and file the Rule 462(b) Registration
Statement with the Commission within the time period required by,
and otherwise in accordance with the provisions of,
Rule 462(b) of the Rules and Regulations and the Act. The
Company will prepare and file with the Commission, promptly upon
your request, any amendments or supplements to the Registration
Statement or Prospectus that, in your opinion, may be necessary or
advisable in connection with the distribution of the Securities by
the Underwriters; and the Company will furnish you and counsel for
the Underwriters a copy of any proposed amendment or supplement to
the Registration Statement or Prospectus and will not file any
amendment or supplement to the Registration Statement or Prospectus
to which you shall reasonably object by notice to the Company after
having been furnished a copy a reasonable time prior to the
filing.
(b)
Notification of Certain Commission
Actions
. The Company will advise you, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance
by the Commission of any stop order suspending the effectiveness of
the Registration Statement, or any post-effective amendment thereto
or preventing or suspending the use of any Preliminary Prospectus,
the Time of Sale Disclosure Package, the Prospectus or any issuer
free writing prospectus, of the suspension of the qualification of
the Securities for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceeding for any such purpose;
and the Company will promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such a
stop order should be issued.
(c)
Continued Compliance with
Securities Laws
. Within the time during which a prospectus
(assuming the absence of Rule 172) relating to the Securities is
required to be delivered under the Act by any Underwriter or any
dealer, the Company will comply with all requirements imposed upon
it by the Act, as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of or dealings in the Securities as
contemplated by the provisions hereof, the Time of Sale Disclosure
Package and the Prospectus. The Company use its commercially
reasonable efforts to keep the Registration Statement continuously
effective under the Act, and to file on a timely basis wit hthe
Commission such periodic and special reports as required by the
Rules and Regulations, until the earliest of (i) such time as all
of the Securities (including the Firm Warrants and the Option
Warrants) covered by such Registration Statement have been sold by
the holders of such Securities; and (ii) the fifth anniversary of
the Closing; provided, however, that, the foregoing requirements
shall automatically terminate in connection with the consummation
of a Fundamental Transaction. “
Fundamental
Transaction
” means that the Company shall,
directly or indirectly, in one or more related transactions, sell,
transfer, convey or otherwise dispose of all or substantially all
of its respective properties and assets to any other person that is
not an affiliate of the Company. If during such period any event
occurs as a result of which the Registration Statement or the
Prospectus (or if the Prospectus is not yet available to
prospective purchasers, the Time of Sale Disclosure Package) would
include an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the
light of the circumstances then existing, not misleading, or if
during such period it is necessary to amend the Registration
Statement or supplement the Prospectus (or if the Prospectus is not
yet available to prospective investors, the Time of Sale Disclosure
Package) to comply with the Act, the Company promptly will (x)
notify you of such untrue statement or omission, (y) amend the
Registration Statement or supplement the Prospectus (or, if the
Prospectus is not yet available to prospective purchasers, the Time
of Sale Disclosure Package) (at the expense of the Company) so as
to correct such statement or omission or effect such compliance and
(z) notify you when any amendment to the Registration Statement is
filed or becomes effective or when any supplement to the Prospectus
(or, if the Prospectus is not yet available to prospective
purchasers, the Time of Sale Disclosure Package) is
filed.
(d)
Blue Sky Qualifications
. The Company
shall take or cause to be taken all necessary action to qualify the
Securities for sale under the securities laws of such domestic
United States or foreign jurisdictions as you reasonably designate
and to continue such qualifications in effect so long as required
for the distribution of the Securities, except that the Company
shall not be required in connection therewith to qualify as a
foreign corporation or to execute a general consent to service of
process in any state.
(e)
Provision of Documents
. The Company
will furnish, at its own expense, to the Underwriters and counsel
for the Underwriters copies of the Registration Statement, and to
the Underwriters and any dealer each Preliminary Prospectus, the
Time of Sale Disclosure Package, the Prospectus, and all amendments
and supplements to such documents, in each case as soon as
practicable once available and in such quantities as you may from
time to time reasonably request.
(f)
Rule 158
. The Company will make
generally available to its security holders as soon as practicable,
but in no event later than 15 months after the end of the
Company’s current fiscal quarter, an earnings statement
(which need not be audited) covering a 12-month period beginning
after the effective date of the Registration Statement (which, for
purposes of this paragraph, will be deemed to be the effective date
of the Rule 462(b) Registration Statement, if applicable) that
shall satisfy the provisions of Section 11(a) of the Act and
Rule 158 of the Rules and Regulations.
(g)
Payment and Reimbursement of Expenses
.
The Company, whether or not the transactions contemplated hereunder
are consummated or this Agreement is terminated, will pay or cause
to be paid (A) all expenses (including transfer taxes allocated to
the respective transferees) incurred in connection with the
delivery to the Underwriters of the Securities, (B) all expenses
and fees (including, without limitation, fees and expenses of the
Company’s accountants and counsel) in connection with the
preparation, printing, filing, delivery, and shipping of the
Registration Statement (including the financial statements therein
and all amendments, schedules, and exhibits thereto), the
Securities, each Preliminary Prospectus, the Time of Sale
Disclosure Package, the Prospectus, and any amendment thereof or
supplement thereto, and the printing, delivery, and shipping of
this Agreement and other underwriting documents, including Blue Sky
Memoranda (covering the states and other applicable jurisdictions),
(C) all filing fees and fees incurred in connection with the
qualification of the Securities for offering and sale by the
Underwriters or by dealers under the securities or blue sky laws of
the states and other jurisdictions which you shall designate,
including the reasonably incurred fees and disbursements of counsel
for the Underwriters in connection with such qualification, (D) all
filing fees and the reasonably incurred fees and disbursements of
counsel to the Underwriters in connection with the review and
qualification of the offering of the Securities by FINRA, (E) all
fees and expenses in connection with the preparation and filing of
the registration statement on Form 8-A related to the Securities
and all costs and expenses incident to listing the Common Stock on
The NASDAQ Capital Market, (F) all fees and expenses of any
transfer agent, warrant agent or registrar, (G) the reasonable
out-of-pocket accountable fees and disbursements incurred by the
Underwriters in connection with the offer, sale or marketing of the
Securities and performance of the Underwriters’ obligations
hereunder, including all reasonable out-of-pocket accountable fees
and disbursements of Underwriters’ counsel, and for the
avoidance of doubt, excluding any general overhead, salaries,
supplies, or similar expenses of the Underwriters incurred in the
normal conduct of business, (H)
all fees, expenses and disbursements
relating to background checks of the Company’s officers and
directors
(I) the cost and expenses of the Company relating
to investor presentations or any “road show” undertaken
in connection with marketing of the Securities, including, without
limitation, expenses associated with the preparation or
dissemination of any electronic road show, expenses associated with
the production of road show slides and graphics, fees and expenses
of any consultants engaged in connection with the road show
presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company
and any such consultants and the cost of any aircraft chartered in
connection with the road show, and (J)
all other costs and expenses of
the Company incident to the performance of its obligations
hereunder that are not otherwise specifically provided for herein.
The fees and expenses, which includes the fees and expenses of the
Underwriters’ counsel, to be paid by the Company and
reimbursed to the Underwriters under this Section 4(g) shall not
exceed $100,000. If this Agreement is terminated by you pursuant to
Section 8 hereof or if the sale of the Securities provided for
herein is not consummated by reason of any failure, refusal or
inability on the part of the Company to perform any agreement on
its part to be performed, or because any other condition of the
Underwriters’ obligations hereunder required to be fulfilled
by the Company is not fulfilled, the Company will reimburse the
several Underwriters for all reasonable out-of-pocket accountable
disbursements (including but not limited to fees and disbursements
of counsel, printing expenses, travel expenses, postage, facsimile
and telephone charges) incurred by the Underwriters in connection
with their investigation, preparing to market and marketing the
Securities or in contemplation of performing their obligations
hereunder.
(h)
Use of Proceeds
. The Company will
apply the net proceeds from the sale of the Securities to be sold
by it hereunder for the purposes set forth in the Time of Sale
Disclosure Package and in the Prospectus and will file such reports
with the Commission with respect to the sale of the Securities and
the application of the proceeds therefrom as may be required in
accordance with Rule 463 of the Rules and
Regulations.
(i)
Company
Lock Up
. The Company will not, without the prior written
consent of the Representative, from the date of execution of this
Agreement and continuing to and including the date 365 days after
the date of the Prospectus (the
“Lock-Up
Period”
), (A) offer, pledge, announce the intention to
sell, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for
Common Stock or (B) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction
described in clause (A) or (B) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise,
except to the Underwriters pursuant to this Agreement and
(x) grants of options, shares of Common Stock and other awards
to purchase or receive shares of Common Stock under the Company
Stock Plans that are in effect as of or prior to the date hereof,
(y) issuances of shares of Common Stock upon the exercise of
options or other awards granted under such Company Stock Plans or
the Company’s preferred stock outstanding as of the date
hereof pursuant to the terms thereof as of such date or (z)
issuance of shares of Common Stock upon the conversion of
convertible securities outstanding as of the date hereof. The
Company agrees not to accelerate the vesting of any option or
warrant or the lapse of any repurchase right prior to the
expiration of the Lock-Up Period.
(j)
Stockholder Lock-Ups
. The Company has
caused to be delivered to you prior to the date of this Agreement a
letter, in the form of Exhibit B hereto (the
“Lock-Up
Agreement”
), from each individual or entity listed on
Schedule II.
The
Company will enforce the terms of each Lock-Up Agreement and issue
stop-transfer instructions to its transfer agent and registrar for
the Common Stock with respect to any transaction or contemplated
transaction that would constitute a breach of or default under the
applicable Lock-Up Agreement and will not release the stop transfer
instructions without the written approval of the
Representative.
(k)
No Market Stabilization or
Manipulation
. The Company has not taken and will not take,
directly or indirectly, any action designed to or which might
reasonably be expected to cause or result in, or which has
constituted, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Securities, and has not effected any sales of Common Stock which
are required to be disclosed in response to Item 701 of
Regulation S-K under the Act which have not been so disclosed
in the Registration Statement.
(l)
Free
Writing Prospectuses
. The Company represents and agrees
that, unless it obtains the prior written consent of the
Representative, and each Underwriter represents and agrees that,
unless it obtains the prior written consent of the Company and the
Representative, it has not made and will not make any offer
relating to the Securities that would constitute an issuer free
writing prospectus or that would otherwise constitute a free
writing prospectus.
(m)
Emerging
Growth Company
. The Company will promptly notify the
Representative if the Company ceases to be an Emerging Growth
Company at any time prior to the later of (A) completion of the
distribution of the Securities within the meaning of the Act and
(B) completion of the Lock-Up Period referenced in Section 4(i)
hereof.
(n)
Underwriter’s Warrant
. On each
Closing Date, the Company shall sell to the Representative, for an
aggregate purchase price of $[●], a warrant in the form
attached as Exhibit C hereto (the “Underwriter’s
Warrant”) to purchase the number of shares of the
Company’s common stock equal to 8.0% of the shares issued on
such Closing Date (rounded up to the nearest whole
share).
5.
Conditions of
Underwriters’ Obligations
. The obligations of the
several Underwriters hereunder are subject to the accuracy, as of
the date hereof and at each of the First Closing Date and the
Second Closing Date (as if made at such Closing Date), of and
compliance with all representations, warranties and agreements of
the Company contained herein, to the performance by the Company of
its obligations hereunder and to the following additional
conditions:
(a)
Required Filings; Absence of Certain
Commission Actions
.
The
Registration Statement shall have become effective not later than
5:30 p.m., Eastern time, on the date of this Agreement, or such
later time and date as you, as Representative of the several
Underwriters, shall approve and all
filings required by
Rules 424, 430A and 433 of the Rules and Regulations shall
have been timely made (without reliance on Rule 424(b)(8) or Rule
164(b)); no stop order suspending the effectiveness of the
Registration Statement or any part thereof or any amendment
thereof, nor suspending or preventing the use of the Time of Sale
Disclosure Package or the Prospectus shall have been issued; no
proceedings for the issuance of such an order shall have been
initiated or threatened; and any request of the Commission for
additional information (to be included in the Registration
Statement, the Time of Sale Disclosure Package, the Prospectus or
otherwise) shall have been complied with to your
satisfaction.
(b)
Continued Compliance with Securities
Laws
. The Registration Statement, and any amendment thereof
or supplement thereto, shall not contain any untrue statement of a
material fact or omit to state a material fact which is required to
be stated therein, or necessary to make the statements therein, in
light of the circumstances under which they are made, not
misleading in any material respect. The Time of Sale Disclosure
Package and the Prospectus, and any amendment thereof or supplement
thereto, shall not contain any untrue statement of a material fact
or omit to state a material fact which is required to be stated
therein, or necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading in any
material respect.
(c)
Absence of Certain Events
. Except as
contemplated in the Time of Sale Disclosure Package and in the
Prospectus, subsequent to the respective dates as of which
information is given in the Time of Sale Disclosure Package and the
Prospectus, the Company shall not have incurred any material
liabilities or obligations, direct or contingent, or entered into
any material transactions, or declared or paid any dividends or
made any distribution of any kind with respect to its capital
stock; and there shall not have been any change in the capital
stock (other than a change in the number of outstanding shares of
Common Stock due to the issuance of shares upon the exercise of
outstanding options or warrants or conversion of convertible
securities), or any material change in the short-term or long-term
debt of the Company (other than as a result of the conversion of
convertible securities), or any issuance of options, warrants,
convertible securities or other rights to purchase the capital
stock of the Company, or any Material Adverse Change or any
development involving a prospective Material Adverse Change
(whether or not arising in the ordinary course of business), that,
in your judgment, makes it impractical or inadvisable to offer or
deliver the Securities on the terms and in the manner contemplated
in the Time of Sale Disclosure Package and in the
Prospectus.
(d)
Opinion of Company Counsel
. On each
Closing Date, there shall have been furnished to you, as
Representative of the several Underwriters, the opinion and
negative assurance letter of K&L Gates LLP, counsel for the
Company, dated such Closing Date and addressed to you in
substantially the form attached hereto as Exhibit
D.
(e)
Opinion of Underwriters’
Counsel
. On each Closing Date, there shall have been
furnished to you, as Representative of the several Underwriters,
such opinion or opinions from Faegre Baker Daniels LLP, counsel for
the Representative, dated such Closing Date and addressed to you,
with respect to such matters as you reasonably may request, and
such counsel shall have received such papers and information as
they request to enable them to pass upon such
matters.
(f)
Opinion of Company Intellectual Property
Counsel
. On each Closing Date, there shall have been
furnished to you, as Representative of the Several Underwriters,
the opinion of [●], special intellectual property counsel for
the Company, dated such Closing Date and addressed to you in
substantially the form attached hereto as Exhibit E.
(g)
Comfort
Letters
. On the date hereof, on the effective date of any
post-effective amendment to the Registration Statement filed after
the date hereof and on each Closing Date, you, as Representative of
the several Underwriters, shall have received a letter containing
statements and information of the type ordinarily included in
accountants’ “comfort letters” from RBSM LLP,
each dated such date and addressed to you, in form and substance
satisfactory to you.
(h)
Officers’ Certificate
. On each
Closing Date, there shall have been furnished to you, as
Representative of the several Underwriters, a certificate, dated
such Closing Date and addressed to you, signed by the chief
executive officer and by the chief financial officer of the
Company, to the effect that:
(i)
The
representations and warranties of the Company in this Agreement are
true and correct as if made at and as of such Closing Date, and the
Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to
such Closing Date; and
(ii)
No stop order or
other order suspending the effectiveness of the Registration
Statement or any part thereof or any amendment thereof or the
qualification of the Securities for offering or sale, nor
suspending or preventing the use of the Time of Sale Disclosure
Package, the Prospectus or any issuer free writing prospectus, has
been issued, and no proceeding for that purpose has been instituted
or, to the best of their knowledge, is contemplated by the
Commission or any state or regulatory body.
(i)
Lock-Up Agreement
. The Representative
shall have received all of the Lock-Up Agreements referenced in
Section 4 and the Lock-Up Agreements shall remain in full force and
effect.
(j)
CFO Certificate
. On the
date hereof and on each Closing Date, as applicable, the Company
shall have furnished to you, as Representative of the several
Underwriters, a certificate, dated as of such date, signed on
behalf of the Company by its chief financial officer, regarding the
accuracy of certain financial information in the Registration
Statement, the Time of Sale Disclosure Package and the Prospectus,
in form and substance satisfactory to the
Underwriters.]
(k)
Underwriter’s
Warrant.
The Representative shall have received the
Underwriter’s Warrant referenced in Section 4(n) with respect
to the Securities to be delivered on such Closing
Date.
(l)
Other
Documents
. The Company shall have furnished to you and
counsel for the Underwriters such additional documents,
certificates and evidence as you or they may have reasonably
requested.
(m)
FINRA No Objections
. FINRA shall have
raised no objection to the fairness and reasonableness of the
underwriting terms and arrangements.
(n)
Exchange Listing
. The Common Stock to
be delivered on such Closing Date will have been approved for
listing on the NASDAQ Capital Market.
All such opinions,
certificates, letters and other documents will be in compliance
with the provisions hereof only if they are satisfactory in form
and substance to you, as Representative of the several
Underwriters, and counsel for the Underwriters. The Company will
furnish you with such conformed copies of such opinions,
certificates, letters and other documents as you shall reasonably
request.
6.
Indemnification and
Contribution
.
(a)
Indemnification by the Company
. The
Company agrees to indemnify and hold harmless each Underwriter, its
affiliates, directors and officers and each person, if any, who
controls such Underwriter within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, from and against any losses,
claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise
(including in settlement of any litigation if such settlement is
effected with the written consent of the Company), insofar as such
losses, claims, damages or liabilities (or actions in respect
thereof) (i) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained
in the Registration Statement, including the 430A Information and
any other information deemed to be a part of the Registration
Statement at the time of effectiveness and at any subsequent time
pursuant to the Rules and Regulations, if applicable, any
Preliminary Prospectus, the Time of Sale Disclosure Package, the
Prospectus, or any amendment or supplement thereto, any issuer free
writing prospectus, any issuer information that the Company has
filed or is required to file pursuant to Rule 433(d) of the Rules
and Regulations, or any road show as defined in Rule 433(h)
under the Act (a
“road
show”
), or (ii) arise out of or are based upon
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any
legal or other expenses reasonably incurred by it in connection
with investigating or defending against such loss, claim, damage,
liability or action as such expenses are incurred;
provided, however,
that the Company
will not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of or is based
upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with
written information furnished to the Company by you, or by any
Underwriter through you, specifically for use in the preparation
thereof; it being understood and agreed that the only information
furnished by an Underwriter consists of the information described
as such in Section 6(e).
(b)
Indemnification by the Underwriters
.
Each Underwriter will, severally and not jointly, indemnify and
hold harmless the Company, its affiliates, directors and officers
and each person, if any, who controls the Company within the
meaning of Section 15 of the Act and Section 20 of the Exchange
Act, from and against any losses, claims, damages or liabilities to
which the Company may become subject, under the Act or otherwise
(including in settlement of any litigation, if such settlement is
effected with the written consent of such Underwriter), insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) (i) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained
in the Registration Statement, any Preliminary Prospectus, the Time
of Sale Disclosure Package, the Prospectus, or any amendment or
supplement thereto, any issuer free writing prospectus, any issuer
information that the Company has filed or is required to file
pursuant to Rule 433(d) of the Rules and Regulations, or any road
show, or (ii) arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission
or alleged omission was made in conformity with written information
furnished to the Company by you, or by such Underwriter through
you, specifically for use in the preparation thereof (it being
understood and agreed that the only information furnished by an
Underwriter consists of the information described as such in
Section 6(e)), and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection
with investigating or defending against any such loss, claim,
damage, liability or action as such expenses are
incurred.
(c)
Notice and Procedures
. Promptly after
receipt by an indemnified party under subsection (a) or (b) above
of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying
party in writing of the commencement thereof; but the omission so
to notify the indemnifying party shall not relieve the indemnifying
party from any liability that it may have to any indemnified party
except to the extent such indemnifying party has been materially
prejudiced by such failure (through the forfeiture of substantive
rights or defenses). In case any such action shall be brought
against any indemnified party, and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be
entitled to participate in, and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to
such indemnified party of the indemnifying party’s election
so to assume the defense thereof, the indemnifying party shall not
be liable to such indemnified party under such subsection for any
legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than reasonable
costs of investigation; provided, however, that if, in your
reasonable judgment, it is advisable for the Underwriters to be
represented as a group by separate counsel, you shall have the
right to employ a single counsel (in addition to local counsel) to
represent all Underwriters who may be subject to liability arising
from any claim in respect of which indemnity may be sought by the
Underwriters under subsection (a) above, in which event the
reasonable fees and expenses of such separate counsel shall be
borne by the indemnifying party or parties and reimbursed to the
Underwriters as incurred. An indemnifying party shall not be
obligated under any settlement agreement relating to any action
under this Section 6 to which it has not agreed in writing. In
addition, no indemnifying party shall, without the prior written
consent of the indemnified party (which consent shall not be
unreasonably withheld or delayed) effect any settlement of any
pending or threatened proceeding unless such settlement includes an
unconditional release of such indemnified party for all liability
on claims that are the subject matter of such proceeding and does
not include a statement as to, or an admission of, fault,
culpability or a failure to act by or on behalf of an indemnified
party. Notwithstanding the foregoing, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel pursuant to this
Section 6(c), such indemnifying party agrees that it shall be
liable for any settlement effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt
by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such
settlement.
(d)
Contribution; Limitations on Liability;
Non-Exclusive Remedy
. If the indemnification provided for in
this Section 6 is unavailable or insufficient to hold harmless
an indemnified party under subsection (a) or (b) above, then
each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a)
or (b), (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and
the Underwriters on the other from the offering of the Securities
or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to
in clause (i) above but also the relative fault of the Company
on the one hand and the Underwriters on the other in connection
with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from
the offering (before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties’
relevant intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The
Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d)
were to be determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the
equitable considerations referred to in the first sentence of this
subsection (d). The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending
against any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute
any amount in excess of the amount by which the total underwriting
discounts and commissions received by such Underwriter with respect
to the Securities exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters’ obligations in this
subsection (d) to contribute are several in proportion to their
respective underwriting obligations and not joint. The remedies
provided for in this Section 6 are not exclusive and shall not
limit any rights or remedies that might otherwise be available to
any indemnified party at law or in equity.
(e)
Information Provided by the
Underwriters
. The Underwriters severally confirm and the
Company acknowledges that the statements with respect to the public
offering of the Securities by the Underwriters set forth in the
first paragraph of text under the caption “Discount,
Commissions and Expenses” in the section titled
“Underwriting”, each of the paragraphs of text under
the caption “Price Stabilization, Short Positions and Penalty
Bids”, and the estimate of the Underwriters’ reasonable
out-of-pocket accountable fees and disbursements in connection with
the offering of the Securities in the Time of Sale Disclosure
Package and in the Prospectus are correct and constitute the only
information concerning the Underwriters furnished in writing to the
Company by or on behalf of the Underwriters specifically for
inclusion in the Registration Statement, any Preliminary
Prospectus, the Time of Sale Disclosure Package, the Prospectus or
any issuer free writing prospectus.
7.
Representations and
Agreements to Survive Delivery
. All representations,
warranties, and agreements of the Company herein or in certificates
delivered pursuant hereto, and the agreements of the several
Underwriters and the Company contained in Section 6 hereof, shall
remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any
controlling person thereof, or the Company or any of its officers,
directors, or controlling persons, and shall survive delivery of,
and payment for, the Securities to and by the Underwriters
hereunder and any termination of this
Agreement.
8.
Termination
.
(a)
Right to Terminate
. You shall have the
right to terminate this Agreement by giving notice to the Company
as hereinafter specified at any time at or prior to the First
Closing Date, and the option referred to in Section 3(b), if
exercised, may be cancelled at any time prior to the Second Closing
Date, if (i) the Company shall have failed, refused or been
unable, at or prior to such Closing Date, to perform any agreement
on its part to be performed hereunder, (ii) any other condition of
the Underwriters’ obligations hereunder is not fulfilled,
(iii) trading on The NASDAQ Stock Market or New York Stock Exchange
shall have been wholly suspended, (iv) minimum or maximum
prices for trading shall have been fixed, or maximum ranges for
prices for securities shall have been required, on The NASDAQ Stock
Market or New York Stock Exchange, by such Exchange or by order of
the Commission or any other Governmental Authority, (v) a
banking moratorium shall have been declared by federal or state
authorities, or (vi) there shall have occurred any outbreak or
escalation of hostilities or any change in financial markets or any
calamity or crisis that, in your judgment, is material and adverse
and makes it impractical or inadvisable to proceed with the
completion of the sale of and payment for the Securities in the
manner contemplated in the Time of Sale Disclosure Package or the
Prospectus. Any such termination shall be without liability of any
party to any other party except that the provisions of
Section 4(g) and Section 6 hereof shall at all times be
effective.
(b)
Notice of Termination
. If you elect to
terminate this Agreement as provided in this Section, the Company
shall be notified promptly by you by telephone, confirmed by
letter.
9.
Default by the
Company
.
(a)
Default by the Company
. If the Company
shall fail at the First Closing Date to sell and deliver the
Securities which it is obligated to sell hereunder, then this
Agreement shall terminate without any liability on the part of any
Underwriter.
(b)
No Relief from Liability
. No action
taken pursuant to this Section shall relieve the Company from
liability, if any, in respect of any default
hereunder.
10.
Notices.
Except as
otherwise provided herein, all communications hereunder shall be in
writing and, if to the Underwriters, shall be mailed via overnight
delivery service or hand delivered via courier, to the
Representative c/o Dougherty & Company LLC 90 South Seventh
Street, Suite 4300, Minneapolis, Minnesota 55402, to the attention
of Investment Banking; and (ii) if to the Company, shall be mailed
or delivered to it at 3600 Green Court Suite 350, Ann Arbor,
Michigan 48105, Attention: [●]. Any party to this Agreement
may change such address for notices by sending to the parties to
this Agreement written notice of a new address for such
purpose.
11.
Persons Entitled to
Benefit of Agreement
. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their
respective successors and assigns and the controlling persons,
officers and directors referred to in Section 6. Nothing in this
Agreement is intended or shall be construed to give to any other
person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein
contained. The term “successors and assigns” as herein
used shall not include any purchaser, as such purchaser, of any of
the Securities from any of the several
Underwriters.
12.
Absence of Fiduciary
Relationship
. The Company acknowledges and agrees that: (a)
the Representative has been retained solely to act as an
underwriter in connection with the sale of the Securities and that
no fiduciary, advisory or agency relationship between the Company
and the Representative has been created in respect of any of the
transactions contemplated by this Agreement, irrespective of
whether the Representative has advised or is advising the Company
on other matters; (b) the price and other terms of the Securities
set forth in this Agreement were established by the Company
following discussions and arms-length negotiations with the
Representative and the Company is capable of evaluating and
understanding and understands and accepts the terms, risks and
conditions of the transactions contemplated by this Agreement; (c)
it has been advised that the Representative and its affiliates are
engaged in a broad range of transactions which may involve
interests that differ from those of the Company and that the
Representative has no obligation to disclose such interest and
transactions to the Company by virtue of any fiduciary, advisory or
agency relationship; (d) it has been advised that you as
Representative are acting, in respect of the transactions
contemplated by this Agreement, solely for the benefit of the
Underwriters, and not on behalf of the Company; (e) it waives to
the fullest extent permitted by law, any claims it may have against
the Underwriters for breach of fiduciary duty or alleged breach of
fiduciary duty in respect of any of the transactions contemplated
by this Agreement and agrees that the Underwriters shall have no
liability (whether direct or indirect) to the Company in respect of
such a fiduciary duty claim on behalf of or in right of the
Company, including stockholders, employees or creditors of the
Company.
13.
Governing Law; Waiver of
Jury Trial
. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York. The
Company (on its behalf and, to the extent permitted by applicable
law, on behalf of its stockholders and affiliates) and each of the
Underwriters hereby irrevocably waives, to the fullest extent
permitted by applicable law, any and all right to trial by jury in
any legal proceeding arising out of or relating to this Agreement,
the Underwriter’s Warrant or the transactions contemplated
hereby.
14.
Counterparts
. This
Agreement may be executed in one or more counterparts and, if
executed in more than one counterpart, the executed counterparts
shall each be deemed to be an original and all such counterparts
shall together constitute one and the same
instrument.
15.
General Provisions.
This Agreement constitutes the entire agreement of the parties to
this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof, including that certain
engagement letter dated [November 11, 2016, by and between the
Company and the Representative, except for the provisions contained
in Section 5(g) and Section 5(h) that remain in full force and
effect]
8
. This Agreement may not be amended or
modified unless in writing by all of the parties hereto, and no
condition herein (express or implied) may be waived unless waived
in writing by each party whom the condition is meant to benefit.
The Section headings herein are for the convenience of the parties
only and shall not affect the construction or interpretation of
this Agreement. The invalidity or unenforceability of any Section,
paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this
Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes
(and only such minor changes) as are necessary to make it valid and
enforceable.
[
Signature Page
Follows
]
Please sign and
return to the Company the enclosed duplicates of this letter
whereupon this letter will become a binding agreement between the
Company and the several Underwriters in accordance with its
terms.
|
Very truly
yours,
ENDRA Life Sciences Inc.
By:
Name:
Title:
|
Confirmed as of
the date first
above mentioned,
on behalf of
itself and the
other several
Underwriters
named
in Schedule I
hereto.
Dougherty & Company LLC.
By:
Name:
Title:
FOURTH
AMENDED AND RESTATED
CERTIFICATE
OF INCORPORATION
OF
ENDRA LIFE SCIENCES INC.
The
present name of the corporation is ENDRA LIFE SCIENCES INC. The
corporation was incorporated under the name “ENDRA
INC.” by the filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware
on July 18, 2007. This Fourth Amended and Restated Certificate of
Incorporation of the corporation, which restates and integrates and
also further amends the provisions of the corporation’s
Certificate of Incorporation, as previously amended, restated,
supplemented or otherwise modified (the “Existing Certificate
of Incorporation”), was duly adopted in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law
of the State of Delaware and by the written consent of its
stockholders in accordance with Section 228 of the General
Corporation Law of the State of Delaware. The Existing Certificate
of Incorporation of the corporation is hereby amended, integrated
and restated to read in its entirety as follows:
FIRST:
The name of the corporation (the “Corporation”)
is:
ENDRA
Life Sciences Inc.
SECOND:
The address of the Corporation’s registered office in the
State of Delaware is 1209 Orange Street, Wilmington, County of New
Castle, Delaware 19801. The registered agent at such address is The
Corporation Trust Company.
THIRD:
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware
General Corporation Law (the “DGCL”).
FOURTH:
The total number of shares of stock that the Corporation shall have
authority to issue shall be 60,000,000 shares, consisting of
50,000,000 shares of Common Stock, par value $0.0001 per share (the
“Common Stock”), and 10,000,000 shares of Preferred
Stock, par value $0.0001 per share (the “Preferred
Stock”). Subject to the rights of the holders of any series
of Preferred Stock then outstanding, the number of authorized
shares of the Common Stock or Preferred Stock may be increased or
decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority
in voting power of the stock of the Corporation entitled to vote
thereon, irrespective of the provisions of Section 242(b)(2) of the
DGCL, and no vote of the holders of any of the Common Stock or
Preferred Stock voting separately as a class shall be required
therefor.
1.
GENERAL. All
shares of Common Stock will be identical and will entitle the
holders thereof to the same rights, powers and preferences. The
rights, powers and preferences of the holders of the Common Stock
are subject to and qualified by the rights, powers and preferences
of holders of the Preferred Stock.
2.
DIVIDENDS.
Dividends may be declared and paid on the Common Stock from funds
lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any
then outstanding Preferred Stock.
3.
DISSOLUTION,
LIQUIDATION OR WINDING UP. In the event of any dissolution,
liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary, each issued and outstanding share
of Common Stock shall entitle the holder thereof to receive an
equal portion of the net assets of the Corporation available for
distribution to the holders of Common Stock, subject to any
preferential rights of any then outstanding Preferred
Stock.
4.
VOTING RIGHTS.
Except as otherwise required by law or this Fourth Amended and
Restated Certificate of Incorporation (“Certificate of
Incorporation”), each holder of Common Stock shall have one
vote in respect of each share of stock held of record by such
holder on the books of the Corporation for the election of
directors and on all matters submitted to a vote of stockholders of
the Corporation. Except as otherwise required by law or provided
herein, holders of Common Stock shall vote together with holders of
the Preferred Stock as a single class, subject to any special or
preferential voting rights of any then outstanding Preferred Stock.
There shall be no cumulative voting.
The
Preferred Stock may be issued in one or more series at such time or
times and for such consideration or considerations as the Board of
Directors of the Corporation may determine. Each series shall be so
designated as to distinguish the shares thereof from the shares of
all other series and classes.
The
Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the undesignated Preferred Stock
in one or more series, each with such designations, preferences,
voting powers (or special, preferential or no voting powers),
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof as shall be
stated in the resolution or resolutions adopted by the Board of
Directors to create such series, and a certificate of said
resolution or resolutions (a “Certificate of
Designation”) shall be filed in accordance with the DGCL. The
authority of the Board of Directors with respect to each such
series shall include, without limitation of the foregoing, the
right to provide that the shares of each such series may be: (i)
subject to redemption at such time or times and at such price or
prices; (ii) entitled to receive dividends (which may be cumulative
or non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the
dividends payable on any other class or classes or any other
series; (iii) entitled to such rights upon the dissolution of, or
upon any distribution of the assets of, the Corporation; (iv)
convertible into, or exchangeable for, shares of any other class or
classes of stock, or of any other series of the same or any other
class or classes of stock of the Corporation at such price or
prices or at such rates of exchange and with such adjustments, if
any; (v) entitled to the benefit of such limitations, if any, on
the issuance of additional shares of such series or shares of any
other series of Preferred Stock; or (vi) entitled to such other
preferences, powers, qualifications and rights, all as the Board of
Directors may deem advisable and as are not inconsistent with law
and the provisions of this Certificate of
Incorporation.
FIFTH:
1.
NUMBER OF
DIRECTORS. The number of directors of the Corporation shall be
determined exclusively by resolution adopted by a majority of the
Whole Board. For purposes of this Certificate of Incorporation, the
term “Whole Board” means the total number of authorized
directors whether or not there exists any vacancies in previously
authorized directorships.
2.
ELECTION 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. Directors need not be stockholders of the Corporation.
Unless required by the Bylaws, the election of the Board of
Directors need not be by written ballot.
3.
VACANCIES. Any
vacancy in the Board of Directors, however occurring, including a
vacancy resulting from an enlargement of the Board of Directors,
may be filled only by vote of a majority of the directors then in
office, even if less than a quorum, or by a sole remaining
director.
SIXTH:
The following provisions are included for the management of the
business and the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the
Corporation and of its Board of Directors and
stockholders:
1.
The business and
affairs of the Corporation shall be managed by or under the
direction of the Board of Directors of the
Corporation.
2.
The Board of
Directors of the Corporation is expressly authorized to adopt,
amend or repeal the Bylaws of the Corporation. The stockholders
shall also have the power to adopt, amend or repeal the Bylaws of
the Corporation; PROVIDED, HOWEVER, that, in addition to any vote
of the holders of any class or series of stock of the Corporation
required by law or by this Certificate of Incorporation, the
amendment of the Bylaws by the Corporation’s stockholders
shall require the affirmative vote of the holders of at least
two-thirds (66 2/3%) of the voting power of all of the then
outstanding shares of the capital stock of the Corporation entitled
to vote generally in the election of directors, voting together as
a single class.
3.
The books of the
Corporation may be kept at such place within or without the State
of Delaware as the Bylaws of the Corporation may provide or as may
be designated from time to time by the Board of Directors of the
Corporation.
SEVENTH:
Special meetings of stockholders (i) may be called on the order of
a majority of the Whole Board, the Chairman of the Board, the Chief
Executive Officer or the President (in the absence of a chief
executive officer), and (ii) shall be called by the Secretary upon
written request of the holders of record of at least twenty percent
(20%) of the outstanding shares of common stock of the Corporation
at the time such request is validly submitted by the holders of
such requisite percentage of such outstanding shares, subject to
and in compliance with this Article SEVENTH and the bylaws of the
Corporation. Advance notice of stockholder nominations for the
election of directors of the Corporation and of business to be
brought by stockholders before any meeting of stockholders of the
Corporation shall be given in the manner provided in the Bylaws of
the Corporation. Business transacted at special meetings of
stockholders shall be confined to the purpose or purposes stated in
the notice of meeting.
EIGHTH:
The Corporation shall indemnify (and advance expenses to) its
officers and directors to the full extent permitted by the DGCL, as
amended from time to time.
NINTH:
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, for any act or omission, except that
a director may be liable (i) for breach of the director’s
duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. If the DGCL is amended to
authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of the
directors shall be eliminated or limited to the fullest extent
permitted by the DGCL, as so amended. The elimination and
limitation of liability provided herein shall continue after a
director has ceased to occupy such position as to acts or omissions
occurring during such director’s term or terms of office. Any
amendment, repeal or modification of this Article NINTH shall not
adversely affect any right of protection of a director of the
Corporation existing at the time of such repeal or
modification.
TENTH:
Unless the Corporation consents in writing to the selection of an
alternative forum, the Court of Chancery in the State of Delaware
shall be the sole and exclusive forum for all “internal
corporate claims.” “Internal corporate claims”
means claims, including claims in the right of the Corporation, (i)
that are based upon a violation of a duty by a current or former
director or officer or stockholder in such capacity or (ii) as to
which Title 8 of the Delaware Code confers jurisdiction upon the
Court of Chancery, except for, as to each of (i) through (ii)
above, any claim as to which the Court of Chancery determines that
there is an indispensable party not subject to the jurisdiction of
the Court of Chancery (and the indispensable party does not consent
to the personal jurisdiction of the Court of Chancery within ten
days following such determination), which is vested in the
exclusive jurisdiction of a court or forum other than the Court of
Chancery, or for which the Court of Chancery does not have subject
matter jurisdiction. If any provision or provisions of this Article
TENTH shall be held to be invalid, illegal or unenforceable as
applied to any person or entity or circumstance for any reason
whatsoever, then, to the fullest extent permitted by law, the
validity, legality and enforceability of such provisions in any
other circumstance and of the remaining provisions of this Article
TENTH (including, without limitation, each portion of any sentence
of this Article TENTH containing any such provision held to be
invalid, illegal or unenforceable that is not itself held to be
invalid, illegal or unenforceable) and the application of such
provision to other persons or entities and circumstances shall not
in any way be affected or impaired thereby.
ELEVENTH:
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are
granted subject to this reservation; provided, however, that,
notwithstanding any other provision of the Certificate of
Incorporation or any provision of law that might otherwise permit a
lesser vote or no vote, but in addition to any vote of the holders
of any class or series of the stock of the Corporation required by
law or by this Certificate of Incorporation, the affirmative vote
of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the voting power of the outstanding shares of stock of the
Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to
amend or repeal, or adopt any provision of this Certificate of
Incorporation inconsistent with Article FIFTH, Article SIXTH,
Article SEVENTH, Article NINTH, Article TENTH or this Article
ELEVENTH.
________________________________
Name:
Francois Michelon
Chief
Executive Officer
DATED:
[__________]
AMENDED
AND RESTATED
BYLAWS
OF ENDRA LIFE SCIENCES INC.
ARTICLE I
Section
1.1.
Annual Meetings
. If
required by applicable law, an annual meeting of stockholders shall
be held for the election of directors at such date, time and place,
if any, either within or without the State of Delaware, as may be
designated by resolution of the board of directors (the
“Board of Directors”) of ENDRA Life Sciences Inc. (the
“Corporation”) from time to time. Any other proper
business may be transacted at the annual meeting.
Section
1.2.
Special
Meetings
.
(A) Special
meetings of stockholders for any purpose or purposes, unless
otherwise prescribed by statute or by the Corporation’s
certificate of incorporation, as amended, restated, supplemented or
otherwise modified (the “Certificate of
Incorporation”), (1) may be called at any time by the order
of a majority of the Whole Board, the Chairman of the Board, the
Chief Executive Officer or the President (in the absence of a chief
executive officer), and (2) shall be called by the Secretary upon
the written request of the holders of record of at least twenty
percent (20%) of the outstanding shares of common stock of the
Corporation (the “Requisite Percentage”), subject to
and in compliance with Article SEVENTH of the Certificate of
Incorporation, or any successor provision thereto, and these
Bylaws. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice. For purposes
of these bylaws, the term “Whole Board” shall mean the
total number of authorized directors whether or not there exist any
vacancies in previously authorized directorships.
(B) Any
request by stockholders to call a special meeting in accordance
with Section 1.2(A)(2) of these Bylaws shall (1) be delivered to,
or mailed to and received by, the Secretary of the Corporation at
the Corporation’s principal executive offices, (2) be signed
by each stockholder, or a duly authorized agent of such
stockholder, requesting the special meeting, (3) set forth the
purpose or purposes of the meeting, and (3) include all of the
information required by Section 1.13(A)(2) as to any nominations
proposed to be presented and any other business proposed to be
conducted at such special meeting and as to the stockholder(s)
proposing such business or nominations, and a representation by the
stockholder(s) proposing such business that within five business
days after the record date for any such special meeting it will
provide such information as of the record date for such special
meeting. A special meeting requested by stockholders shall be held
at such date, time and place within or without the State of
Delaware as may be fixed by the Board of Directors; provided,
however, that the date of any such special meeting shall not be
more than ninety (90) days after the request to call the special
meeting is received by the Corporate Secretary.
(C) Notwithstanding
the foregoing, a special meeting requested by stockholders in
accordance with Section 1.2(A)(2) of these Bylaws shall not be held
if: (1) the stated business to be brought before the special
meeting is not a proper subject for stockholder action under
applicable law, (2) the Board of Directors has called or calls for
an annual or special meeting of stockholders to be held within
ninety days after the request for the special meeting is delivered
to or received by the Secretary and the Board of Directors
determines in good faith that the business of such annual or
special meeting includes (among any other matters properly brought
before the annual or special meeting) the purpose specified in the
request, (3) an annual or special meeting was held not more than 12
months before the request to call the special meeting was received
by the Corporation which included the purpose specified in the
request, and (4) the special meeting requested by stockholders
involves or was made in a manner that involved a violation of or
does or did not comply with the Certificate of Incorporation, these
Bylaws, Regulation 14A under the Exchange Act (as hereinafter
defined) or other applicable law.
(D) A
stockholder may revoke a request for a special meeting at any time
by written revocation delivered to, or mailed to and received by,
the Secretary. If, at any time after receipt by the Secretary of
the Corporation of a proper request for a special meeting of
stockholders, there are no longer valid requests from stockholders
holding in the aggregate at least the Requisite Percentage, whether
because of revoked requests or otherwise, the Board of Directors,
in its discretion, may cancel the special meeting (or, if the
special meeting has not yet been called, may direct the Chairman of
the Board or the Secretary of the Corporation not to call such a
meeting).
Section
1.3.
Notice of Meetings
.
Whenever stockholders are required or permitted to take any action
at a meeting, a notice of the meeting shall be given that shall
state the place, if any, date and hour of the meeting, the means of
remote communications, if any, by which stockholders and proxy
holders may be deemed to be present in person and vote at such
meeting, the record date for determining the stockholders entitled
to vote at the meeting (if such date is different from the record
date for stockholders entitled to notice of the meeting) and, in
the case of a special meeting, the purpose or purposes for which
the meeting is called. Unless otherwise provided by law, the
Certificate of Incorporation or these bylaws, the notice of any
meeting shall be given not less than ten (10) nor more than sixty
(60) days before the date of the meeting to each stockholder
entitled to vote at the meeting as of the record date for
determining the stockholders entitled to notice of the meeting. If
mailed, such notice shall be deemed to be 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.
Section
1.4.
Adjournments
. Any
meeting of stockholders, annual or special, may adjourn from time
to time to reconvene at the same or some other place, and notice
need not be given of any such adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the Corporation may transact any
business which might have been transacted at the original meeting.
If the adjournment is for more than thirty (30) days, a notice of
the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. If after the adjournment a new
record date for determination of stockholders entitled to vote is
fixed for the adjourned meeting, the Board of Directors shall fix
as the record date for determining stockholders entitled to notice
of such adjourned meeting the same or an earlier date as that fixed
for determination of stockholders entitled to vote at the adjourned
meeting, and shall give notice of the adjourned meeting to each
stockholder of record as of the record date so fixed for notice of
such adjourned meeting.
Section
1.5.
Quorum
. Except as
otherwise provided by law, the Certificate of Incorporation or
these bylaws, at each meeting of stockholders the presence in
person or by proxy of the holders of not less than one-third in
voting power of the outstanding shares of stock entitled to vote at
the meeting shall be necessary and sufficient to constitute a
quorum. In the absence of a quorum, then either (i) the chairperson
of the meeting or (ii) a majority in voting power of the
stockholders so present (in person or by proxy) and entitled to
vote may adjourn the meeting from time to time in the manner
provided in Section 1.4 of these bylaws until a quorum shall
attend. Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote
in the election of directors of such other corporation is held,
directly or indirectly, by the Corporation, shall neither be
entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of the
Corporation or any subsidiary of the Corporation to vote stock,
including but not limited to its own stock, held by it in a
fiduciary capacity.
Section
1.6.
Organization
. Meetings
of stockholders shall be presided over by the Chairman of the Board
of Directors or, in his or her absence, by the Chief Executive
Officer or, in his or her absence, by the President or, in his or
her absence, by a Vice President or, in the absence of the
foregoing persons, by a chairman designated by the Board of
Directors or, in the absence of such designation, by a chairman
chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his or her absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section
1.7.
Voting; Proxies
.
Except as otherwise provided by or pursuant to the provisions of
the Certificate of Incorporation, each stockholder entitled to vote
at any meeting of stockholders shall be entitled to one vote for
each share of stock held by such stockholder which has voting power
upon the matter in question. Each stockholder entitled to vote at a
meeting of stockholders may authorize another person or persons to
act for such stockholder by proxy, but no such proxy shall be voted
or acted upon after three years from its date, unless the proxy
provides for a longer period. A proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is
coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by
delivering to the Secretary of the Corporation a revocation of the
proxy or a new proxy bearing a later date. Voting at meetings of
stockholders need not be by written ballot. At all meetings of
stockholders for the election of directors at which a quorum is
present a plurality of the votes cast shall be sufficient to elect.
All other elections and questions presented to the stockholders at
a meeting at which a quorum is present shall, unless otherwise
provided by the Certificate of Incorporation, these bylaws, the
rules or regulations of any stock exchange applicable to the
Corporation, or applicable law or pursuant to any regulation
applicable to the Corporation or its securities, be decided by the
affirmative vote of the holders of a majority in voting power of
the shares of stock of the Corporation which are present in person
or by proxy and entitled to vote thereon.
Section
1.8.
Fixing Date for Determination
of Stockholders of Record
.
(A) In order
that the Corporation may determine the stockholders entitled to
notice of any meeting of stockholders or any adjournment thereof,
the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record
date shall, unless otherwise required by law, not be more than
sixty (60) nor less than ten (10) days before the date of such
meeting. If the Board of Directors so fixes a date, such date shall
also be the record date for determining the stockholders entitled
to vote at such meeting unless the Board of Directors determines,
at the time it fixes such record date, that a later date on or
before the date of the meeting shall be the date for making such
determination. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice
is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix
a new record date for determination of stockholders entitled to
vote at the adjourned meeting, and in such case shall also fix as
the record date for stockholders entitled to notice of such
adjourned meeting the same or an earlier date as that fixed for
determination of stockholders entitled to vote in accordance
herewith at the adjourned meeting.
(B) In order
that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date,
which shall not be more than sixty (60) days prior to such other
action. If no such record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close
of business on the day on which the Board of Directors adopts the
resolution relating thereto.
Section
1.9.
List of Stockholders Entitled
to Vote
. The officer who has charge of the stock ledger
shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to
vote at the meeting (provided, however, if the record date for
determining the stockholders entitled to vote is less than ten (10)
days before the date of the meeting, the list shall reflect the
stockholders entitled to vote as of the tenth day before the
meeting date), arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the
meeting at least ten (10) days prior to the meeting (i) on a
reasonably accessible electronic network, provided that the
information required to gain access to such list is provided with
the notice of meeting or (ii) during ordinary business hours at the
principal place of business of the Corporation. If the meeting is
to be held at a place, then a list of stockholders entitled to vote
at the meeting shall be produced and kept at the time and place of
the meeting during the whole time thereof and may be examined by
any stockholder who is present. If the meeting is to be held solely
by means of remote communication, then 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. Except as otherwise provided by law, the
stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the list of stockholders required
by this Section 1.9 or to vote in person or by proxy at any meeting
of stockholders.
Section
1.10.
Action by Written or
Electronic Consent of Stockholders
. Any action which is
required to be or may be taken at any annual or special meeting of
stockholders of the Corporation may be taken without a meeting,
without prior notice to stockholders and without a vote if consents
in writing or by electronic communication, setting forth the action
so taken, shall have been signed by the holders of outstanding
stock having not less than the minimum number of votes that would
be necessary to authorize or to take such action at a meeting at
which all shares entitled to vote thereon were present and
voted.
Section
1.11.
Inspectors of
Election
. The Corporation shall, in advance of any meeting
of stockholders, appoint one or more inspectors of election, who
may be employees of the Corporation, to act at the meeting or any
adjournment thereof and to make a written report thereof. The
Corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. In the event
that no inspector so appointed or designated is able to act at a
meeting of stockholders, the person presiding at the meeting shall
appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his or her duties,
shall take and sign an oath to execute faithfully the duties of
inspector with strict impartiality and according to the best of his
or her ability. The inspector or inspectors so appointed or
designated shall (i) ascertain the number of shares of capital
stock of the Corporation outstanding and the voting power of each
such share, (ii) determine the shares of capital stock of the
Corporation represented at the meeting and the validity of proxies
and ballots, (iii) count all votes and ballots, (iv) determine and
retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v)
certify their determination of the number of shares of capital
stock of the Corporation represented at the meeting and such
inspectors' count of all votes and ballots. Such certification and
report shall specify such other information as may be required by
law. In determining the validity and counting of proxies and
ballots cast at any meeting of stockholders of the Corporation, the
inspectors may consider such information as is permitted by
applicable law. No person who is a candidate for an office at an
election may serve as an inspector at such election.
Section
1.12.
Conduct of Meetings
.
The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting
shall be announced at the meeting by the person presiding over the
meeting. The Board of Directors may adopt by resolution such rules
and regulations for the conduct of the meeting of stockholders as
it shall deem appropriate. Except to the extent inconsistent with
such rules and regulations as adopted by the Board of Directors,
the person presiding over any meeting of stockholders shall have
the right and authority to convene and (for any or no reason) to
adjourn the meeting, to prescribe such rules, regulations and
procedures and to do all such acts as, in the judgment of such
presiding person, 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 presiding person 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 entitled to vote at
the meeting, their duly authorized and constituted proxies or such
other persons as the presiding person of the meeting shall
determine; (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. The presiding
person at any meeting of stockholders, in addition to making any
other determinations that may be appropriate to the conduct of the
meeting, shall, if the facts warrant, determine and declare to the
meeting that a matter or business was not properly brought before
the meeting and if such presiding person should so determine, such
presiding person shall so declare to the meeting and any such
matter or business not properly brought before the meeting shall
not be transacted or considered. Unless and to the extent
determined by the Board of Directors or the person presiding over
the meeting, meetings of stockholders shall not be required to be
held in accordance with the rules of parliamentary
procedure.
Section
1.13.
Notice of Stockholder
Business and Nominations
.
(A)
Annual Meetings of
Stockholders
. (1) Nominations of persons for election to the
Board of Directors of the Corporation and the proposal of other
business to be considered by the stockholders may be made at an
annual meeting of stockholders only (a) pursuant to the
Corporation’s notice of meeting (or any supplement thereto),
(b) by or at the direction of the Board of Directors or any
committee thereof or (c) by any stockholder of the Corporation who
was a stockholder of record of the Corporation at the time the
notice provided for in this Section 1.13 is delivered to the
Secretary of the Corporation, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in
this Section 1.13.
(2) For any
nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this Section 1.13, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation and
any such proposed business (other than the nominations of persons
for election to the Board of Directors) must constitute a proper
matter for stockholder action. To be timely, a stockholder's notice
shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on
the ninetieth (90
th
) day, nor earlier
than the close of business on the one hundred twentieth
(120
th
)
day, prior to the first anniversary of the preceding year's annual
meeting (provided, however, that in the event that no annual
meeting was held in the previous year or if the date of the annual
meeting is more than thirty (30) days before or more than seventy
(70) days after such anniversary date, notice by the stockholder
must be so delivered not earlier than the close of business on the
one hundred twentieth (120
th
) day prior to such
annual meeting and not later than the close of business on the
later of the ninetieth (90
th
) day prior to such
annual meeting or the tenth (10
th
) day following the
day on which public announcement of the date of such meeting is
first made by the Corporation). In no event shall the public
announcement of an adjournment or postponement of an annual meeting
commence a new time period (or extend any time period) for the
giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth: (a) as to each person whom
the stockholder proposes to nominate for election as a director (i)
all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in
an election contest, or is otherwise required, in each case
pursuant to and in accordance with Section 14(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations promulgated thereunder, and (ii) such
person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected; (b) as to any
other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought
before the meeting, the text of the proposal or business (including
the text of any resolutions proposed for consideration and in the
event that such business includes a proposal to amend the bylaws of
the Corporation, the language of the proposed amendment), the
reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and
(c) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
Corporation’s books, and of such beneficial owner, (ii) the
class or series and number of shares of capital stock of the
Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner, (iii) a description of any
agreement, arrangement or understanding with respect to the
nomination or proposal between or among such stockholder and/or
such beneficial owner, any of their respective affiliates or
associates, and any others acting in concert with any of the
foregoing, including, in the case of a nomination, the nominee,
(iv) a description of any agreement, arrangement or understanding
(including any derivative or short positions, profit interests,
options, warrants, convertible securities, stock appreciation or
similar rights, hedging transactions, and borrowed or loaned
shares) that has been entered into as of the date of the
stockholder's notice by, or on behalf of, such stockholder and such
beneficial owners, whether or not such instrument or right shall be
subject to settlement in underlying shares of capital stock of the
Corporation, the effect or intent of which is to mitigate loss to,
manage risk or benefit of share price changes for, or increase or
decrease the voting power of, such stockholder or such beneficial
owner, with respect to securities of the Corporation, (v) a
representation that the stockholder is a holder of record of stock
of the Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to propose such
business or nomination, (vi) a representation whether the
stockholder or the beneficial owner, if any, intends or is part of
a group which intends (a) to deliver a proxy statement and/or form
of proxy to holders of at least the percentage of the
Corporation’s outstanding capital stock required to approve
or adopt the proposal or elect the nominee and/or (b) otherwise to
solicit proxies or votes from stockholders in support of such
proposal or nomination, and (vii) any other information relating to
such stockholder and beneficial owner, if any, required to be
disclosed in a proxy statement or other filings required to be made
in connection with solicitations of proxies for, as applicable, the
proposal and/or for the election of directors in an election
contest pursuant to and in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
The foregoing notice requirements of this Section 1.13 shall be
deemed satisfied by a stockholder with respect to business other
than a nomination if the stockholder has notified the Corporation
of his, her or its intention to present a proposal at an annual
meeting in compliance with applicable rules and regulations
promulgated under the Exchange Act and such stockholder's proposal
has been included in a proxy statement that has been prepared by
the Corporation to solicit proxies for such annual meeting. The
Corporation may require any proposed nominee to furnish such other
information as the Corporation may reasonably require to determine
the eligibility of such proposed nominee to serve as a director of
the Corporation.
(3) Notwithstanding
anything in the second sentence of paragraph (A)(2) of this Section
1.13 to the contrary, in the event that the number of directors to
be elected to the Board of Directors of the Corporation at the
annual meeting is increased effective after the time period for
which nominations would otherwise be due under paragraph (A)(2) of
this Section 1.13 and there is no public announcement by the
Corporation naming the nominees for the additional directorships at
least one hundred (100) days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by
this Section 1.13 shall also be considered timely, but only with
respect to nominees for the additional directorships, if it shall
be delivered to the Secretary at the principal executive offices of
the Corporation not later than the close of business on the tenth
(10
th
) day
following the day on which such public announcement is first made
by the Corporation.
(B)
Special Meetings of
Stockholders
. Only such business shall be conducted at a
special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation’s notice of meeting.
Nominations of persons for election to the Board of Directors may
be made at a special meeting of stockholders at which directors are
to be elected pursuant to the Corporation’s notice of meeting
(1) by or at the direction of the Board of Directors or any
committee thereof or (2) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by any
stockholder of the Corporation who is a stockholder of record at
the time the notice provided for in this Section 1.13 is delivered
to the Secretary of the Corporation, who is entitled to vote at the
meeting and upon such election and who complies with the notice
procedures set forth in this Section 1.13. In the event the
Corporation calls a special meeting of stockholders for the purpose
of electing one or more directors to the Board of Directors, any
such stockholder entitled to vote in such election of directors may
nominate a person or persons (as the case may be) for election to
such position(s) as specified in the Corporation’s notice of
meeting, if the stockholder's notice required by paragraph (A)(2)
of this Section 1.13 shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the
close of business on the one hundred twentieth (120
th
) day prior to such
special meeting and not later than the close of business on the
later of the ninetieth (90
th
) day prior to such
special meeting or the tenth (10
th
) day following the
day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment or postponement of a special
meeting commence a new time period (or extend any time period) for
the giving of a stockholder's notice as described
above.
(C)
General
. (1) Except as
otherwise expressly provided in any applicable rule or regulation
promulgated under the Exchange Act, only such persons who are
nominated in accordance with the procedures set forth in this
Section 1.13 shall be eligible to be elected at an annual or
special meeting of stockholders of the Corporation to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Section 1.13.
Except as otherwise provided by law, the chairman of the meeting
shall have the power and duty (a) to determine whether a nomination
or any business proposed to be brought before the meeting was made
or proposed, as the case may be, in accordance with the procedures
set forth in this Section 1.13 (including whether the stockholder
or beneficial owner, if any, on whose behalf the nomination or
proposal is made solicited (or is part of a group which solicited)
or did not so solicit, as the case may be, proxies or votes in
support of such stockholder's nominee or proposal in compliance
with such stockholder's representation as required by clause
(A)(2)(c)(vi) of this Section 1.13) and (b) if any proposed
nomination or business was not made or proposed in compliance with
this Section 1.13, to declare that such nomination shall be
disregarded or that such proposed business shall not be transacted.
Notwithstanding the foregoing provisions of this Section 1.13,
unless otherwise required by law, if the stockholder (or a
qualified representative of the stockholder) does not appear at the
annual or special meeting of stockholders of the Corporation to
present a nomination or proposed business, such nomination shall be
disregarded and such proposed business shall not be transacted,
notwithstanding that proxies in respect of such vote may have been
received by the Corporation. For purposes of this Section 1.13, to
be considered a qualified representative of the stockholder, a
person must be a duly authorized officer, manager or partner of
such stockholder or must be authorized by a writing executed by
such stockholder or an electronic transmission delivered by such
stockholder to act for such stockholder as proxy at the meeting of
stockholders and such person must produce such writing or
electronic transmission, or a reliable reproduction of the writing
or electronic transmission, at the meeting of
stockholders.
(2) For
purposes of this Section 1.13, "public announcement" shall include
disclosure in a press release reported by the Dow Jones News
Service, Associated Press or other national news service or in a
document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act and the rules and regulations promulgated
thereunder.
(3) Notwithstanding
the foregoing provisions of this Section 1.13, a stockholder shall
also comply with all applicable requirements of the Exchange Act
and the rules and regulations promulgated thereunder with respect
to the matters set forth in this Section 1.13; provided however,
that any references in these bylaws to the Exchange Act or the
rules and regulations promulgated thereunder are not intended to
and shall not limit any requirements applicable to nominations or
proposals as to any other business to be considered pursuant to
this Section 1.13 (including paragraphs (A)(1)(c) and (B) hereof),
and compliance with paragraphs (A)(1)(c) and (B) of this Section
1.13 shall be the exclusive means for a stockholder to make
nominations or submit other business (other than, as provided in
the penultimate sentence of (A)(2), business other than nominations
brought properly under and in compliance with Rule 14a-8 of the
Exchange Act, as may be amended from time to time). Nothing in this
Section 1.13 shall be deemed to affect any rights (a) of
stockholders to request inclusion of proposals or nominations in
the Corporation’s proxy statement pursuant to applicable
rules and regulations promulgated under the Exchange Act or (b) of
the holders of any series of Preferred Stock to elect directors
pursuant to any applicable provisions of the Certificate of
Incorporation.
ARTICLE II
Board of Directors
Section
2.1.
Number;
Qualifications
. Subject to the Certificate of Incorporation,
the Board of Directors shall consist of one or more members, the
number thereof to be determined from time to time by resolution of
the Whole Board. Directors need not be stockholders.
Section
2.2.
Election; Resignation;
Vacancies
. The Board of Directors shall initially consist of
the persons named as directors in the Certificate of Incorporation
or elected by the incorporator of the Corporation, and each
director so elected shall hold office until the first annual
meeting of stockholders or until his or her successor is duly
elected and qualified. At the first annual meeting of stockholders
and at each annual meeting thereafter, the stockholders shall elect
directors each of whom shall hold office for a term of one year or
until his or her successor is duly elected and qualified, subject
to such director's earlier death, resignation, disqualification or
removal. Any director may resign at any time upon notice given in
writing or by electronic transmission to the Corporation. Such
resignation shall take effect when such notice is given unless the
notice specifies (a) a later effective date, or (b) an
effective date determined upon the happening of an event or events,
such as the failure to receive the required vote for reelection as
a director and the acceptance of such resignation by the Board of
Directors. Unless otherwise specified in the notice of resignation,
the acceptance of such resignation shall not be necessary to make
it effective. Unless otherwise provided by law or the Certificate
of Incorporation, any newly created directorship or any vacancy
occurring in the Board of Directors for any cause may be filled
only by a majority of the remaining members of the Board of
Directors, although such majority is less than a quorum, and each
director so elected shall hold office until the expiration of the
term of office of the director whom he or she has replaced or until
his or her successor is elected and qualified.
Section
2.3.
Regular Meetings
.
Regular meetings of the Board of Directors may be held at such
places within or without the State of Delaware and at such times as
the Board of Directors may from time to time
determine.
Section
2.4.
Special Meetings
.
Special meetings of the Board of Directors may be held at any time
or place within or without the State of Delaware whenever called by
the Chief Executive Officer, the Secretary, or by any two members
of the Board of Directors. Notice of a special meeting of the Board
of Directors shall be given by the person or persons calling the
meeting at least twenty-four hours before the special
meeting.
Section
2.5.
Telephonic Meetings
Permitted
. Members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in
a meeting 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
in a meeting pursuant to this by-law shall constitute presence in
person at such meeting.
Section
2.6.
Quorum; Vote Required for
Action
. At all meetings of the Board of Directors the
directors entitled to cast a majority of the votes of the whole
Board of Directors shall constitute a quorum for the transaction of
business. Except in cases in which the Certificate of
Incorporation, these bylaws or applicable law otherwise provides, a
majority of the votes entitled to be cast by the directors present
at a meeting at which a quorum is present shall be the act of the
Board of Directors.
Section
2.7.
Organization
. Meetings
of the Board of Directors shall be presided over by the Chairman of
the Board of Directors or, in his or her absence, by a chairman
chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his or her absence, the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section
2.8.
Action by Unanimous Consent
of Directors
. Unless otherwise restricted by the Certificate
of Incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of
the Board of Directors or such committee, as the case may be,
consent thereto in writing or by electronic transmission and the
writing or writings or electronic transmissions are filed with the
minutes of proceedings of the board or committee in accordance with
applicable law.
Section
2.9.
Chairman of the Board and
Vice-Chairman of the Board
. The Board of Directors may elect
one or more of its members to serve as Chairman or Vice-Chairman of
the Board and may fill any vacancy in such position at such time
and in such manner as the Board of Directors shall determine. The
Chairman of the Board, if any, shall preside at all meetings of the
Board of Directors at which he or she is present and shall perform
such duties and possess such powers as are designated by the Board
of Directors. If the Board of Directors appoints a Vice-Chairman of
the Board, he or she shall, in the absence or disability of the
Chairman of the Board, perform the duties and exercise the powers
of the Chairman of the Board and shall perform such other duties
and possess such other powers as may from time to time be
designated by the Board of Directors. The fact that a person serves
as either Chairman of Vice-Chairman of the Board shall not make
such person considered an Officer of the Corporation.
ARTICLE III
Committees
Section
3.1.
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. 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 the committee, the member or
members thereof present at any meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member.
Any such committee, to the extent permitted by law and to the
extent provided in the resolution of the Board of Directors, 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.
Section
3.2.
Committee Rules
.
Unless the Board of Directors otherwise provides, each committee
designated by the Board of Directors may make, alter and repeal
rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the
Board of Directors conducts its business pursuant to Article II of
these bylaws.
ARTICLE IV
Officers
Section 4.1
Officers
. The officers of
the Corporation shall consist of a Chief Executive Officer, a Chief
Financial Officer, a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers as the Board of
Directors may from time to time determine, which may include,
without limitation, one or more Vice Presidents, Assistant
Secretaries or Assistant Treasurers. Each of the
Corporation’s officers shall be elected by the Board of
Directors, each to have such authority, functions or duties as set
forth in these bylaws or as determined by the Board of Directors.
Each officer shall be chosen by the Board of Directors and shall
hold office for such term as may be prescribed by the Board of
Directors and until such person's successor shall have been duly
chosen and qualified, or until such person's earlier death,
disqualification, resignation or removal.
Section 4.2
Removal, Resignation and
Vacancies
. Any officer of the Corporation may be removed,
with or without cause, by the Board of Directors, without prejudice
to the rights, if any, of such officer under any contract to which
it is a party. Any officer may resign at any time upon notice given
in writing or by electronic transmission to the Corporation. Such
resignation shall take effect when such notice is given unless the
notice specifies (a) a later effective date, or (b) an
effective date determined upon the happening of an event or events,
such as the failure to receive the required vote for reelection as
a director and the acceptance of such resignation by the Board of
Directors. Unless otherwise specified in the notice of resignation,
the acceptance of such resignation shall not be necessary to make
it effective. If any vacancy occurs in any office of the
Corporation, the Board of Directors may elect a successor to fill
such vacancy for the remainder of the unexpired term and until a
successor shall have been duly chosen and qualified.
Section 4.3
Chief Executive Officer
.
The Chief Executive Officer shall have general supervision and
direction of the business and affairs of the Corporation, shall be
responsible for corporate policy and strategy, and shall report
directly to the Chairman of the Board of Directors. Unless
otherwise provided in these bylaws, all other officers of the
Corporation shall report directly to the Chief Executive Officer or
as otherwise determined by the Chief Executive Officer. The Chief
Executive Officer shall, if present and in the absence of the
Chairman of the Board of Directors, preside at meetings of the
stockholders and of the Board of Directors.
Section 4.4
President
. The President
shall be the chief operating officer of the Corporation, with
general responsibility for the management and control of the
operations of the Corporation. The President shall have the power
to affix the signature of the Corporation to all contracts that
have been authorized by the Board of Directors or the Chief
Executive Officer. The President shall, when requested, counsel
with and advise the other officers of the Corporation and shall
perform such other duties as such officer may agree with the Chief
Executive Officer or as the Board of Directors may from time to
time determine. In the absence of a separately appointed President,
the Chief Executive Officer shall be the President.
Section 4.5
Chief Financial
Officer
. The Chief Financial
Officer shall exercise all the powers and perform the duties of the
office of the chief financial officer and in general have overall
supervision of the financial operations of the Corporation and
shall keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including
accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital retained earnings, and shares. The Chief
Financial Officer shall, when requested, counsel with and advise
the other officers of the Corporation and shall perform such other
duties as such officer may agree with the Chief Executive Officer
or as the Board of Directors may from time to time determine. In
the absence of a separately appointed Treasurer, the Chief
Financial Officer shall be the Treasurer.
Section 4.6
Vice Presidents
. The Vice
President shall have such powers and duties as shall be prescribed
by his or her superior officer or the Chief Executive Officer. A
Vice President shall, when requested, counsel with and advise the
other officers of the Corporation and shall perform such other
duties as such officer may agree with the Chief Executive Officer
or as the Board of Directors may from time to time
determine.
Section 4.7
Treasurer
. The Treasurer
shall supervise and be responsible for all the funds and securities
of the Corporation, the deposit of all moneys and other valuables
to the credit of the Corporation in depositories of the
Corporation, borrowings and compliance with the provisions of all
indentures, agreements and instruments governing such borrowings to
which the Corporation is a party, the disbursement of funds of the
Corporation and the investment of its funds, and in general shall
perform all of the duties incident to the office of the Treasurer.
The Treasurer shall, when requested, counsel with and advise the
other officers of the Corporation and shall perform such other
duties as such officer may agree with the Chief Executive Officer
or as the Board of Directors may from time to time
determine.
Section
4.8
Secretary
.
The powers and duties of the Secretary are to: (i) act as Secretary
at all meetings of the Board of Directors, of the committees of the
Board of Directors and of the stockholders and to record the
proceedings of such meetings in a book or books to be kept for that
purpose; (ii) see that all notices required to be given by the
Corporation are duly given and served; (iii) act as custodian of
the seal of the Corporation and affix the seal or cause it to be
affixed to all certificates of stock of the Corporation and to all
documents, the execution of which on behalf of the Corporation
under its seal is duly authorized in accordance with the provisions
of these bylaws; (iv) have charge of the books, records and papers
of the Corporation and see that the reports, statements and other
documents required by law to be kept and filed are properly kept
and filed; and (v) perform all of the duties incident to the office
of Secretary. The Secretary shall, when requested, counsel with and
advise the other officers of the Corporation and shall perform such
other duties as such officer may agree with the Chief Executive
Officer or as the Board of Directors may from time to time
determine.
Section 4.9
Additional Matters
. The
Chief Executive Officer and the Chief Financial Officer of the
Corporation shall have the authority to designate employees of the
Corporation to have the title of Assistant Vice President,
Assistant Treasurer or Assistant Secretary. Any employee so
designated shall have the powers and duties determined by the
officer making such designation. The persons upon whom such titles
are conferred shall not be deemed officers of the Corporation
unless elected by the Board of Directors.
Section 4.10
Execution of Contracts and
Instruments
. All contracts,
deeds, mortgages, bonds, certificates, checks, drafts, bills of
exchange, notes and other instruments or documents to be executed
by or in the name of the Corporation shall be signed on the
corporation’s behalf by such officer or officers, or other
person or persons, as may be so authorized (i) by the Board of
Directors, or (ii) subject to such limitations, if any, as the
Board of Directors may impose, by the Chief Executive Officer. Such
authority may be general or confined to specific instances and, if
the Board of Directors or Chief Executive Officer (whichever grants
authority) so authorizes or otherwise directs, may be delegated by
the authorized officers to other persons. Unless otherwise provided
in such resolution, any resolution of the Board of Directors or a
committee thereof authorizing the Corporation to enter into any
such instruments or documents or authorizing their execution by or
on behalf of the Corporation shall be deemed to authorize the
execution thereof on its behalf by the Chief Executive Officer, the
President, Chief Financial Officer or any Vice President (an
“
Authorized
Officer
”). Furthermore,
each Authorized Officer shall be authorized to enter into any
contract or execute any instrument in the name of and on behalf of
the Corporation in matters arising in the ordinary course of the
Corporation’s business and to the extent incident to the
normal performance of such Authorized Officer’s
duties.
ARTICLE V
Stock
Section
5.1.
Certificates
. The
shares of the Corporation may be certificated or uncertificated in
accordance with the Delaware General Corporation Law. The issue of
shares in uncertificated form shall not affect shares represented
by a certificate until the certificate is surrendered to the
Corporation. Every holder of stock represented by certificates
shall be entitled to have a certificate signed by any two
authorized officers of the Corporation certifying the number of
shares owned by such holder in the Corporation. Any of or all the
signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent, or
registrar at the date of issue.
Section
5.2.
Lost, Stolen or Destroyed
Stock Certificates; Issuance of New Certificates
. The
Corporation may issue a new certificate of stock in the place of
any certificate theretofore issued by it, alleged to have been
lost, stolen or destroyed, and the Corporation may require the
owner of the lost, stolen or destroyed certificate, or such owner's
legal representative, to give the Corporation a bond sufficient to
indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VI
Indemnification and Advancement of Expenses
Section
6.1.
Right to
Indemnification
. The Corporation shall indemnify and hold
harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person (a
"Covered Person") who was or is made or is threatened to be made a
party or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that he or she, or a person
for whom he or she is the legal representative, is or was a
director or officer of the Corporation or, while a director or
officer of the Corporation, is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise
or nonprofit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such Covered
Person. Notwithstanding the preceding sentence, except as otherwise
provided in Section 6.3, the Corporation shall be required to
indemnify a Covered Person in connection with a proceeding (or part
thereof) commenced by such Covered Person only if the commencement
of such proceeding (or part thereof) by the Covered Person was
authorized in the specific case by the Board of Directors of the
Corporation.
Section
6.2.
Prepayment of
Expenses
. The Corporation shall to the fullest extent not
prohibited by applicable law pay the expenses (including attorneys'
fees) incurred by a Covered Person in defending any proceeding in
advance of its final disposition,
provided
,
however
, that, to the extent required
by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an
undertaking by the Covered Person to repay all amounts advanced if
it should be ultimately determined that the Covered Person is not
entitled to be indemnified under this Article VI or
otherwise.
Section
6.3.
Claims
. If a claim for
indemnification (following the final disposition of such
proceeding) or advancement of expenses under this Article VI is not
paid in full within thirty (30) days after a written claim therefor
by the Covered Person has been received by the Corporation, the
Covered Person may file suit to recover the unpaid amount of such
claim and, if successful in whole or in part, shall be entitled to
be paid the expense of prosecuting such claim to the fullest extent
permitted by law. In any such action the Corporation shall have the
burden of proving that the Covered Person is not entitled to the
requested indemnification or advancement of expenses under
applicable law.
Section
6.4.
Nonexclusivity of
Rights
. The rights conferred on any Covered Person by this
Article VI shall not be exclusive of any other rights which such
Covered Person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, these bylaws,
agreement, vote of stockholders or disinterested directors or
otherwise.
Section
6.5.
Other Sources
. The
Corporation’s obligation, if any, to indemnify or to advance
expenses to any Covered Person who was or is serving at its request
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity
shall be reduced by any amount such Covered Person may collect as
indemnification or advancement of expenses from such other
corporation, partnership, joint venture, trust, enterprise or
non-profit enterprise.
Section
6.6.
Amendment or Repeal
.
Any right to indemnification or to advancement of expenses of any
Covered Person arising hereunder shall not be eliminated or
impaired by an amendment to or repeal of these bylaws after the
occurrence of the act or omission that is the subject of the civil,
criminal, administrative or investigative action, suit or
proceeding for which indemnification or advancement of expenses is
sought.
Section
6.7.
Other Indemnification and
Advancement of Expenses
. This Article VI shall not limit the
right of the Corporation, to the extent and in the manner permitted
by law, to indemnify and to advance expenses to persons other than
Covered Persons when and as authorized by appropriate corporate
action.
ARTICLE VII
Miscellaneous
Section
7.1.
Fiscal Year
. The
fiscal year of the Corporation shall be determined by resolution of
the Board of Directors.
Section
7.2.
Seal
. The corporate
seal shall have the name of the Corporation inscribed thereon and
shall be in such form as may be approved from time to time by the
Board of Directors.
Section
7.3.
Method of Notice
.
Whenever notice is required by law, the Certificate of
Incorporation or these bylaws to be given by the Corporation to any
director, committee member or stockholder, personal notice shall
not be required and any such notice may be given in writing
(a) by mail, addressed to such director, committee member or
stockholder at his or her address as it appears on the books of the
Corporation, or (b) by any other method permitted by law
(including, but not limited to, overnight courier service,
facsimile, electronic mail or other means of electronic
transmission) directed to the addressee at his, her or its address
most recently provided to the Corporation. Any notice given by the
Corporation by mail shall be deemed to have been given at the time
when deposited in the United States mail. Any notice given by the
Corporation by overnight courier service shall be deemed to have
been given when delivered to such service. Any notice given by the
Corporation by facsimile, electronic mail or other means of
electronic transmission that generally can be accessed by or on
behalf of the receiving party at substantially the same time as it
is transmitted shall be deemed to have been given when transmitted,
unless the Corporation receives a prompt reply that such
transmission is undeliverable to the address to which it was
directed.
Section
7.4.
Waiver of Notice
.
Whenever any notice is required to be given under the provisions of
the statutes or of the Certificate of Incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or
persons entitled to such notice, or a waiver by electronic
transmission by the person entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting except when the person attends a
meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
Section
7.5.
Form of Records
. Any
records maintained by the Corporation in the regular course of its
business, including its stock ledger, books of account, and minute
books, may be kept on, or by means of, or be in the form of, any
information storage device or method, provided that the records so
kept can be converted into clearly legible paper form within a
reasonable time.
Section
7.6.
Amendment of Bylaws
.
These bylaws may be altered, amended or repealed or new bylaws may
be adopted by the stockholders or by the Board of
Directors.
Section 7.7.
Registered
Stockholders
.
The Corporation
shall be entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive dividends
and to vote as such owner and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on
the part of another person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of
Delaware.
Section
7.8.
Facsimile
Signature
. In addition to the
provisions for use of facsimile signatures elsewhere specifically
authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized
by the Board of Directors or a committee
thereof.
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
ENDRA
Life Sciences Inc., a corporation duly organized and existing under
the General Corporation Law of the State of Delaware (the
“Corporation”), does hereby certify that:
FIRST:
The Certificate of Incorporation of the Corporation
is hereby amended by adding the following paragraph to Article
FOURTH thereof which shall read in its entirety as
follows:
“Upon the
effectiveness of this Certificate of Amendment (the
“Effective Time”), each share of the Common Stock,
issued and outstanding immediately prior to the Effective Time,
will be automatically reclassified as and converted into 0.400 of a
share of Common Stock; provided, however, that no fractional shares
shall be issued to stockholders as a result of the foregoing
reclassification and that in lieu thereof, the Corporation shall,
after aggregating all fractions of a share to which a holder would
otherwise be entitled, round any resulting fractional shares up to
the nearest whole share. Any stock certificate that, immediately
prior to the Effective Time, represented shares of Common Stock
will, from and after the Effective Time, automatically and without
the necessity of presenting the same for exchange, represent the
number of shares of Common Stock as equals the product obtained by
multiplying the number of shares of Common Stock represented by
such certificate immediately prior to the Effective Time
by 0.400, but giving
effect to the rounding of fractional shares provided for in the
immediately preceding sentence.”
SECOND
:
The foregoing amendment was duly
adopted in accordance with the provisions of Sections 242 and 228
(by the written or electronic consent of the stockholders of the
Corporation) 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 December,
2016.
|
ENDRA
Life Sciences Inc.
By:_____________________________________
Francois Michelon,
Chief Executive Officer
|
WARRANT
AGREEMENT
THIS WARRANT AGREEMENT
(this
“
Warrant
Agreement
”), dated as of December [__], 2016, is
entered into by and between ENDRA Life Sciences Inc., a Delaware
corporation (the “
Company
”), and Corporate Stock
Transfer, Inc., a Colorado corporation (the “
Warrant Agent
”).
WHEREAS, the
Company is engaged in an initial public offering (the
“
Offering
”) of
shares of the Company’s Common Stock, with each share of
common stock being sold together with a Warrant (the
“
Warrants
”) to
the public investors, each of such Warrants evidencing the right of
the holder thereof to purchase one-half of one share of the
Company’s Common Stock, par value $0.0001 per share (the
“
Common Stock
”)
for
[$___]
, subject to
adjustment as described herein;
WHEREAS, the
Company has filed with the U.S. Securities and Exchange Commission
(the “
Commission
”) a Registration
Statement on Form S-1, No. 333-214724 (as the same may be amended
from time to time, the “
Registration Statement
”), for the
registration, under the Securities Act of 1933, as amended (the
“
Securities
Act
”), of, among other securities, the Warrants and
the Common Stock issuable upon exercise of the Warrants (the
“
Warrant
Shares
”);
WHEREAS, the
Registration Statement was declared effective on December [__],
2016;
WHEREAS, the
Company desires the Warrant Agent to act on behalf of the Company,
and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and exercise of the
Warrants;
WHEREAS, the
Company desires to provide for the form and provisions of the
Warrants, the terms upon which they shall be issued and exercised,
and the respective rights, limitation of rights, and immunities of
the Company, the Warrant Agent, and the holders of the Warrants
(each, a “
Holder
”); and
WHEREAS, all acts
and things have been done and performed which are necessary to make
the Warrants, when executed on behalf of the Company and
countersigned by or on behalf of the Warrant Agent, as provided
herein, the valid and binding obligations of the Company, and to
authorize the execution and delivery of this Warrant
Agreement.
NOW,
THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
1.
Appointment
of Warrant Agent
. The Company
hereby appoints the Warrant Agent to act as agent for the Company
for the Warrants, and the Warrant Agent hereby accepts such
appointment and agrees to perform the same in accordance with the
terms and conditions set forth in this Warrant
Agreement.
2.
Warrants
.
2.1
Form
of Warrant
. Each Warrant shall
be issued in registered, book-entry form only, shall be in
substantially the form of
Exhibit A
hereto (each a
“
Book-Entry Warrant
Certificate
”), the
provisions of which are incorporated herein, and shall be signed
by, or bear the facsimile signature of, the Chief Executive
Officer, President, Chief Financial Officer, Treasurer, Secretary
or Assistant Secretary of the Company. For purposes of this
Agreement, the term “
Issuance
Date
” means the date a
Warrant shall be issued. In the event the person whose facsimile
signature has been placed upon any Warrant shall have ceased to
serve in the capacity in which such person signed the Warrant
before such Warrant is issued, it may be issued with the same
effect as if he or she had not ceased to be such at the Issuance
Date.
For purposes of this Agreement, the term
“
person
” (whether or not capitalized) means an
individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any
kind.
As used
in this Warrant Agreement, the term “
Holder
” refers only to a
registered holder of the Warrants.
2.2
Effect
of Countersignature
. Unless and
until countersigned by the Warrant Agent pursuant to this Warrant
Agreement, a Warrant shall be invalid and of no effect and may not
be exercised by a Holder.
2.3
Registration
.
2.3.1
Warrant
Register
. The Warrant Agent
shall maintain books (the “
Warrant
Register
”) for the
registration of the original issuance and the registration of any
transfer of the Warrants. Upon the initial issuance of the
Warrants, the Warrant Agent shall issue and register the Warrants
in the names of the respective Holders in such denominations and
otherwise in accordance with instructions delivered to the Warrant
Agent by the Company. To the extent the Warrants are eligible as of
the Issuance Date to be deposited through the Depository Trust
Company (the “
Depository
”), all of the Warrants shall be represented
by one or more Book-Entry Warrant Certificates deposited with the
Depository and registered in the name of Cede & Co., a
nominee of the Depository. Ownership of beneficial interests in the
Book-Entry Warrant Certificates shall be shown on, and the transfer
of such ownership shall be effected through, records maintained (i)
by the Depository or its nominee for each Book-Entry Warrant
Certificate; or (ii) by institutions that have accounts with the
Depository (such institution, with respect to a Warrant in its
account, a “
Participant
”).
If the Warrants are not eligible as of the
Issuance Date to be deposited through the Depository, or if the
Depository subsequently ceases to make its book-entry settlement
system available for the Warrants, the Company may instruct the
Warrant Agent to make other arrangements for book-entry settlement
within ten (10) Business Days after the Depository ceases to make
its book-entry settlement available. In the event that the Company
does not make alternative arrangements for book-entry settlement
within ten (10) Business Days or the Warrants are not eligible for,
or it is no longer necessary to have the Warrants available in,
book-entry form, the Warrant Agent shall provide written
instructions to the Depository to deliver to the Warrant Agent for
cancellation each Book-Entry Warrant Certificate, and the Company
shall instruct the Warrant Agent to deliver to the Depository
definitive warrant certificates in physical form evidencing such
Warrants (the “
Definitive Warrant
Certificates
”; each of
the Book-Entry Warrant Certificates and the Definitive Warrant
Certificates is referred to herein as a “
Warrant
Certificate
”). Such
Definitive Warrant certificates shall be in substantially the form
attached hereto as
Exhibit
A
.
As used in this Warrant Agreement, the term
“
Business Day
” means any day other than Saturday, Sunday
or other day on which commercial banks in the City of New York are
authorized or required by law or executive order to remain
closed.
2.3.2
Beneficial
Owner; Registered Holder
. Prior
to due presentment for registration of transfer of any Warrant, the
Company and the Warrant Agent may deem and treat the person in
whose name such Warrant shall be registered upon the Warrant
Register (“
registered
holder
”), as the absolute
owner of such Warrant and of each Warrant represented thereby
(notwithstanding any notation of ownership or other writing on the
Definitive Warrant Certificate made by anyone other than the
Company or the Warrant Agent), for the purpose of any exercise
thereof, and for all other purposes, and neither the Company nor
the Warrant Agent shall be affected by any notice to the contrary.
Any person in whose name ownership of a beneficial interest in the
Warrants evidenced by a Book-Entry Warrant Certificate is recorded
in the records maintained by the Depository or its nominee shall be
deemed the “beneficial owner” thereof; provided, that
all such beneficial interests shall be held through a Participant
which shall be the registered holder of such Warrants. The rights
of beneficial owners shall be limited to those established by
applicable law and agreements between the Depository and the
Participants and between such Participants and beneficial owners
and must be exercised through a Participant in accordance with the
rules and procedures of the Depository; provided, however, the
Company acknowledges and agrees that the rights and remedies of a
Holder hereunder are vested with such beneficial
owners.
2.4
Uncertificated
Warrants
. Notwithstanding the
foregoing and anything else in this Warrant Agreement to the
contrary, the Warrants may be issued in uncertificated
form.
3.
Terms
and Exercise of Warrants
.
3.1
Exercise
Price
. Each Warrant shall, when
countersigned by the Warrant Agent, entitle the Holder, subject to
the provisions of such Warrant and of this Warrant Agreement, to
purchase from the Company the number of shares of Common Stock
stated therein, at the price of $[___] per share, subject to the
subsequent adjustments provided in Section 4 hereof. The term
“
Exercise
Price
” as used in this
Warrant Agreement refers to the price per share at which Common
Stock may be purchased at the time a Warrant is
exercised.
3.2
Duration
of Warrants
. A Warrant may be
exercised only during the period (“
Exercise
Period
”) commencing on
the Issuance Date and terminating at 5:00 p.m., New York City time
on December [__], 2021 (the “
Expiration
Date
”). Each Warrant not
exercised on or before the Expiration Date shall become void, and
all rights thereunder and all rights in respect thereof under this
Warrant Agreement shall cease at the close of business on the
Expiration Date.
3.3
Exercise
of Warrants
.
3.3.1
Exercise
and Payment
. A Holder may
exercise a Warrant by delivering, not later than 5:00 p.m., New
York City time, on any Business Day during the Exercise Period (the
“
Exercise
Date
”) to the Warrant
Agent at its corporate trust department (i) a duly executed e-mail
or facsimile copy of an election to purchase Warrant Shares
underlying such Warrant in the form included on the reverse side of
the applicable Warrant Certificate (an “
Election to
Purchase
”) and (ii)
unless the cashless exercise procedure specified in Section 3.3.9
below is specified in the applicable Election to Purchase, the
aggregate Exercise Price for the shares specified in the applicable
Election to Purchase by wire transfer or cashier’s check
drawn on a United States bank. No ink-original Election to Purchase
shall be required. Unless Warrant Shares, or a Warrant Certificate
evidencing unexercised Warrants, are to be issued in a name other
than that of the exercising Holder, no medallion guarantee (or
other type of guarantee or notarization) of any Election to
Purchase form shall be required. Notwithstanding anything herein to
the contrary, a Holder shall not be required to physically
surrender such Holder’s Warrant Certificate to the Warrant
Agent or the Company until such Holder has purchased all of the
Warrant Shares available thereunder and the Warrant has been
exercised in full, in which case, the Holder shall surrender such
Holder’s Warrant Certificate to the Warrant Agent for
cancellation at the same time that the final Election to Purchase
is delivered to the Warrant Agent. Partial exercises of any Warrant
resulting in purchases of a portion of the total number of Warrant
Shares available thereunder shall have the effect of lowering the
outstanding number of Warrant Shares purchasable thereunder in an
amount equal to the applicable number of Warrant Shares purchased.
The Holder and the Warrant Agent shall maintain records showing the
number of Warrant Shares purchased and the date of such purchases.
The Company or the Warrant Agent shall deliver any objection to any
Election to Purchase within one (1) Trading Day of receipt of such
notice.
The
term “
Trading
Day
” means a day on which the principal Trading Market
is open for trading. The term “
Trading Market
” means any of the
following U.S. markets or exchanges on which the Common Stock is
listed or quoted for trading on the date in question: the NYSE,
NYSE MKT, the NASDAQ Capital Market, the NASDAQ Global Market or
the NASDAQ Global Select Market (or any successors to any of the
foregoing).
The
Warrant Agent shall promptly deposit all funds received by it in
payment of the Exercise Price in the account of the Company
maintained with the Warrant Agent for such purpose and shall advise
the Company via telephone or e-mail at the end of each day on which
funds for the exercise of the Warrants are received of the amount
so deposited to its account. The Warrant Agent shall promptly
confirm such telephonic advice to the Company in
writing.
3.3.2
Issuance
of Certificates
. The Warrant
Agent shall, by 11:00 a.m. New York City time on the Trading Day
following the Exercise Date of any Warrant, advise the Company or
the transfer agent and registrar in respect of (a) the number of
Warrant Shares issuable upon such exercise in accordance with the
terms and conditions of this Warrant Agreement, (b) the
instructions of each Holder with respect to delivery of the Warrant
Shares issuable upon such exercise, and the delivery of Definitive
Warrant Certificates, as appropriate, evidencing the balance, if
any, of the Warrants remaining after such exercise and (c) in case
of a Book-Entry Warrant Certificate, the notation that shall be
made to the records maintained by the Depository or its nominee for
each Book-Entry Warrant Certificate, as appropriate, evidencing the
balance, if any, of the Warrants remaining after such
exercise.
The
Company shall, by 5:00 p.m., New York City time, on the third
Trading Day next succeeding the Exercise Date of any Warrant and
the clearance of the funds in payment of the aggregate Exercise
Price, execute, issue and deliver to the Warrant Agent, the Warrant
Shares to which such Holder is entitled, in fully registered form,
registered in such name or names as may be directed by such Holder.
Upon receipt of such Warrant Shares, the Warrant Agent shall, by
5:00 p.m., New York City time, on the third Trading Day next
succeeding such Exercise Date, transmit such Warrant Shares to, or
upon the order of, such Holder.
In lieu
of delivering physical certificates representing the Warrant Shares
issuable upon exercise of any Warrants, provided the
Company’s transfer agent is participating in the
Depository’s Fast Automated Securities Transfer (FAST)
program, the Company shall use its commercially reasonable efforts
to cause its transfer agent to electronically transmit the Warrant
Shares issuable upon exercise to the Depository by crediting the
account of the Depository or of the Participant, as the case may
be, through its Deposit Withdrawal Agent Commission system. The
time periods for delivery described in the immediately preceding
paragraph shall apply to the electronic transmittals described in
this Warrant Agreement. While the Warrants are outstanding, the
Company agrees to use reasonable best efforts to maintain a
transfer agent that participates in the FAST program.
3.3.3
Rescission
Rights
. If the Company fails to
cause the Warrant Agent to transmit to any Holder the Warrant
Shares by the third Trading Day following the Exercise Date, then
such Holder will have the right to rescind such
exercise.
3.3.4
Valid
Issuance
. All shares of Common
Stock issued upon the proper exercise of a Warrant in conformity
with this Warrant Agreement shall be validly issued, fully paid and
nonassessable.
3.3.5
No
Fractional Exercise
. Warrants
may be exercised only in whole numbers of Warrant Shares. No
fractional Warrant Shares are to be issued upon the exercise of a
Warrant, but rather the number of Warrant Shares to be issued shall
be rounded up or down, as applicable, to the nearest whole number.
If fewer than all of the Warrants evidenced by a Definitive Warrant
Certificate are exercised, a new Definitive Warrant Certificate for
the number of unexercised Warrants remaining shall be executed by
the Company and countersigned by the Warrant Agent as provided in
Section 2 of this Warrant Agreement, and delivered to the Holder at
the address specified on the books of the Warrant Agent or as
otherwise specified by such Holder. If fewer than all of the
Warrants evidenced by a Book-Entry Warrant Certificate are
exercised, a notation shall be made to the records maintained by
the Depository or its nominee for each Book-Entry Warrant
Certificate, as appropriate, evidencing the balance of the Warrants
remaining after such exercise.
3.3.6
No
Transfer Taxes
. The Company
shall not be required to pay any stamp or other tax or governmental
charge required to be paid in connection with any third party
transfer involved in the issue of the Warrant Shares upon the
exercise of Warrants; and in the event that any such third party
transfer is involved, the Company shall not be required to issue or
deliver any Warrant Shares until such tax or other charge shall
have been paid or it has been established to the Company’s
satisfaction that no such tax or other charge is
due.
3.3.7
Date
of Issuance
. Each person in
whose name any such certificate for Warrant Shares is issued shall
for all purposes be deemed to have become the holder of record of
such shares on the date on which the applicable Warrant was
surrendered and payment of the Exercise Price was made,
irrespective of the date of delivery of any such certificate,
except that, if the date of such surrender and payment is a date
when the stock transfer books of the Company are closed, such
person shall be deemed to have become the holder of record of such
shares at the close of business on the next succeeding date on
which the stock transfer books are open.
3.3.8
Optional
Cashless Exercise
. If at any
time during the term of this Warrant there is no effective
registration statement registering under the Securities Act, or no
current prospectus available for, the issuance or resale of the
Warrant Shares by the registered holder, then this Warrant may also
be exercised at such time by means of a “cashless
exercise” in which the registered holder shall be entitled to
receive a certificate for the number of Warrant Shares equal to the
quotient obtained by dividing [(A-B) (X)] by (A),
where:
(A)
=
the VWAP (as defined below) on the Trading Day immediately
preceding the date of such election;
(B)
=
the Exercise Price of this Warrant, as adjusted;
and
(X)
=
the number of Warrant Shares issuable upon exercise of this Warrant
in accordance with the terms of this Warrant by means of a cash
exercise rather than a cashless exercise.
The
term “
VWAP
”
means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market (as defined below), the daily
volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:02
p.m. (Eastern time), (b) if the OTC Bulletin Board is not a Trading
Market, the volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the OTC Bulletin
Board, (c) if the Common Stock is not then listed or quoted for
trading on the OTC Bulletin Board and if prices for the Common
Stock are then reported in the “Pink Sheets” published
by OTC Markets Group, Inc. (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent
bid price per share of the Common Stock so reported, or (d) in all
other cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by
the Warrant Agent and reasonably acceptable to the Company, the
fees and expenses of which shall be paid by the
Company.
3.3.9
Disputes
.
In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the Warrant Shares, the
Company shall promptly issue to the registered holder the number of
Warrant Shares that are not disputed.
3.3.10
Limitations on
Exercise
. Neither the Warrant
Agent nor the Company shall effect any exercise of any Warrant, and
a registered holder shall not have the right to exercise any
portion of a Warrant to the extent that after giving effect to the
issuance of Warrant Shares after exercise as set forth on the
applicable Election to Purchase, such Holder (together with such
Holder’s affiliates (as defined in Rule 405 under the
Securities Act), and any other person or entity acting as a group
together with such Holder or any of such Holder’s affiliates
(each an “
Attribution
Party
”)), would
beneficially own in excess of the Beneficial Ownership Limitation
(as defined below). For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by a Holder and
its Affiliates and its Attribution Parties shall include the number
of shares of Common Stock issuable upon exercise of the Warrant
with respect to which such determination is being made, but shall
exclude the number of shares of Common Stock which would be
issuable upon (i) exercise of the remaining, nonexercised portion
of this Warrant beneficially owned by such Holder or any of its
Affiliates or Attribution Parties and (ii) exercise or conversion
of the unexercised or nonconverted portion of any other securities
of the Company (including, without limitation, any other Common
Stock Equivalents) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially
owned by such Holder or any of its Affiliates or Attribution
Parties. Except as set forth in the preceding sentence, for
purposes of this Section
3.3.10
,
beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the
“
Exchange Act
”), and the rules and regulations
promulgated thereunder, it being acknowledged by each Holder that
neither the Warrant Agent nor the Company is representing to such
Holder that such calculation is in compliance with Section 13(d) of
the Exchange Act and such Holder is solely responsible for any
schedules required to be filed in accordance therewith. To the
extent that the limitation contained in this Section
3.3.10
applies, the determination of whether a Warrant is
exercisable (in relation to other securities owned by a Holder
together with any Affiliates and Attribution Parties) and of which
portion of a Warrant is exercisable shall be in the sole discretion
of a Holder, and the submission of an Election to Purchase shall be
deemed to be such Holder’s determination of whether such
Warrant is exercisable (in relation to other securities owned by
such Holder together with any Affiliates and Attribution Parties)
and of which portion of a Warrant is exercisable, and neither the
Warrant Agent nor the Company shall have any obligation to verify
or confirm the accuracy of such determination and neither of them
shall have any liability for any error made by such Holder. In
addition, a determination as to any group status as contemplated
above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder.
For purposes of this Section
3.3.10
, in
determining the number of outstanding shares of Common Stock, a
Holder may rely on the number of outstanding shares of Common Stock
as reflected in (A) the Company’s most recent periodic or
annual report filed with the Commission, as the case may be, (B) a
more recent public announcement by the Company or (C) a more recent
written notice by the Company or the Company’s transfer agent
setting forth the number of shares of Common Stock outstanding. The
provisions of this Section
3.3.10
shall be construed and implemented in
a manner otherwise than in strict conformity with the terms of this
Section 6 to correct this subsection (or any portion hereof) which
may be defective or inconsistent with the intended beneficial
ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such
limitation. The limitations contained in this paragraph shall apply
to a successor Holder.
The “
Beneficial Ownership
Limitation
” means 4.99%
of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock
issuable upon exercise of such Warrant.
“
Common Stock
Equivalents
” means any
securities of the Company or the Subsidiaries which would entitle
the holder thereof to acquire at any time Common Stock, including,
without limitation, any debt, preferred stock, right, option,
warrant or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
The Holder may upon prior notice to the Company
and the Warrant Agent increase or decrease the Beneficial Ownership
Limitation, provided that the Beneficial Ownership Limitation in no
event exceeds 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of
shares of Common Stock upon exercise of the applicable Warrant held
by such Holder and the provisions of this Section
3.3.10
shall continue to apply. Any such
increase will not be effective until the 61st day after such notice
is delivered to the Company and the Warrant Agent. The provisions
of this Section
3.3.10
shall be construed, corrected and implemented in a
manner so as to effectuate the intended Beneficial Ownership
Limitation herein contained. The limitations contained in this
paragraph shall apply to a successor Holder of any
Warrant.
4.
Adjustments
.
4.1
Stock Dividends and
Splits.
If the Company, at any
time while any of the Warrants is outstanding: (i) pays a stock
dividend or otherwise makes a distribution or distributions on
shares of its Common Stock or any other equity or equity equivalent
securities payable in shares of Common Stock (which, for avoidance
of doubt, shall not include any Warrant Shares issued pursuant to
this Warrant Agreement or any of the Warrants), (ii) subdivides
outstanding shares of Common Stock into a larger number of shares,
(iii) combines (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares,
or (iv) issues by reclassification of shares of the Common Stock
any shares of capital stock of the Company, then in each case the
Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding immediately before such event
and of which the denominator shall be the number of shares of
Common Stock outstanding immediately after such event, and the
number of Warrant Shares shall be proportionately adjusted such
that the aggregate Exercise Price of each Warrant shall remain
unchanged. Any adjustment made pursuant to this Section
4.1
shall
become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification. The Company shall promptly notify Warrant Agent
of any such adjustment and give specific instructions to Warrant
Agent with respect to any adjustments to the Warrant
Register.
4.2
Subsequent
Rights Offerings.
In addition
to any adjustments pursuant to Section
4.1
above, if at any time the Company
grants, issues or sells any Common Stock Equivalents or rights to
purchase stock, warrants, securities or other property pro rata to
the record holders of any class of shares of Common Stock (the
“
Purchase
Rights
”), then each
Holder will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such
Holder could have acquired if such Holder had held the number of
shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on exercise hereof,
including without limitation, the Beneficial Ownership Limitation)
immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of shares
of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights (provided, however, to the extent that any
Holder’s right to participate in any such Purchase Right
would result in such Holder exceeding the Beneficial Ownership
Limitation, then such Holder shall not be entitled to participate
in such Purchase Right to such extent (or beneficial ownership of
such shares of Common Stock as a result of such Purchase Right to
such extent) and such Purchase Right to such extent shall be held
in abeyance for such Holder until such time, if ever, as its right
thereto would not result in such Holder exceeding the Beneficial
Ownership Limitation).
4.3
Pro
Rata Distributions
. During such
time as any of the Warrants is outstanding, if the Company shall
declare or make any dividend or other distribution of its assets
(or rights to acquire its assets) to holders of shares of Common
Stock, by way of return of capital or otherwise (including, without
limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or
other similar transaction) (a “
Distribution
”), at any time after the Issuance Date,
then, in each such case, each Holder shall be entitled to
participate in such Distribution to the same extent that such
Holder would have participated therein if such Holder had held the
number of Warrant Shares acquirable upon complete exercise of this
Warrant (without regard to any limitations on exercise hereof,
including without limitation, the Beneficial Ownership Limitation)
immediately before the date of which a record is taken for such
Distribution, or, if no such record is taken, the date as of which
the record holders of shares of Common Stock are to be determined
for the participation in such Distribution (
provided
,
however
,
to the extent that any Holder’s right to participate in any
such Distribution would result in such Holder exceeding the
Beneficial Ownership Limitation, then such Holder shall not be
entitled to participate in such Distribution to such extent (or in
the beneficial ownership of any shares of Common Stock as a result
of such Distribution to such extent) and the portion of such
Distribution shall be held in abeyance for the benefit of such
Holder until such time, if ever, as its right thereto would not
result in such Holder exceeding the Beneficial Ownership
Limitation).
4.4
Fundamental
Transaction
. If, at any time
while the Warrants are outstanding, (i) the Company, directly or
indirectly, in one or more related transactions effects any merger
or consolidation of the Company with or into another person, (ii)
the Company, directly or indirectly, effects any sale, lease,
license, assignment, transfer, conveyance or other disposition of
all or substantially all of its assets in one transaction or a
series of related transactions, (iii) any, direct or indirect,
purchase offer, tender offer or exchange offer (whether by the
Company or another person) is completed pursuant to which holders
of Common Stock are permitted to sell, tender or exchange their
shares for other securities, cash or property and has been accepted
by the holders of 50% or more of the outstanding Common Stock, (iv)
the Company, directly or indirectly, in one or more related
transactions effects any reclassification, reorganization or
recapitalization of the Common Stock or any compulsory share
exchange (other than as a result of a dividend, subdivision or
combination covered by Section 4.1) pursuant to which the Common
Stock is effectively converted into or exchanged for other
securities, cash or property, or (v) the Company, directly or
indirectly, in one or more related transactions consummates a stock
or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another person or group of
persons whereby such other person or group acquires more than 50%
of the outstanding shares of Common Stock (not including any shares
of Common Stock held by the other person or other persons making or
party to, or associated or affiliated with the other persons making
or party to, such stock or share purchase agreement or other
business combination) (each a “
Fundamental
Transaction
”), then, upon
any subsequent exercise of a Warrant, each Holder shall have the
right to receive, for each Warrant Share that would have been
issuable upon such exercise immediately prior to the occurrence of
such Fundamental Transaction, at the option of the Holder (without
regard to any limitation in Section
3.3.10
on the exercise of such Warrant), the
number of shares of common stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation,
and any additional consideration (the “
Alternate
Consideration
”)
receivable as a result of such Fundamental Transaction by a holder
of the number of Warrant Shares for which each Warrant is
exercisable immediately prior to such Fundamental Transaction
(without regard to any limitation in Section
3.3.10
on the exercise of such Warrant). For
purposes of any such exercise, the determination of the Exercise
Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such
Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable
manner reflecting the relative value of any different components of
the Alternate Consideration. If holders of Common Stock are given
any choice as to the securities, cash or other property to be
received in a Fundamental Transaction, then the Holder shall be
given the same choice as to the Alternate Consideration that such
Holder receives upon any exercise of each Warrant following such
Fundamental Transaction. The Company shall cause any successor
entity in a Fundamental Transaction in which the Company is not the
survivor (the “
Successor
Entity
”), to assume in
writing all of the obligations of the Company under this Warrant
Agreement in accordance with the provisions of this Section 4.3
pursuant to written agreements and shall, upon the written request
of such Holder and without regard to any limitation in
Section
3.3.10
on
the exercise of such Warrant, deliver to such Holder in exchange
for the applicable Warrants created by this Warrant Agreement a
security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to the Warrants which
are exercisable for a corresponding number of shares of capital
stock of such Successor Entity (or its parent entity), if any, plus
any Alternate Consideration, receivable as a result of such
Fundamental Transaction by a holder of the number of shares of
Common Stock for which the Warrants are exercisable immediately
prior to such Fundamental Transaction, and with an exercise price
which applies the Exercise Price hereunder to such shares of
capital stock, if any, plus any Alternate Consideration (but taking
into account the relative value of the shares of Common Stock
pursuant to such Fundamental Transaction and the value of such
shares of capital stock, such number of shares of capital stock and
such exercise price being for the purpose of protecting the
economic value of such Warrant immediately prior to the
consummation of such Fundamental Transaction). Upon the occurrence
of any such Fundamental Transaction the Successor Entity shall
succeed to, and be substituted for (so that from and after the date
of such Fundamental Transaction, the provisions of this Warrant
Agreement and the Warrants referring to the “Company”
shall refer instead to the Successor Entity), and may exercise
every right and power of the Company and shall assume all of the
obligations of the Company under this Warrant Agreement and the
Warrants with the same effect as if such Successor Entity had been
named as the Company herein and therein.
The
Company shall instruct the Warrant Agent to mail, by first class
mail, postage prepaid, to each Holder, written notice of the
execution of any such amendment, supplement to this Warrant
Agreement and/or the Warrants or other agreement. Any such
amendment, supplement or other agreement entered into by the
Successor Entity shall provide for adjustments, which shall be as
nearly equivalent as may be practicable to the adjustments provided
for in this Section 4. The Warrant Agent shall be under no
responsibility to determine the correctness of any provisions
contained in such amendment, supplement or other agreement relating
either to the kind or amount of securities or other property
receivable upon exercise of the Warrants or with respect to the
method employed and provided therein for any adjustments and shall
be entitled to rely upon the provisions contained in any such
amendment, supplement or other agreement. The provisions of this
Section 4.3 shall similarly apply to successive reclassifications,
changes, consolidations, mergers, sales and conveyances of the kind
described above.
4.5
Other
Events
. If any event occurs of
the type contemplated by the provisions of Section 4.1, 4.2 or 4.3
but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features to all
holders of Common Stock for no consideration), then the
Company’s Board of Directors will in good faith make an
adjustment in the Exercise Price and the number of Warrant Shares
so as to protect the rights of each Holder.
4.6
Notice
to Allow Exercise by Holder
. If
(A) the Company shall declare a dividend (or any other distribution
in whatever form) on the Common Stock, (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of
the Common Stock, (C) the Company shall authorize the granting to
all holders of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or of any
rights, (D) the approval of any stockholders of the Company shall
be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a party,
any sale or transfer of all or substantially all of the assets of
the Company, or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property, or (E)
the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be mailed
to each Holder at its last address as it shall appear upon the
Warrant Register of the Company, at least 20 calendar days prior to
the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which
the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected
to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be
entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share
exchange; provided that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such
notice. To the extent that any notice provided hereunder
constitutes, or contains, material, non-public information
regarding the Company or any of the Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a
Current Report on Form 8-K. A Holder shall remain entitled to
exercise its Warrant during the period commencing on the date of
such notice to the effective date of the event triggering such
notice except as may otherwise be expressly set forth
herein.
4.7
Notices
of Changes in Warrant
. Upon
every adjustment of the Exercise Price or the number of Warrant
Shares, the Company shall give written notice thereof to the
Warrant Agent, which notice shall state the Exercise Price
resulting from such adjustment and the increase or decrease, if
any, in the number of Warrant Shares purchasable upon the exercise
of a Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
Upon the occurrence of any event specified in Sections 4.1, 4.2 or
4.3, then, in any such event, the Company shall give written notice
to each Holder, at the last address set forth for such Holder in
the Warrant Register, of the record date or the effective date of
the event. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of such
event.
4.8
No
Fractional Shares
.
Notwithstanding any provision contained in this Warrant Agreement
to the contrary, the Company shall not issue fractional shares upon
exercise of Warrants. If, by reason of any adjustment made pursuant
to this Section 4, a Holder would be entitled, upon the exercise of
such Warrant, to receive a fractional interest in a share, the
Company shall, upon such exercise, round up or down, as applicable,
to the nearest whole number the number of Warrant Shares to be
issued to such Holder.
4.9
Form
of Warrant
. The form of Warrant
need not be changed because of any adjustment pursuant to this
Section 4, and Warrants issued after such adjustment may state the
same Exercise Price and the same number of shares as is stated in
the Warrants initially issued pursuant to this Warrant Agreement.
However, the Company may at any time in its sole discretion make
any change in the form of Warrant that the Company may deem
appropriate and that does not affect the substance thereof, and any
Warrant thereafter issued or countersigned, whether in exchange or
substitution for an outstanding Warrant or otherwise, may be in the
form as so changed.
4.10
Calculations
.
All calculations under this Section 4 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be. For
purposes of this Section 4, the number of shares of Common Stock
deemed to be issued and outstanding as of a given date shall be the
sum of the number of shares of Common Stock (excluding treasury
shares, if any) issued and outstanding.
5.
Transfer
and Exchange of Warrants
.
5.1
Registration
of Transfer
. The Warrant Agent
shall register the transfer, from time to time, of any outstanding
Warrant upon the Warrant Register, upon surrender of such Warrant
for transfer, properly endorsed with signatures properly guaranteed
and accompanied by appropriate instructions for transfer. Upon any
such transfer, a new Warrant representing an equal aggregate number
of Warrants shall be issued and the old Warrant shall be cancelled
by the Warrant Agent. The Warrants so cancelled shall be delivered
by the Warrant Agent to the Company from time to time upon
request.
5.2
Procedure
for Surrender of Warrants
.
Warrants may be surrendered to the Warrant Agent, together with a
written request for exchange or transfer reasonably acceptable to
Warrant Agent, duly executed by the Holder thereof, or by a duly
authorized attorney, and thereupon the Warrant Agent shall issue in
exchange therefor one or more new Warrants as requested by the
Holder of the Warrants so surrendered, representing an equal
aggregate number of Warrants; provided, however, that except as
otherwise provided herein or in any Book-Entry Warrant Certificate,
each Book-Entry Warrant Certificate may be transferred only in
whole and only to the Depository, to another nominee of the
Depository, to a successor depository, or to a nominee of a
successor depository; provided further, however, that in the event
that a Warrant surrendered for transfer bears a restrictive legend,
the Warrant Agent shall not cancel such Warrant and issue new
Warrants in exchange therefor until the Warrant Agent has received
an opinion of counsel for the Company stating that such transfer
may be made and indicating whether the new Warrants must also bear
a restrictive legend.
5.3
Fractional
Warrants
. The Warrant Agent
shall not be required to effect any registration of transfer or
exchange which will result in the issuance of a Warrant Certificate
for a fraction of a Warrant.
5.4
Service
Charges
. No service charge
shall be made for any exchange or registration of transfer of
Warrants.
5.5
Warrant
Execution and Countersignature
.
The Warrant Agent is hereby authorized to countersign and to
deliver, in accordance with the terms of this Warrant Agreement,
the Warrants required to be issued pursuant to the provisions of
this Section 5, and the Company, whenever required by the Warrant
Agent, will supply the Warrant Agent with Warrants duly executed on
behalf of the Company for such purpose.
6.
Other
Provisions Relating to Rights of Holders of
Warrants
.
6.1
No
Rights as Stockholder
. Except
as otherwise specifically provided herein, a Holder, solely in its
capacity as an owner of a Warrant, shall not be entitled to vote or
receive dividends or be deemed the holder of share capital of the
Company for any purpose, nor shall anything contained in this
Warrant Agreement be construed to confer upon a Holder, solely in
its capacity as the owner of a Warrant, any of the rights of a
stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue
of stock, reclassification of stock, consolidation, merger,
conveyance or otherwise), receive notice of meetings, receive
dividends or subscription rights, or otherwise, prior to the
issuance to the Holder of the Warrant Shares which it is then
entitled to receive upon the due exercise of a Warrant. For the
avoidance of doubt, ownership of a Warrant does not entitle the
Holder or any beneficial owner thereof to any of the rights of a
stockholder.
6.2
Lost,
Stolen, Mutilated, or Destroyed Warrants
. If any Warrant is lost, stolen, mutilated or
destroyed, the Company and the Warrant Agent may, on such terms as
to indemnity or otherwise as they may in their discretion impose
(which shall, in the case of a mutilated Warrant, include the
surrender thereof), issue a new Warrant of like denomination, tenor
and date as the Warrant so lost, stolen, mutilated or destroyed.
Any such new Warrant shall constitute a substitute contractual
obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant shall be at any time
enforceable by anyone.
6.3
Reservation
of Common Stock
. The Company
shall at all times reserve and keep available a number of its
authorized but unissued shares of Common Stock that will be
sufficient to permit the exercise in full of all outstanding
Warrants issued pursuant to this Warrant
Agreement.
7.
Concerning
the Warrant Agent and Other Matters
.
7.1
Payment
of Taxes
. The Company will from
time to time promptly pay all taxes and charges that may be imposed
upon the Company or the Warrant Agent in respect of the issuance or
delivery of Warrant Shares upon the exercise of Warrants, but the
Company shall not be obligated to pay any transfer taxes in respect
of the Warrants or such shares.
7.2
Resignation,
Consolidation, or Merger of Warrant Agent
.
7.2.1
Appointment
of Successor Warrant Agent
. The
Warrant Agent, or any successor to it hereafter appointed, may
resign its duties and be discharged from all further duties and
liabilities hereunder after giving sixty (60) calendar days’
notice in writing to the Company. If the office of the Warrant
Agent becomes vacant by resignation or incapacity to act or
otherwise, the Company shall appoint in writing a successor Warrant
Agent in place of the Warrant Agent. If the Company shall fail to
make such appointment within a period of thirty (30) calendar days
after it has been notified in writing of such resignation or
incapacity by the Warrant Agent or by the Holder (who shall, with
such notice, submit such Holder’s Warrants for inspection by
the Company), then such Holder may apply to the Supreme Court of
the State of New York for the County of New York for the
appointment of a successor Warrant Agent, the expenses of which
shall be paid by the Company. Any successor Warrant Agent (but not
including the initial Warrant Agent), whether appointed by the
Company or by such court, shall be a duly organized and existing
corporation, authorized under the laws of its state of
incorporation to exercise corporate trust powers and subject to
supervision or examination by federal or state authority. After
appointment, any successor Warrant Agent shall be vested with all
the authority, powers, rights, immunities, duties, and obligations
of its predecessor Warrant Agent with like effect as if originally
named as Warrant Agent hereunder, without any further act or deed;
but if for any reason it becomes necessary or appropriate, the
predecessor Warrant Agent shall execute and deliver, at the expense
of the Company, an instrument transferring to such successor
Warrant Agent all the authority, powers, and rights of such
predecessor Warrant Agent hereunder; and upon request of any
successor Warrant Agent the Company shall make, execute,
acknowledge, and deliver any and all instruments in writing for
more fully and effectually vesting in and confirming to such
successor Warrant Agent all such authority, powers, rights,
immunities, duties, and obligations.
7.2.2
Notice
of Successor Warrant Agent
. In
the event a successor Warrant Agent shall be appointed, the Company
shall give notice thereof to the predecessor Warrant Agent and the
transfer agent for the Common Stock not later than the effective
date of any such appointment.
7.2.3
Merger
or Consolidation of Warrant Agent
. Any corporation into which the Warrant Agent may
be merged or with which it may be consolidated or any corporation
resulting from any merger or consolidation to which the Warrant
Agent shall be a party shall be the successor Warrant Agent under
this Warrant Agreement without any further act.
7.3
Fees
and Expenses of Warrant Agent
.
7.3.1
Remuneration
.
The Company agrees to pay the Warrant Agent reasonable remuneration
for its services as such Warrant Agent hereunder and will reimburse
the Warrant Agent upon demand for all expenditures that the Warrant
Agent may reasonably incur in the execution of its duties
hereunder.
7.3.2
Further
Assurances
. The Company agrees
to perform, execute, acknowledge and deliver or cause to be
performed, executed, acknowledged and delivered all such further
and other acts, instruments and assurances as may reasonably be
required by the Warrant Agent for the carrying out or performing of
the provisions of this Warrant Agreement.
7.4
Liability
of Warrant Agent
.
7.4.1
Reliance
on Company Statement
. Whenever
in the performance of its duties under this Warrant Agreement the
Warrant Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a statement
signed by the President, Chief Executive Officer or Chief Financial
Officer of the Company and delivered to the Warrant Agent. The
Warrant Agent may rely upon such statement for any action taken or
suffered in good faith by it pursuant to the provisions of this
Warrant Agreement.
7.4.2
Indemnity
.
The Warrant Agent shall be liable hereunder only for its own gross
negligence, willful misconduct or bad faith. The Company agrees to
indemnify the Warrant Agent and save it harmless against any and
all liabilities, including judgments, costs and reasonable counsel
fees, for anything done or omitted by the Warrant Agent in the
execution of this Warrant Agreement, except as a result of the
Warrant Agent’s gross negligence, willful misconduct or bad
faith.
7.4.3
Exclusions
.
The Warrant Agent shall have no responsibility with respect to the
validity of this Warrant Agreement or with respect to the validity
or execution of any Warrant (except its countersignature hereof and
thereof); nor shall it be responsible for any breach by the Company
of any covenant or condition contained in this Warrant Agreement or
in any Warrant; nor shall it be responsible to make any adjustments
required under the provisions of Section 4 hereof or responsible
for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such
adjustment; nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation
of any Warrant Shares to be issued pursuant to this Warrant
Agreement or any Warrant or as to whether any Warrant Shares will
when issued be validly issued and fully paid and
nonassessable.
7.5
Acceptance
of Agency
. The Warrant Agent
hereby accepts the agency established by this Warrant Agreement and
agrees to perform the same upon the terms and conditions herein set
forth and, among other things, shall account promptly to the
Company with respect to Warrants exercised and concurrently account
for, and pay to the Company, all moneys received by the Warrant
Agent for the purchase of Warrant Shares through the exercise of
Warrants.
8.
Miscellaneous
Provisions
.
8.1
Successors
.
All the covenants and provisions of this Warrant Agreement by or
for the benefit of the Company or the Warrant Agent shall bind and
inure to the benefit of their respective successors and
assigns.
8.2
Notices
.
Any notice, statement or demand authorized by this Warrant
Agreement to be given or made by the Warrant Agent or by a Holder
to or on the Company shall be sufficiently given when so delivered
if by e-mail or fax, the date of confirmed transmission, and if by
hand or overnight delivery or if sent by certified mail or private
courier service within five (5) Business Days after deposit of such
notice, postage prepaid, addressed (until another address is filed
in writing by the Company with the Warrant Agent), as
follows:
ENDRA
Life Sciences Inc.
3600
Green Court, Suite 350
Ann
Arbor, MI 48105
E-mail:
fmichelon@endrainc.com
Fax:
[__________]
Attn:
Chief Executive Officer
with a
copy in each case to:
K&L
Gates LLP
214
North Tryon Street, Suite 4700
Charlotte, NC
28202
E-mail:
mark.busch@klgates.com
Fax:
(704) 353-3140
Attn:
Mark R. Busch
Any
notice, statement or demand authorized by this Warrant Agreement to
be given or made by a Holder or by the Company to or on the Warrant
Agent shall be sufficiently given when so delivered if by e-mail or
fax, the date of confirmed transmission, and if by hand or
overnight delivery or if sent by certified mail or private courier
service within five (5) Business Days after deposit of such notice,
postage prepaid, addressed (until another address is filed in
writing by the Warrant Agent with the Company), as
follows:
Corporate Stock
Transfer, Inc.
3200
Cherry Creek Drive South, #430
Denver,
CO 80209
E-mail:
[______________________]
Fax:
(303) 282-5800
Attn:
[___________]
8.3
Applicable
Law
. The validity,
interpretation and performance of this Warrant Agreement and of the
Warrants shall be governed in all respects by the laws of the State
of New York, without giving effect to conflicts of law principles
that would result in the application of the substantive laws of
another jurisdiction. The Company hereby agrees that any action,
proceeding or claim against it arising out of or relating in any
way to this Warrant Agreement shall be brought and enforced in the
courts of the State of New York or the United States District Court
for the Southern District of New York, and irrevocably submits to
such jurisdiction, which jurisdiction shall be exclusive. The
Company hereby waives any objection to such exclusive jurisdiction
and that such courts represent an inconvenient forum. Any such
process or summons to be served upon the Company may be served by
transmitting a copy thereof by registered or certified mail, return
receipt requested, postage prepaid, addressed to it at the address
set forth in Section 8.2 hereof. Such mailing shall be deemed
personal service and shall be legal and binding upon the Company in
any action, proceeding or claim.
8.4
Persons
Having Rights under this Warrant Agreement
. Nothing in this Warrant Agreement expressed and
nothing that may be implied from any of the provisions hereof is
intended, or shall be construed, to confer upon, or give to, any
person or corporation other than the parties hereto and the Holders
of the Warrants and, for purposes of Sections 3.3, 8.3 and 8.8, the
Underwriter, any right, remedy, or claim under or by reason of this
Warrant Agreement or of any covenant, condition, stipulation,
promise, or agreement hereof. The Underwriters shall be deemed to
be an express third-party beneficiary of this Warrant Agreement
with respect to Sections 3.3, 8.3 and 8.8 hereof. All covenants,
conditions, stipulations, promises, and agreements contained in
this Warrant Agreement shall be for the sole and exclusive benefit
of the parties hereto (and the Underwriters with respect to the
Sections 3.3, 8.3 and 8.8 hereof) and their successors and assigns
and of the Holders.
8.5
Examination
of the Warrant Agreement
. A
copy of this Warrant Agreement shall be available for inspection by
any Holder at all reasonable times at the office of the Warrant
Agent in Denver, Colorado and at the office of the Company in Ann
Arbor, Michigan. The Warrant Agent may require any such Holder to
submit his, her or its Warrant for inspection by
it.
8.6
Counterparts
.
This Warrant Agreement may be executed in any number of original or
facsimile counterparts and each of such counterparts shall for all
purposes be deemed to be an original, and all such counterparts
shall together constitute but one and the same
instrument.
8.7
Effect
of Headings
. The section
headings herein are for convenience only and are not part of this
Warrant Agreement and shall not affect the interpretation
thereof.
8.8
Amendments
.
Any modifications or amendments, including any amendment to
increase the Exercise Price or shorten the Exercise Period, shall
require the written consent of the Holders of a majority of the
then outstanding Warrants. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification
of any provision of this Warrant Agreement unless the same
consideration is also offered to all of the
Holders.
8.9
Severability
.
This Warrant Agreement shall be deemed severable, and the
invalidity or unenforceability of any term or provision hereof
shall not affect the validity or enforceability of this Warrant
Agreement or of any other term or provision hereof. Furthermore, in
lieu of any such invalid or unenforceable term or provision, the
parties hereto intend that there shall be added as a part of this
Warrant Agreement a provision as similar in terms to such invalid
or unenforceable provision as may be possible and be valid and
enforceable.
[Signature page
follows]
IN
WITNESS WHEREOF, this Warrant Agreement has been duly executed by
the parties hereto as of the day and year first above
written.
|
ENDRA
LIFE SCIENCES INC.
By:
Name:
Title:
CORPORATE
STOCK TRANSFER, INC.
By:
Name:
Title:
|
[SIGNATURE PAGE TO
WARRANT AGREEMENT]
Exhibit A - Form of Warrant Certificate
EXERCISABLE ONLY IF
COUNTERSIGNED BY THE WARRANT
AGENT
AS PROVIDED HEREIN.
Warrant
Certificate Evidencing Warrants to Purchase
Common
Stock, par value of $0.0001 per share, as described
herein.
ENDRA
LIFE SCIENCES INC.
No.
___________
|
CUSIP [_______]
|
VOID
AFTER 5:00 P.M., NEW YORK CITY TIME,
ON
DECEMBER, [__], 2021
This
certifies that ________________________ or registered assigns is
the registered holder (the “
Holder
”) of _____________________
warrants to purchase certain securities (each a “
Warrant
”). Each Warrant entitles
the Holder, subject to the provisions contained herein and in the
Warrant Agreement (as defined below), to purchase from ENDRA Life
Sciences Inc., a Delaware corporation (the “
Company
”), one-half of one share
(collectively, the “
Warrant
Shares
”) of Common Stock, par value $0.0001 per share,
of the Company (“
Common
Stock
”), at the Exercise Price set forth below. The
price per share at which each Warrant Share may be purchased at the
time each Warrant is exercised (the “
Exercise Price
”) is $[___]
initially, subject to adjustments as set forth in the Warrant
Agreement (as defined below).
This
Warrant Certificate is issued under and in accordance with the
Warrant Agreement, dated as of December [__], 2016 (the
“
Warrant
Agreement
”), between the Company and the Warrant
Agent, and is subject to the terms and provisions contained in the
Warrant Agreement, to all of which terms and provisions the Holder
of this Warrant Certificate and the beneficial owners of the
Warrants represented by this Warrant Certificate consent by
acceptance hereof. Copies of the Warrant Agreement are on file and
can be inspected at the below-mentioned office of the Warrant Agent
and at the office of the Company at 3600 Green Court, Suite 350,
Ann Arbor, Michigan 48105. Capitalized terms used but not defined
herein shall have the meaning ascribed to them in the Warrant
Agreement.
Subject
to the terms of the Warrant Agreement, each Warrant evidenced
hereby may be exercised in whole but not in part at any time, as
specified herein, on any Business Day (as defined below) occurring
during the period (the “
Exercise Period
”) commencing on
the Issuance Date and terminating at 5:00 p.m., New York City time,
on December [__], 2021 (the “
Expiration Date
”). Each Warrant
remaining unexercised after 5:00 p.m., New York City time, on the
Expiration Date shall become void, and all rights of the Holder of
this Warrant Certificate evidencing such Warrant shall
cease.
The
Holder of the Warrants represented by this Warrant Certificate may
exercise any Warrant evidenced hereby by delivering, not later than
5:00 p.m., New York City time, on any Business Day during the
Exercise Period (the “
Exercise Date
”) to Corporate Stock
Transfer, Inc. (the “
Warrant
Agent
”, which term includes any successor warrant
agent under the Warrant Agreement described below) at its corporate
trust department at 3200 Cherry Creek Drive South, #430, Denver,
Colorado 80209, (i) a duly executed e-mail or facsimile copy of an
election to purchase (“
Election to Purchase
”), properly
executed by the Holder hereof on the reverse of this Warrant
Certificate or properly executed by the institution in whose
account the Warrant is recorded on the records of the Depository
(the “
Participant
”), and substantially
in the form included on the reverse of this Warrant Certificate,
and (ii) unless cashless exercise is permitted under the Warrant
Agreement and exercised by the Holder, the aggregate Exercise Price
for the shares specified in the applicable Election to Purchase by
wire transfer or cashier’s check drawn on a United States
bank. No ink-original Election to Purchase shall be required.
Unless Warrant Shares, or a Warrant Certificate evidencing
unexercised Warrants, are to be issued in a name other than that of
the exercising Holder, no medallion guarantee (or other type of
guarantee or notarization) of any Election to Purchase form shall
be required. Notwithstanding anything herein to the contrary, the
Holder shall not be required to physically surrender this Warrant
Certificate to the Warrant Agent or the Company until the Holder
has purchased all of the Warrant Shares available hereunder and the
Warrant has been exercised in full, in which case, the Holder shall
surrender this Warrant Certificate to the Warrant Agent for
cancellation at the same time the final Election to Purchase is
delivered to the Warrant Agent. Partial exercises of this Warrant
resulting in purchases of a portion of the total number of Warrant
Shares available hereunder shall have the effect of lowering the
outstanding number of Warrant Shares purchasable hereunder in an
amount equal to the applicable number of Warrant Shares purchased.
The Holder and the Warrant Agent shall maintain records showing the
number of Warrant Shares purchased and the date of such purchases.
The Company or the Warrant Agent shall deliver any objection to any
Election to Purchase within one (1) Trading Day of receipt of such
notice.
The Holder and any
assignee, by acceptance of this Warrant Certificate, acknowledge
and agree that, by reason of the provisions of this paragraph,
following the purchase of a portion of the Warrant Shares
hereunder, the number of Warrant Shares available for purchase
hereunder at any given time may be less than the amount stated on
the face hereof.
The
term “
Business
Day
” means any day other than Saturday, Sunday or
other day on which commercial banks in the City of New York are
authorized or required by law or executive order to remain closed.
The term “
Trading
Day
” means a day on which the principal Trading Market
is open for trading. The term “
Trading Market
” means any of the
following U.S. markets or exchanges on which the Common Stock is
listed or quoted for trading on the date in question: the NYSE,
NYSE MKT, the NASDAQ Capital Market, the NASDAQ Global Market or
the NASDAQ Global Select Market (or any successors to any of the
foregoing).
Warrants may be
exercised only in whole numbers of Warrants. No fractional Warrant
Shares are to be issued upon the exercise of this Warrant, but
rather the number of Warrant Shares to be issued shall be rounded
up to the nearest whole number. If fewer than all of the Warrants
evidenced by this Warrant Certificate are exercised, a new Warrant
Certificate for the number of Warrants remaining unexercised shall
be executed by the Company and countersigned by the Warrant Agent
as provided in Section 3 of the Warrant Agreement, and delivered to
the Holder of this Warrant Certificate at the address specified on
the books of the Warrant Agent or as otherwise specified by such
Holder.
Exercise of the
Warrants is subject to the terms, conditions and limitations set
forth in the Warrant Agreement, which such terms, conditions and
limitations include, without limitation, the prohibitions on
exercise set forth in Section 3.3.10 of the Warrant Agreement if
the exercise would result in the Holder, together with certain of
its Affiliates, beneficially owning in excess of the Beneficial
Ownership Limitation.
The
Exercise Price and the number of Warrant Shares purchasable upon
the exercise of each Warrant shall be subject to adjustment as
provided pursuant to Section 4 of the Warrant
Agreement.
Neither
this Warrant Certificate nor the Warrants evidenced hereby entitles
the Holder to any of the rights of a stockholder of the Company,
including, without limitation, the right to receive dividends, or
other distributions, exercise any preemptive rights to vote or to
consent or to receive notice as stockholders in respect of the
meetings of stockholders or the election of directors of the
Company or any other matter.
The
Warrant Agreement and this Warrant Certificate may be amended as
provided in the Warrant Agreement including, under certain
circumstances described therein, without the consent of the Holder
of this Warrant Certificate or the Warrants evidenced
thereby.
THIS
WARRANT CERTIFICATE AND ALL RIGHTS HEREUNDER AND UNDER THE WARRANT
AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS FORMED AND TO BE PERFORMED ENTIRELY WITHIN THE STATE OF
NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF
TO THE EXTENT SUCH PRINCIPLES OR RULES WOULD REQUIRE OR PERMIT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
This
Warrant Certificate shall not be entitled to any benefit under the
Warrant Agreement or be valid or obligatory for any purpose, and no
Warrant evidenced hereby may be exercised, unless this Warrant
Certificate has been countersigned by the manual signature of the
Warrant Agent.
[Signature page
follows]
IN
WITNESS WHEREOF, the Company and Warrant Agent have caused this
instrument to be duly executed as of __________ __,
20__.
|
"Company"
ENDRA
LIFE SCIENCES INC.
By:
Name:
Title:
"Warrant Agent"
CORPORATE
STOCK TRANSFER, INC.
By:
Name:
Title:
|
[REVERSE]
Instructions for Exercise of Warrant
To
exercise the Warrants evidenced hereby, the Holder must, by 5:00
p.m., New York City time, on the specified Exercise Date, deliver
to the Warrant Agent at its stock transfer division, a certified or
official bank check or a bank wire transfer in immediately
available funds, in each case payable to the Company, in an amount
equal to the Exercise Price in full for the Warrants exercised. In
addition, the Holder must provide the information required below
and deliver this Warrant Certificate to the Warrant Agent at the
address set forth below and the Book-Entry Warrants to the Warrant
Agent in its account with the Depository designated for such
purpose. The Warrant Certificate and this Election to Purchase must
be received by the Warrant Agent by 5:00 p.m., New York City time,
on the specified Exercise Date.
ELECTION
TO PURCHASE
TO
BE EXECUTED IF WARRANT HOLDER DESIRES
TO
EXERCISE THE WARRANTS EVIDENCED HEREBY
The
undersigned hereby irrevocably elects to exercise, on __________,
____ (the “
Exercise
Date
”), __________ Warrants, evidenced by this Warrant
Certificate, to purchase, __________ shares (the
“
Warrant
Shares
”) of Common Stock, par value of $0.0001 per
share (the “
Common
Stock
”) of ENDRA Life Sciences Inc., a Delaware
corporation (the “
Company
”), and represents that on
or before the Exercise Date:
☐
such Holder has tendered payment for such Warrant Shares by
certified or official bank check payable to the order of the
Company c/o Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive
South, #430, Denver, Colorado 80209, or by bank wire transfer in
immediately available funds payable to the Company at Account No. [
], in each case in the amount of $_______ in accordance with the
terms hereof, or
☐
[if permitted] the cancellation of such number of Warrant Shares as
is necessary, in accordance with the formula set forth in
subsection 3.3.8 of the Warrant Agreement, to exercise this Warrant
with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection
3.3.8.
The
undersigned requests that said number of Warrant Shares be in fully
registered form, registered in such names and delivered, all as
specified in accordance with the instructions set forth
below.
If said
number of Warrant Shares is less than all of the Warrant Shares
purchasable hereunder, the undersigned requests that a new Warrant
Certificate evidencing the remaining balance of the Warrants
evidenced hereby be issued and delivered to the Holder of the
Warrant Certificate unless otherwise specified in the instructions
below.
Dated:
________ __, ____
Name:
_________________________________________
(please
print)
/ / / / - / / / - / / / / /
(Insert
Social Security or Other Identifying Number of Holder)
|
Address
|
___________________________________________________
|
|
|
___________________________________________________
|
|
Signature
|
__________________________
|
This
Warrant may only be exercised by presentation to the Warrant Agent
at one of the following locations:
|
|
Corporate Stock
Transfer, Inc.
|
|
|
3200
Cherry Creek Drive South, #430
|
|
|
Denver,
Colorado 80209
|
|
|
|
|
By
e-mail or fax at:
|
Corporate Stock
Transfer, Inc.
|
|
|
3200
Cherry Creek Drive South, #430
|
|
|
Denver,
Colorado 80209E-mail:
________________Fax:___________________
|
The
method of delivery of this Warrant Certificate is at the option and
risk of the exercising Holder and the delivery of this Warrant
Certificate will be deemed to be made only when actually received
by the Warrant Agent. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. In all
cases, sufficient time should be allowed to ensure timely
delivery.
Instructions
as to form and delivery of Warrant Shares and/or Warrant
Certificates
Name in
which Warrant Shares are to be registered if other than in the name
of the Holder of this Warrant Certificate:
_________________________________________
(Name)
Address
to which Warrant Shares are to be mailed if other than to the
address of the Holder of this Warrant Certificate as shown on the
books of the Warrant Agent:
_________________________________________
(Street
Address)
_________________________________________
(City
and State)(Zip Code)
Name in
which Warrant Certificate evidencing unexercised Warrants, if any,
is to be registered if other than in the name of the Holder of this
Warrant Certificate:
_________________________________________
(Name)
Address
to which certificate representing unexercised Warrants, if any, is
to be mailed if other than to the address of the Holder of this
Warrant Certificate as shown on the books of the Warrant
Agent:
_________________________________________
(Street
Address)
_________________________________________
(City
and State)(Zip Code)
Dated:
_________________________________________
Signature:
_________________________________________
Signature
must conform in all respects to the name of the Holder as specified
on the face of this Warrant Certificate. If Warrant Shares, or a
Warrant Certificate evidencing unexercised Warrants, are to be
issued in a name other than that of the Holder hereof or are to be
delivered to an address other than the address of such Holder as
shown on the books of the Warrant Agent, the above signature must
be guaranteed by an Eligible Guarantor Institution (as that term is
defined in Rule 17Ad-15 of the Securities Exchange Act of 1934, as
amended).
SIGNATURE GUARANTEE
Name of
Firm _______________________________________________
Address
____________________________________________________
Tel.:
_______________________________________________________
Authorized
Signature _________________________________________
Name
______________________________________________________
Title
_______________________________________________________
Dated:
__________, 20__
ASSIGNMENT
(FORM
OF ASSIGNMENT TO BE EXECUTED IF WARRANT HOLDER
DESIRES
TO TRANSFER WARRANTS EVIDENCED HEREBY)
FOR
VALUE RECEIVED, ____________ HEREBY SELL(S), ASSIGN(S) AND
TRANSFER(S) UNTO:
______________________________________________
(Name
of Assignee)
______________________________________________
(Street
Address)
______________________________________________
(City
and State)(Zip Code)
______________________________________________
(Social
Security or Other Identifying Number of Assignee)
the
rights represented by the within Warrant Certificate and does
hereby irrevocably constitute and appoint ___________________
Attorney to transfer said Warrant Certificate on the books of the
Warrant Agent with full power of substitution in the
premises.
Dated:
_________________________________________
Signature:
_________________________________________
Signature
must conform in all respects to the name of the Holder as specified
on the face of this Warrant Certificate. If Warrant Shares, or a
Warrant Certificate evidencing unexercised Warrants, are to be
issued in a name other than that of the Holder hereof or are to be
delivered to an address other than the address of such Holder as
shown on the books of the Warrant Agent, the above signature must
be guaranteed by a an Eligible Guarantor Institution (as that term
is defined in Rule 17Ad-15 of the Securities Exchange Act of 1934,
as amended).
SIGNATURE GUARANTEE
Name of
Firm _______________________________________________
Address
____________________________________________________
Tel.:
_______________________________________________________
Authorized
Signature _________________________________________
Name
______________________________________________________
Title
_______________________________________________________
Dated:
__________, 20__
Form
of Underwriter’s Warrant
THIS
WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY OTHER SECURITIES LAWS AND MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF
(1)
AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SECURITIES UNDER
THE SECURITIES ACT AND ANY OTHER APPLICABLE SECURITIES LAWS, OR (2)
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED.
WARRANT
To Purchase Shares of Common Stock of
ENDRA LIFE SCIENCES INC.
December
, 2016
This
WARRANT
(this
“
Warrant
”) of
ENDRA Life Sciences Inc., a corporation duly organized and validly
existing under the laws of the State of Delaware (the
“
Company
”), is
being issued pursuant to that certain Underwriting Agreement, dated
as of
December ,
2016, by and among the Company and Dougherty & Company LLC, as
representative of the several underwriters named therein
(“
Dougherty
”),
relating to a firm commitment public offering (the
“
Offering
”) of
shares of common stock, par value of $0.0001 of the Company (each a
“
Common Share
”
and collectively, the “
Common
Shares
”), and warrants to purchase Common
Shares.
FOR VALUE RECEIVED
, the Company hereby
grants to Dougherty and its permitted successors and assigns
(collectively, the “
Holder
”) the right to purchase
from the Company up to Common Shares (such Common Shares
underlying this Warrant, the “
Warrant Shares
”), at a per share
purchase price equal to $ (the “
Exercise Price
”), subject to the
terms, conditions and adjustments set forth below in this
Warrant.
1.
Vesting of Warrant
.
This Warrant shall vest and become exercisable on the one-year
anniversary of the Base Date (the “
Vesting Date
”). For purposes of
this Warrant, the “
Base
Date
” shall mean December , 2016. Except as otherwise
provided for herein or as permitted by applicable rules of the
Financial Industry Regulatory Authority (“
FINRA
”), this Warrant shall not be
sold, transferred, assigned, pledged, or hypothecated prior to the
Vesting Date.
2.
Expiration of
Warrant
. This Warrant shall expire on the seven (7) year
anniversary of the Base Date (the “
Expiration Date
”).
3.
Exercise of
Warrant
. This Warrant shall be exercisable pursuant to the
terms of this Section 3.
3.1
Manner of
Exercise
.
(a)
This Warrant is exercisable in whole or in part at any time and
from time to time. Such exercise shall be effectuated by submitting
to the Company (either by delivery to the Company or by facsimile
transmission as provided in Section 12 hereof) a completed and duly
executed Notice of Exercise (substantially in the form attached as
Exhibit A
hereto)
as provided in this paragraph. The date such Notice of Exercise is
faxed or delivered to the Company shall be the “
Exercise Date
,” provided that the
Holder of this Warrant tenders this Warrant Certificate to the
Company within five (5) Business Days thereafter. As used in this
Warrant, “
Business
Day
” shall mean any day other than a Saturday, Sunday,
or any day on which the major stock exchanges in New York, New York
are not open for business. The Notice of Exercise shall be executed
by the Holder of this Warrant and shall indicate the number of
Warrant Shares then being purchased pursuant to such exercise. Upon
surrender of this Warrant Certificate, together
with
appropriate payment of the Exercise Price for the Warrant Shares
purchased, the Holder shall be entitled to receive a certificate or
certificates for the Common Shares so purchased. The Exercise Price
may be paid in a “cashless” or “cash”
exercise or a combination thereof pursuant to Section 3.1(b) and
Section 3.1(c) below.
(b) If
the Notice of Exercise form elects a “cashless”
exercise, the Holder shall thereby be entitled to receive a number
of
Common
Shares determined as follows: X = Y [(A – B)/A]
where:
X = the
number of Warrant Shares to be issued to the Holder.
Y = the
number of Warrant Shares with respect to which this Warrant is
being exercised. A = the Fair Market Value
B = the
Exercise Price.
For
purposes of this Section 3.1(b), “
Fair Market Value
” shall be the
closing price of the Common Shares as reported by the Nasdaq
Capital Market, or if listed on another national securities
exchange or quoted on an automated quotation service, such national
securities exchange or automated quotation service, on the date
immediately prior to the Exercise Date. If the Common Shares are
not then listed on a national stock exchange or quoted on any other
quotation system or association, the Fair Market Value of one
Common Share as of the date of determination, shall be as
determined in good faith by the Board of Directors of the Company
and the Holder. If the Common Shares are not then listed on a
national securities exchange, the OTC Bulletin Board or such other
quotation system or association, the Board of Directors of the
Company shall respond promptly, in writing, to an inquiry by the
Holder prior to the exercise hereunder as to the fair market value
of a Common Share as determined by the Board of Directors of the
Company. In the event that the Board of Directors of the Company
and the Holder are unable to agree upon the fair market value, the
Company and the Holder shall jointly select an appraiser, who is
experienced in such matters. The decision of such appraiser shall
be final and conclusive, and the cost of such appraiser shall be
borne equally by the Company and the Holder. Such adjustment shall
be made successively whenever such a payment date is
fixed.
(c) If
the Notice of Exercise form elects a “cash” exercise,
the Exercise Price per Common Share for the shares then being
exercised shall be payable in cash or by certified or official bank
check.
3.2
When Exercise
Effective
. Each exercise of this Warrant shall be deemed to
have been effected immediately prior to the close of business on
the Business Day on which this Warrant shall have been duly
surrendered to the Company and, at such time, the Holder in whose
name any certificate or certificates for Warrant Shares shall be
issuable upon exercise as provided in Section 3.3 hereof shall be
deemed to have become the Holder or Holders of record thereof of
the number of Warrant Shares purchased upon exercise of this
Warrant.
3.3
Delivery of Common Share
Certificates and New Warrant
. As soon as reasonably
practicable after each exercise of this Warrant, in whole or in
part, and in any event within three (3) Business Days thereafter,
the Company, at its expense (including the payment by it of any
applicable issue taxes), will cause to be issued in the name of and
delivered to the Holder hereof or, subject to Sections 9 and 10
hereof, as the Holder (upon payment by the Holder of any applicable
transfer taxes) may direct:
(a) a
certificate or certificates (with appropriate restrictive legends,
as applicable) for the number of duly authorized, validly issued,
fully paid, and nonassessable Common Shares to which the Holder
shall be entitled upon exercise. and
(b) in
case exercise is in part only, a new Warrant document of like
tenor, dated the date hereof, for the remaining number of Warrant
Shares issuable upon exercise of this Warrant after giving effect
to the partial exercise of this Warrant (including the delivery of
any Warrant Shares as payment of the Exercise Price for such
partial exercise of this Warrant).
4.
Certain
Adjustments
. For so long as this Warrant is
outstanding:
4.1
Mergers or
Consolidations
. If at any time after the date hereof there
shall be a capital reorganization (other than a combination or
subdivision of the Common Shares otherwise provided for herein)
resulting in a reclassification to or change in the terms of
securities issuable upon exercise of this Warrant (a
“
Reorganization
”), or a merger or
consolidation of the Company with another corporation, association,
partnership, organization, business, individual, government or
political subdivision thereof or a governmental agency (a
“
Person
” or the
“
Persons
”)
(other than a merger with another Person in which the Company is a
continuing corporation and which does not result in any
reclassification or change in the terms of securities issuable upon
exercise of this Warrant or a merger effected exclusively for the
purpose of changing the domicile of the Company) (a
“
Merger
”), then,
as a part of such Reorganization or Merger, lawful provision and
adjustment shall be made so that the Holder shall thereafter be
entitled to receive, upon exercise of this Warrant, the number of
shares of stock or any other equity or debt securities or property
receivable upon such Reorganization or Merger by a holder of the
number of Common Shares which might have been purchased upon
exercise of this Warrant immediately prior to such Reorganization
or Merger. In any such case, appropriate adjustment shall be
made
in the
application of the provisions of this Warrant with respect to the
rights and interests of the Holder after the Reorganization or
Merger to the end that the provisions of this Warrant (including
adjustment of the Exercise Price then in effect and the number of
Warrant Shares) shall be applicable after that event, as near as
reasonably may be, in relation to any shares of stock, securities,
property or other assets thereafter deliverable upon exercise of
this Warrant. The provisions of this Section 4.1 shall similarly
apply to successive Reorganizations and Mergers.
4.2
Splits and Subdivisions;
Dividends
. In the event the Company should at any time or
from time to time effectuate a split or subdivision of the
outstanding Common Shares or pay a dividend in or make a
distribution payable in additional Common Shares or other
securities or rights convertible into, or entitling the holder
thereof to receive, directly or indirectly, additional Common
Shares (hereinafter referred to as the “
Common Share Equivalents
”) without
payment of any consideration by such holder for the additional
Common Shares or Common Shares Equivalents (including the
additional Common Shares issuable upon conversion or exercise
thereof), then, as of the applicable record date (or the date of
such distribution, split or subdivision if no record date is
fixed), the per share Exercise Price shall be appropriately
decreased and the number of Warrant Shares shall be appropriately
increased in proportion to such increase (or potential increase) of
outstanding shares. provided, however, that no adjustment shall be
made in the event the split, subdivision, dividend or distribution
is not effectuated. Notwithstanding the foregoing or anything else
to the
contrary herein, in
no event shall the per share Exercise Price be reduced below the
par value of one Common Share or of such other securities as may be
issued upon exercise of the Warrant.
Pursuant to the
antidilution terms of this Section 4.2, provided that the
shareholders are proportionally affected by such split or
subdivision, dividend, distribution, or other similar event, the
Holder may receive a greater number of Warrant Shares or the per
share Exercise Price may be lower than originally contemplated by
this Warrant. Additionally, the Holder shall not have the right to
accrue cash dividends prior to the exercise or conversion of the
Warrant.
4.3
Combination of
Shares
. If the number of Common Shares outstanding at any
time after the date hereof is decreased by a combination of the
outstanding Common Shares, the per share Exercise Price shall be
appropriately increased and the number of shares of Warrant Shares
shall be appropriately decreased in proportion to such decrease in
outstanding shares.
4.4
Adjustments for Other
Distributions
. In the event the Company shall declare a
distribution payable in securities of other Persons, evidences of
indebtedness issued by the Company or other Persons, assets
(excluding cash dividends or distributions to the holders of Common
Stock paid out of current or retained earnings and declared by the
Company’s Board of Directors) or options or rights not
referred to in Sections 4.1, 4.2, or 4.3, then, in each such case
for the purpose of this Section 4.4, upon exercise of this Warrant,
the Holder shall be entitled to a proportionate share of any such
distribution as though the Holder was the actual record holder of
the number of Warrant Shares as of the record date fixed for the
determination of the holders of Common Shares of the Company
entitled to receive such distribution.
5.
No Impairment
. The
Company will not, by amendment of its certificate of incorporation
or bylaws or through any consolidation, Merger,
Reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of
all of the terms and in the taking of all actions necessary or
appropriate to protect the rights of the Holder against
impairment.
6.
Chief Financial
Officer’s Report as to Adjustments
. With respect to
each adjustment pursuant to Section 4 of this Warrant, the Company,
at its expense, will promptly compute the adjustment or
readjustment in accordance with the terms of this Warrant and
cause its Chief Financial Officer to certify the computation (other
than any computation of the fair value of property of the Company)
and prepare a report setting forth, in reasonable detail, the event
requiring the adjustment or readjustment and the amount of
such adjustment or readjustment, the method of calculation
thereof and the facts upon which the adjustment or
readjustment is based, and the Exercise Price and the number
of Warrant Shares or other securities purchasable hereunder after
giving effect to such adjustment or readjustment, which
report shall be mailed by first class mail, postage prepaid to the
Holder. The Company will also keep copies of
all
reports at its office maintained pursuant to Section 10.2(a) hereof
and will cause them to be available for inspection at the office
during normal business hours upon reasonable notice by the Holder
or any prospective purchaser of the Warrant designated by the
Holder thereof.
7.
Reservation of
Shares
. The Company shall, solely for the purpose of
effecting the exercise of this Warrant, at all times during the
term of this Warrant, reserve and keep available out of its
authorized Common Shares, free from all taxes, liens, and charges
with respect to the issue thereof and not subject to preemptive
rights or other similar rights of shareholders of the Company, such
number of its Common Shares as shall from time to time be
sufficient to effect in full the exercise of this Warrant. If at
any time the number of authorized but unissued Common Shares shall
not be sufficient to effect in full the exercise of this Warrant,
in addition to such other remedies as shall be available to Holder,
the Company will promptly take such corporate action as may, in the
opinion of its counsel, be necessary to increase the number of
authorized but unissued Common Shares to such number of shares as
shall be sufficient for such purposes, including without
limitation, using its best efforts to obtain the requisite
shareholder approval necessary to increase the number of authorized
Common Shares. The Company hereby represents and warrants that all
Common Shares issuable upon exercise of this Warrant shall be duly
authorized and, when issued and paid for upon exercise, shall be
validly issued, fully paid and nonassessable.
8.
Registration and
Listing
.
8.1
Definition of Registrable
Securities; Majority
. As used herein, the term
“
Registrable
Securities
” means any Common Shares issuable upon the
exercise of this Warrant, until the date (if any) on which such
shares shall have been transferred or exchanged and new
certificates for them not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent
disposition of them shall not require registration or qualification
of them under the Securities Act or any similar state law then in
force. For purposes of this Warrant, the term “
Majority
,” in reference to the
holders of Registrable Securities, shall mean in excess of fifty
percent (50%) of the then outstanding Registrable Securities
(assuming the exercise of the entire Warrant) that (i) are not held
by the Company, an affiliate, officer, creditor, employee or agent
thereof or any of their respective affiliates, members of their
family, Persons acting as nominees or in conjunction therewith and
(ii) have not be resold to the public pursuant to a registration
statement filed under the Securities Act.
8.2
Required
Registration
.
(a) At
any time on or after the one (1) year anniversary of the Base Date
and on or before the six (6) year anniversary of the Base Date, but
in no event on not more than two (2) occasions (the Registration
Expenses associated with a second required registration effected
(as described in Section 8.2(c)) pursuant to this Section 8.2(a)
shall be payable by the Holder pursuant to Section 8.5 hereto),
upon the written request of the holders of the Registrable
Securities representing a Majority of such securities, the Company
will use its best efforts to effect the registration of the
respective shares of the holders of Registrable Securities under
the Securities Act to the extent requisite to permit the
disposition thereof as expeditiously as reasonably possible, but in
no event later than one hundredtwenty (120) days from the
date of such request.
(b)
Registration of Registrable Securities under this Section 8.2 shall
be on such appropriate registration form: (i) as shall be selected
by the Company, and (ii) as shall permit the disposition of such
Registrable Securities in accordance with this Section 8.2. The
Company agrees to include in any such registration statement all
information which the requesting holders of Registrable Securities
shall reasonably request, which is required to be contained
therein. The Company will pay all Registration Expenses in
connection with the first, and only the first, required
registration of Registrable Securities effected (as described in
Section 8.2(c)) pursuant to this Section 8.2. The Registration
Expenses associated with the second required registration of
Registerable Securities pursuant to this Section 8.2 shall be
payable by the Holder pursuant to Section 8.5 hereto.
(c) A
registration requested pursuant to this Section 8.2 shall not be
deemed to have been effected: (i) unless a registration statement
with respect thereto has become effective or (ii) if, after it has
become effective, such registration is interfered with by any stop
order, injunction or other order or requirement of the Securities
and Exchange Commission (the “
SEC
”) or other governmental agency
or court of competent jurisdiction for any reason, other than by
reason of some act or omission by a holder of Registrable
Securities.
8.3
[Reserved]
.
8.4
Registration
Procedures
. Whenever the holders of Registrable Securities
have properly requested that any Registrable Securities be
registered pursuant to the terms of this Warrant, the Company shall
use its best efforts to effect the registration and the sale of
such Registrable Securities in accordance with the intended method
of disposition thereof, and pursuant thereto the Company shall as
expeditiously as possible:
(a)
prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use its best efforts to cause
such registration statement to become effective.
(b)
notify such holders of the effectiveness of each registration
statement filed hereunder and prepare and file with the SEC such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to (i)
keep such registration statement effective and the prospectus
included therein usable for a period commencing on the date that
such registration statement is initially declared effective by the
SEC and ending on the date when all Registrable Securities covered
by such registration statement have been sold pursuant to the
registration statement or cease to be Registrable Securities, and
(ii) comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration
statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such
registration statement.
(c)
furnish to such holders such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary
prospectus) and such other documents as such seller may reasonably
request to facilitate the disposition of the Registrable Securities
owned by such holders.
(d) use
its best efforts to register or qualify such Registrable Securities
under such other securities or blue sky laws of such jurisdictions
as such holders reasonably request and do any and all other acts
and things which may be reasonably necessary or advisable to enable
such holders to consummate the disposition in such jurisdictions of
the Registrable Securities owned by such holders.
provided
,
however
, that the Company shall not be
required to: (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify
but for this subparagraph, (ii) subject itself to taxation in any
such jurisdiction, or
(iii)
consent to general service of process in any such
jurisdiction.
(e)
notify such holders, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of a
material fact or omits any material fact necessary to make the
statements therein, in light of the circumstances in which they are
made, not materially misleading, and, at the reasonable request of
such holders, the Company shall prepare a supplement or amendment
to such prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall
not contain an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in
light of the circumstances in which they are made, not materially
misleading.
(f)
provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration
statement.
(g)
make available for inspection by any underwriter participating in
any disposition pursuant to such registration statement, and any
attorney, accountant or other agent retained by any such
underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the
Company’s officers, directors, managers, employees and
independent accountants to supply all information reasonably
requested by any such underwriter, attorney, accountant or agent in
connection with such registration statement.
(h)
otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC.
(i) in
the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or
suspending the qualification of any Registrable Securities included
in such registration statement for sale in any jurisdiction, the
Company shall use its best efforts promptly to obtain the
withdrawal of such order.
(j) use
its best efforts to cause any Registrable Securities covered by
such registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary
to enable the sellers thereof to consummate the disposition of such
Registrable Securities. and
(k) if
the offering is underwritten, use its best efforts to furnish on
the date that Registrable Securities are delivered to the
underwriters for sale pursuant to such registration, an opinion
dated such date of counsel representing the Company for the
purposes of such registration, addressed to the underwriters
covering such issues as are customarily addressed in opinions to
underwriters in public offerings and reasonably required by such
underwriters.
8.5
Expenses
. The
Company shall pay all Registration Expenses relating to the
registration and listing obligations set forth in this Section 8,
except that the Holder, to the extent applicable, shall be
responsible for the Registration Expenses for the second required
registration effected pursuant to Section 8.2(a). For purposes of
this Warrant, the term “
Registration Expenses
” means: (a)
all registration, filing and FINRA fees, (b) all reasonable fees
and expenses of complying with securities or blue sky laws, (c) all
word processing, duplicating and printing expenses, (d) the fees
and disbursements of counsel for the Company and of its independent
public accountants, including the expenses of any special audits or
“cold comfort” letters required by or incident to such
performance and compliance, (e) premiums and other costs of
policies of insurance (if any) against liabilities arising out of
the public offering of the Registrable Securities being registered
if the Company desires such insurance, if any, and (f) fees and
disbursements of one counsel for all of the selling holders of
Registrable Securities. Registration Expenses shall not include any
underwriting discounts and commissions which may be incurred in the
sale of any Registrable Securities and transfer taxes of the
selling holders of Registrable Securities.
8.6
Information Provided by
Holders
. Any holder of Registrable Securities included in
any registration shall furnish to the Company such information as
the Company may reasonably request in writing to enable the Company
to comply with the provisions hereof in connection with any
registration referred to in this Warrant. In the event that a
holder of Registrable Securities fails to provide such information
on a timely basis, and in any event within seven (7) Business Days
of the Company’s written request, then the Company shall be
entitled to exclude the Registrable Securities of such holder from
such registration and the Company shall nevertheless be deemed to
have satisfied its obligations hereunder with respect to such
registration.
9.
Restrictions on
Transfer
9.1
Restrictive
Legends
. This Warrant and each Warrant issued upon transfer
or in substitution for this Warrant pursuant to Section 10 hereof,
each certificate for Common Shares issued upon the exercise of the
Warrant and each certificate issued upon the transfer of any such
Common Shares shall be transferable only upon satisfaction of the
conditions specified in this Section 9. Each of the foregoing
securities shall be stamped or otherwise imprinted with a legend
reflecting the restrictions on transfer set forth herein and any
restrictions required under the Securities Act or other applicable
securities laws.
9.2
Notice of Proposed
Transfer
. Prior to any transfer of any securities which are
not registered under an effective registration statement under the
Securities Act (“
Restricted
Securities
”), which transfer may only occur if there
is an exemption from the registration provisions of the Securities
Act and all other applicable securities laws, the Holder will give
written notice to the Company of the Holder’s intention to
effect a transfer (and shall describe the manner and circumstances
of the proposed transfer). The following provisions shall apply to
any proposed transfer of Restricted Securities:
(i) If
in the opinion of counsel for the Holder reasonably satisfactory to
the Company the proposed transfer may be effected without
registration of the Restricted Securities under the Securities Act
(which opinion shall state in detail the basis of the legal
conclusions reached therein), the Holder shall, upon delivery of an
executed original of such opinion, be entitled to transfer the
Restricted Securities in accordance with the terms of the notice
delivered by the Holder to the Company. Each certificate
representing the Restricted Securities issued upon or in connection
with any transfer shall bear the restrictive legends required by
Section 9.1 hereof.
(ii) If
the opinion called for in (i) above is not delivered, the Holder
shall not be entitled to transfer the Restricted Securities until
either (x) receipt by the Company of a further notice from such
Holder pursuant to the foregoing provisions of this Section 9.2 and
fulfillment of the provisions of clause (i) above, or (y) such
Restricted Securities have been effectively registered under the
Securities Act.
9.3
Certain Other Transfer
Restrictions
. Notwithstanding any other provision of this
Section 9: (i) prior to the Vesting Date this Warrant or the
Restricted Securities thereunder may only be transferred or
assigned to the persons permitted under FINRA Rule 5110(g)(1), and
(ii) no opinion of counsel shall be necessary for a transfer of
Restricted Securities by the Holder to any Person employed by or
owning equity in the Holder, if the transferee agrees in writing to
be subject to the terms hereof to the same extent as if the
transferee were the original holder hereof and such transfer is
permitted under applicable securities laws. Additionally, pursuant
to FINRA Rule 5110(g), this Warrant shall not be sold during the
Offering, or 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 this Warrant or the Shares acquirable upon exercise
hereof, by any person for a period of 180 days immediately
following the effective date of the Offering, except as provided in
paragraph (g)(2) of Rule 5110(g) of the FINRA.
9.4
Termination of
Restrictions
. The restrictions imposed by this Section 9
upon the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities: (a) which
shall have been effectively registered under the Securities Act, or
(b) when, in the opinions of both counsel for the Holder and
counsel for the Company, such restrictions are no longer required
to insure compliance with the Securities Act. Whenever such
restrictions shall cease and terminate as to any Restricted
Securities, the Holder shall be entitled to receive from the
Company, without expense (other than applicable transfer taxes, if
any), new securities of like tenor not bearing the applicable
legends required by Section 9.1 hereof.
10.
Ownership, Transfer and
Substitution of Warrant
.
10.1
Ownership of
Warrant
. The Company may treat any Person in whose name this
Warrant is registered in the Warrant Register maintained pursuant
to Section 10.2(b) hereof as the owner and Holder for all purposes,
notwithstanding any notice to the contrary, except that, if and
when any Warrant is properly assigned in blank, the Company may
(but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes, notwithstanding any notice
to the contrary. Subject to Sections 9 and 10 hereof, this Warrant,
if properly assigned, may be exercised by a new Holder without a
new Warrant first having been issued.
10.2
Office; Exchange of
Warrant
.
(a) The
Company will maintain its principal office at the location
identified in the prospectus relating to the Offering or at such
other offices as set forth in the Company’s most current
filing under the Securities Exchange Act of 1934, as amended, or as
the Company otherwise notifies the Holder.
(b) The
Company shall cause to be kept at its office a Warrant Register for
the registration and transfer of the Warrant. The name and address
of the Holder of the Warrant, the transfers thereof and the name
and address of the transferee of the Warrant shall be registered in
such Warrant Register.
(c)
Upon the surrender of this Warrant, properly endorsed, for
registration of transfer or for exchange at the office of the
Company maintained pursuant to Section 10.2(a) hereof, the Company
at its expense will (subject to compliance by the Holder with
Section 9 hereof, if applicable) execute and deliver to or upon the
order of the Holder thereof a new Warrant of like tenor, in the
name of such Holder or as such Holder (upon payment by such holder
of any applicable transfer taxes) may direct, calling in the
aggregate on the face thereof for the number of Common Shares
called for on the face of the Warrant so surrendered (after giving
effect to any previous adjustment(s) to the number of Warrant
Shares).
10.3
Replacement of
Warrant
. 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 of
this Warrant, upon delivery of indemnity reasonably satisfactory to
the Company in form and amount or, in the case of any mutilation,
upon surrender of this Warrant for cancellation at the office of
the Company maintained pursuant to Section 10.2(a) hereof, the
Company, at its expense, will execute and deliver, in lieu thereof,
a new Warrant of like tenor and dated the date hereof.
11.
No Rights or Liabilities
as Stockholder
. Except as provided in Section 4.4, no Holder
shall be entitled to vote or receive dividends or be deemed the
holder of any Common Shares or any other securities of the Company
which may at any time be issuable on the exercise hereof for any
purpose, nor shall anything contained herein be construed to confer
upon the Holder, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon
any matter submitted to stockholders at any meeting thereof, or to
give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock,
change of par value, consolidation, Merger, conveyance, or
otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant
shall have been exercised and the Common Shares purchasable upon
the exercise hereof shall have become deliverable, as provided
herein. The Holder will not be entitled to share in the assets of
the Company in the event of a liquidation, dissolution or the
winding up of the Company.
12.
Notices
. Any notice
or other communication in connection with this Warrant shall be
given in writing and directed to the parties hereto as set forth in
the Underwriting Agreement.
provided
, that the exercise of the
Warrant shall also be effected in the manner provided in Section 3
hereof. Notices shall be deemed properly delivered and received
when delivered to the notice party (i) if personally delivered,
upon receipt or refusal to accept delivery, (ii) if sent via
facsimile, upon mechanical confirmation of successful transmission
thereof generated by the sending telecopy machine, (iii) if sent by
a commercial overnight courier for delivery on the next Business
Day, on the first Business Day after deposit with such courier
service, or (iv) if sent by registered or certified mail, five (5)
Business Days after deposit thereof in the U.S. mail.
13.
Payment of Taxes
.
The Company will pay all documentary stamp taxes attributable to
the issuance of Common Shares underlying this Warrant upon exercise
of this Warrant.
provided
,
however
, that the Company
shall not be required to pay any tax which may be payable in
respect of any transfer involved in the transfer or registration of
this Warrant or any certificate for Common Shares underlying this
Warrant in a name other that of the Holder. The Holder is
responsible for all other tax liability that may arise as a result
of holding or transferring this Warrant or receiving Common Shares
underlying this Warrant upon exercise hereof.
14.
Miscellaneous
.
This Warrant and any term hereof may be changed, waived, discharged
or terminated only by an instrument in writing signed by the party
against which enforcement of the change
,
waiver,
discharge or termination is sought. This Warrant shall be construed
and enforced in accordance with and governed by the laws of the
State of New York. The section headings in this Warrant are for
purposes of convenience only and shall not constitute a part
hereof
[
Signature
Page Follows
]
IN WITNESS WHEREOF
, the Company has
caused this Warrant to be duly executed as of the date first above
written.
|
ENDRA
LIFE SCIENCES INC.
By:
Name:
Title:
DOUGHERTY
& COMPANY LLC
By:
Name:
Title:
|
EXHIBIT
A
FORM
OF EXERCISE NOTICE
[To be
executed only upon exercise of Warrant]
To
ENDRA Life Sciences Inc.:
The
undersigned registered holder of the within Warrant hereby
irrevocably exercises the Warrant pursuant to Section 3.1 of the
Warrant with respect to_____________ Warrant Shares, at an exercise
price per share of $
_____________
, and requests
that the certificates for such Warrant Shares be issued, subject to
Sections 9 and 10, in the name of, and delivered to:
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
The
undersigned is hereby making payment for the Warrant Shares in the
following manner:___________________________
[describe desired
payment method as provided for in 3.1 of the Warrant].
The
undersigned hereby represents and warrants that it is, and has been
since its acquisition of the Warrant, the record and beneficial
owner of the Warrant.
Dated:_____________
_____________________________________________________________________________
Print
or Type Name
_____________________________________________________________________________
(Signature must
conform in all respects to name of holder as specified on the face
of Warrant)
_____________________________________________________________________________
(Street
Address)
_____________________________________________________________________________
(City)
(State)
(Zip Code)
EXHIBIT
B
FORM
OF ASSIGNMENT
[To be
executed only upon transfer of Warrant]
For
value received, the undersigned registered holder of the within
Warrant hereby sells, assigns, and transfers unto _______
[include name and
addresses] the rights represented by the Warrant to purchase Common
Shares of ENDRA Life Sciences Inc. to which the Warrant relates,
and appoints
Attorney to make such transfer on the books of ENDRA Life Sciences
Inc. maintained for the purpose, with full power of substitution in
the premises.
Dated:
_____________________________________________________________________________
(Signature must conform in all respects to name
of holder as specified on the face of Warrant)
_____________________________________________________________________________
(Street
Address)
_____________________________________________________________________________
(City) (State) (Zip
Code)
Signed
in the presence of:
_____________________________________________________________________________
(Signature of
Transferee)
_____________________________________________________________________________
(Street Address)
_____________________________________________________________________________
(City) (State) (Zip
Code) Signed in the presence of:
Exhibit 5.1
|
K&L GATES
llp
HEARST
TOWER
47TH
FLOOR
214
NORTH TRYON STREET
CHARLOTTE,
NC 28202
T
704.331.7400 F 704.331.7598 klgates.com
|
December 6,
2016
ENDRA
Life Sciences Inc.
3600
Green Court, Suite 350
Ann
Arbor, MI 48105
Ladies
and Gentlemen:
We have
acted as counsel to ENDRA Life Sciences Inc., a Delaware
corporation (the “
Company
”), in connection
with the filing by the Company of a Registration Statement on Form
S-1 (File No. 333-214724) originally filed with the Securities and
Exchange Commission (the “
SEC
”) on November 21,
2016 (as amended, the “
Registration Statement
) under
the Securities Act of 1933, as amended (the “
Securities Act
”). The
Registration Statement relates to the proposed issuance and sale by
the Company (“
Offering
”) of (i) shares
(“
Shares
”) of the
Company’s common stock, $0.0001 par value per share
(“
Common
Stock
”), (ii) warrants (“
Warrants
”) to purchase
shares of Common Stock, to be issued under a warrant agreement, to
be dated on or about the date of the first issuance of the
applicable Warrants thereunder, by and between a warrant agent to
be selected by the Company (the “
Warrant Agent
”) and the
Company, in substantially the form filed as an exhibit to the
Registration Statement (the “
Warrant Agreement
”),
(iii) shares of Common Stock underlying the Warrants
(“
Warrant
Shares
”), (iv) a warrant (“
Underwriter’s
Warrant
”), issued to the underwriter for the Offering
to purchase shares of Common Stock and (v) shares of Common Stock
underlying the Underwriter’s Warrant (“
Underwriter’s Warrant
Shares
”). The Shares, the Warrants, the Warrant
Shares, the Underwriter’s Warrant and the Underwriter’s
Warrant Shares are referred to herein, collectively, as the
“
Securities
”. The proposed
maximum aggregate offering price of the Securities is $21,454,400.
The Securities are to
be sold by the Company pursuant to an Underwriting Agreement by and
between the Company and Dougherty & Company LLC (the
“
Underwriting
Agreement
”).
You
have requested our opinion as to the matters set forth below in
connection with the issuance of the Securities. For purposes of
rendering that opinion, we have examined: (i)the Registration
Statement, (ii) the Underwriting Agreement, (iii) a draft of the
Company’s Fourth Amended and Restated Certificate of
Incorporation in the form filed as an exhibit to the Registration
Statement on December 6, 2016 (the “
Charter
”), (iv) a draft
of the Company’s Amended and Restated Bylaws in the form
filed as an exhibit to the Registration Statement on December 6,
2016 (the “
Bylaws
”), (v) the
Company’s stock, warrant and option ledgers, and (vi) the
corporate actions of the Company’s Board of Directors which
authorize the issuance of the Securities. The documents identified
in items (i) – (vi) above are hereinafter referred to
collectively as the “Reviewed Documents.” Other than
our review of the Reviewed Documents, we have not reviewed any
other documents or made any independent investigation for the
purpose of rendering this opinion and we make no representation as
to the scope or sufficiency of our document review for your
purposes. With your consent, our opinion is qualified in all
respects by the scope of such document examination. For the
purposes of this opinion letter, we have made assumptions that are
customary in opinion letters of this kind, including the
assumptions that each document submitted to us is accurate and
complete, that each such document that is an original is authentic,
that each such document that is a copy conforms to an authentic
original, the conformity to the original or final versions of the
documents submitted to us as copies or drafts, including without
limitation, the Charter and that all signatures on each such
document are genuine.
In
rendering our opinion below, we also have assumed that: (a) the
Charter and Bylaws have been duly authorized by all necessary
corporate action, (b) the Company will have sufficient authorized
and unissued shares of Common Stock at the time of each issuance of
a Warrant Share or an Underwriter’s Warrant Share; (c) each
Share, Warrant Share and Underwriter Warrant’s Share will be
evidenced by an appropriate certificate, duly executed and
delivered or the Company’s Board of Directors will adopt a
resolution, providing that all shares of Common Stock shall be
uncertificated in accordance with Section 158 of the Delaware
General Corporation Law (the “
DGCL
”), prior to their
issuance; (d) the issuance of each Share, Warrant Share and
Underwriter’s Warrant Share will be duly noted in the
Company’s stock ledger upon issuance; (e) each of the
Warrants, the Underwriter’s Warrant and the Underwriting
Agreement constitutes a valid and binding agreement of each of the
parties thereto (other than the Company to the extent expressly set
forth below), enforceable against the parties thereto in accordance
with its terms, and (f) the Charter will be filed with the
Secretary of State of the State of Delaware and become effective
prior to the issuance of any Shares, Warrant Shares or Underwriter
Warrant Shares which are the subject of this opinion letter. We
have further assumed the legal capacity of natural persons. We have
not verified any of those assumptions.
Our
opinion set forth below in numbered paragraphs 1, 3 and 5 are
limited to the DGCL. Our opinion set forth below in numbered
paragraphs 2 and 4 are limited to the laws of the State of New
York.
Based
upon and subject to the foregoing, provided that the Registration
Statement and any required post-effective amendment thereto have
all become effective under the Securities Act and any related
prospectus required by applicable law (“
Prospectus
”) have been
delivered and filed as required by such laws, it is our opinion
that:
1.
The Shares have
been duly authorized for issuance by the Company and, when issued
and paid for as described in the Prospectus and the Underwriting
Agreement, will be validly issued, fully paid, and
non-assessable.
2.
The Warrants have
been duly authorized for issuance by the Company and, assuming that
the terms of any Warrants offered pursuant to the Registration
Statement and the Prospectus have been duly established in
accordance with an applicable Warrant Agreement, and provided that
the Warrants have been duly executed and delivered by the Company
and duly delivered to the purchasers thereof against payment
therefor, the Warrants will constitute valid and binding
obligations of the Company, enforceable against the Company in
accordance with their terms subject to the effect of bankruptcy,
insolvency, fraudulent transfer, reorganization, receivership,
moratorium and other laws affecting the rights and remedies of
creditors generally, and to the exercise of judicial discretion in
accordance with general principles of equity (whether applied by a
court of law or equity).
3.
The Warrant Shares
have been duly authorized and, when issued and delivered by the
Company against payment therefor, upon the exercise of the Warrants
in accordance with the terms therein and the terms of the Warrant
Agreement, will be validly issued, fully paid, and
non-assessable.
4.
The
Underwriter’s Warrant has been duly authorized for issuance
by the Company and, assuming that the terms of the
Underwriter’s Warrant have been duly established and,
provided that the Underwriter’s Warrant has been duly
executed and delivered by the Company and duly delivered to the
purchaser thereof against payment therefor, then the
Underwriter’s Warrant, when issued and paid for as described
in the Registration Statement and the Prospectus, will be a valid
and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to the effect of
bankruptcy, insolvency, fraudulent transfer, reorganization,
receivership, moratorium and other laws affecting the rights and
remedies of creditors generally, and to the exercise of judicial
discretion in accordance with general principles of equity (whether
applied by a court of law or equity).
5.
The Underwriter
Warrant Shares have been duly authorized and, when issued and
delivered by the Company against payment therefor, upon the
exercise of the Underwriter’s Warrant in accordance with the
terms therein, will be validly issued, fully paid, and
non-assessable.
The
opinions set forth above are subject to the following additional
assumptions:
(a) The
Registration Statement and any amendment thereto (including any
post-effective amendment) will have become effective under the
Securities Act, and such effectiveness shall not have been
terminated, suspended or rescinded;
(b) All
Securities offered pursuant to the Registration Statement will be
issued and sold (i) in compliance with all applicable federal and
state securities laws, rules and regulations and solely in the
manner provided in the Registration Statement and the Prospectus
and (ii) only upon payment of the consideration fixed therefor in
accordance with the Underwriting Agreement, the Warrant Agreement
and, if applicable, the Securities themselves, and there will not
have occurred any change in law or fact affecting the validity of
any of the opinions rendered herein with respect
thereto;
(c) The
Underwriting Agreement, the Warrant Agreement and, if applicable,
the Securities themselves will have been duly authorized and
approved by all necessary action of the Board of Directors, or a
duly authorized committee thereof, and duly authorized and duly
executed and delivered by the Company and each of the other parties
thereto and there shall be no terms or provisions contained therein
which would affect the validity of any of the opinions rendered
herein;
(d) To
the extent that the obligations of the Company under any Warrant
Agreement, or other agreement pursuant to which any Securities
offered pursuant to the Registration Statement are to be issued or
governed, including any amendment or supplement thereto, may be
dependent upon such matters, we assume for purposes of this opinion
letter that (i) each party to any such agreement other than the
Company (including any applicable warrant agent or other party
acting in a similar capacity with respect to any Securities) will
be duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization; that each such other
party will be duly qualified to engage in the activities
contemplated thereby; (ii) each such agreement and the applicable
Securities will have been duly authorized, executed and delivered
by each such other party and will constitute the valid and binding
obligations of each such other party, enforceable against each such
other party in accordance with their terms; (iii) each such other
party will be in compliance, with respect to acting in any capacity
contemplated by any such agreement, with all applicable laws and
regulations; and (iv) each such other party will have the requisite
organizational and legal power and authority to perform its
obligations under each such agreement; and
(e) The
Company shall have taken any action required to be taken by the
Company, based on the type of security being offered, to authorize
the offer and issuance thereof, and such authorization shall remain
in effect and unchanged at all times during which the Securities
are offered and issued and shall not have been modified or
rescinded (subject to the further assumption that the sale of any
such Securities takes place in accordance with such authorization);
the Board of Directors, or a duly authorized committee thereof,
shall have duly established the terms of such Securities and duly
authorized and taken any other necessary corporate action to
approve the issuance and sale of such Securities in conformity with
the Charter and the Bylaws, as they may be finalized, adopted,
amended or supplemented hereafter (subject to the further
assumption that any such organic documents of the Company do not
differ from the forms reviewed on the date hereof in a manner that
would affect the validity of any of the opinions rendered herein),
and such authorization shall remain in effect and unchanged at all
times during which the such Securities are offered and issued and
shall not have been modified or rescinded (subject to the further
assumption that the sale of any such Securities takes place in
accordance with such authorization).
We
assume no obligation to update or supplement any of our opinions to
reflect any changes of law or fact that may occur.
We
hereby consent to the filing of this opinion letter with the SEC as
Exhibit 5.1 to the Registration Statement. We also consent to the
reference to our Firm under the caption “Legal Matters”
in the Registration Statement and in the Prospectus. In giving our
consent, we do not thereby admit that we are experts with respect
to any part of the Registration Statement, the Prospectus or any
Prospectus Supplement within the meaning of the term
“expert”, as used in Section 11 of the Securities Act
or the rules and regulations promulgated thereunder, nor do we
admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and
regulations thereunder.
Very
truly yours,
/s/
K&L Gates LLP
K&L
Gates LLP
ENDRA
LIFE SCIENCES INC.
2016
OMNIBUS INCENTIVE PLAN
ENDRA
Life Sciences Inc. sets forth herein the terms of its 2016 Omnibus
Incentive Plan. The Plan amends and restates in its entirety the
Endra Inc. Second Amended and Restated 2013 Stock Incentive
Plan.
The
Plan is intended to enhance the ability of the Company and its
Affiliates to attract and retain highly qualified officers,
Non-employee Directors, employees, consultants and advisors, and to
motivate such individuals 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 share-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.
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 any Subsidiary.
2.3.
“Award”
means
a grant under the
Plan of an Option, SAR, Restricted Stock, RSU, Other Share-based
Award or cash award.
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 in its sole discretion and unless otherwise provided in
the 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 that 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 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. A Separation
from Service for Cause shall be deemed to include a determination
by the Company in its sole discretion following a
Participant’s Separation from Service that circumstances
existing prior to such Separation from Service would have entitled
the Company or an Affiliate to have terminated the
Participant’s service for Cause. All rights a Participant has
or may have under the Plan shall be suspended automatically during
the pendency of any investigation by the Company, or during any
negotiations between the Company and the Participant, regarding any
actual or alleged act or omission by the Participant of the type
described in the applicable definition of Cause.
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.
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 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 shall cause the
Committee to satisfy the applicable requirements of any securities
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
Section 162(m), Committee means all of the members of the
Compensation Committee who are “outside directors”
within the meaning of Section 162(m); 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”
means ENDRA Life Sciences Inc., a Delaware
corporation.
2.12.
“Common
Stock”
means the common stock of the
Company.
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) 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 in its sole discretion and unless
otherwise provided in the 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 employment,
“Disability” means “permanent and total
disability” as set forth in Code
Section 22(e)(3).
2.16.
“Exchange
Act”
means the Securities Exchange Act of
1934.
2.17.
“Fair
Market Value”
of a Share as of a particular date means
(i) 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
(ii) if the Common Stock is not then listed on a national
securities exchange, or the value of the Common Stock is not
otherwise determinable, such value as determined by the
Board.
2.18.
“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 50% 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 50% of the voting
interests.
2.19.
“Grant
Date”
means 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.
2.20.
“Grantee”
means a person who receives or holds an Award.
2.21.
“Holder”
means, with respect to any Issued Shares, the person holding such
Issued Shares, including the initial Grantee or any Permitted
Transferee.
2.22.
“Incentive
Stock Option”
means an “incentive stock
option” within the meaning of Code
Section 422.
2.23.
“Incumbent
Directors”
shall have the meaning set forth in
Section
15.2.2
.
2.24.
“Initial
Public Offering”
means the initial public offering of
Shares pursuant to a registration statement (other than a Form S-8
or successor forms) filed with, and declared effective by, the
SEC.
2.25.
“Issued
Shares”
means, collectively, all outstanding Shares
issued pursuant to Awards (including outstanding Shares of
Restricted Stock prior to or after vesting and Shares issued in
connection with the exercise of an Option or SAR).
2.26.
“New
Shares”
shall have the meaning set forth in
Section
15.1
.
2.27.
“Non-employee
Director”
means a member of the Board or the board of
directors of an Affiliate, in each case who is not an officer or
employee of the Company or any Affiliate.
2.28.
“Nonqualified
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 pursuant to the
Plan.
2.32.
“Option
Price”
means the exercise price for each Share subject
to an Option.
2.33.
“Other
Share-based Awards”
means Awards consisting of Share
units, or other Awards, valued in whole or in part by reference to,
or otherwise based on, Shares.
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.
“Performance-Based
Compensation”
means “performance-based
compensation” under Section 162(m).
2.36.
“Permitted
Transferee”
means any of the following to whom a
Holder may transfer Issued Shares hereunder (as set forth in
Section
17.11.3
): 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 the Plan 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.
2.37.
“Plan”
means this ENDRA Life Sciences Inc. 2016 Omnibus Incentive
Plan.
2.38.
“Purchase
Price”
means the purchase price for each Share
pursuant to a grant of Restricted Stock.
2.39.
“Restatement
Effective Date”
means November 14, 2016.
2.40.
“Restricted
Period”
shall have the meaning set forth in
Section
10.1
.
2.41.
“Restricted
Stock”
means restricted Shares, awarded to a Grantee
pursuant to
Section
10
.
2.42.
“Restricted
Stock Unit”
or
“RSU”
means a bookkeeping
entry representing the equivalent of Shares, awarded to a Grantee
pursuant to
Section
10
.
2.43.
“SAR
Exercise Price”
means the per Share exercise price of
a SAR granted to a Grantee under
Section
9
.
2.44.
“SEC”
means the United States Securities and Exchange
Commission.
2.45.
“Section
162(m)”
means Code Section 162(m).
2.46.
“Section 409A”
means Code Section 409A.
2.47.
“Securities
Act”
means the Securities Act of 1933.
2.48.
“Separation
from Service”
means the termination of the applicable
Participant’s employment with, and performance of services
for, the Company and each Affiliate. Unless otherwise determined by
the Company in its sole discretion, if a Participant’s
employment or board service with the Company or an Affiliate
terminates but the Participant continues to provide services to the
Company or an Affiliate in a nonemployee director capacity or as an
employee, as applicable, such change in status shall not be deemed
a Separation from Service. A Participant employed by, or performing
services for, an Affiliate or a division of the Company or an
Affiliate shall not be deemed to incur a Separation from Service if
such Affiliate or division ceases to be an Affiliate or division of
the Company, as the case may be, and the Participant immediately
thereafter becomes an employee of (or service provider to), or
member of the board of directors of, the Company or an Affiliate or
a successor company or an affiliate or subsidiary thereof. Approved
temporary absences from employment because of illness, vacation or
leave of absence and transfers among the Company and its Affiliates
shall not be considered Separations from Service. Notwithstanding
the foregoing, with respect to any Award that constitutes
nonqualified deferred compensation under Section 409A,
“Separation from Service” shall mean a
“separation from service” as defined under Section
409A.
2.49.
“Service
Provider”
means an employee, officer, non-employee
member of the Board or Consultant of the Company or an
Affiliate.
2.50.
“Share”
means a share of Common Stock.
2.51.
“Stock
Appreciation Right”
or
“SAR”
means a right granted
to a Grantee pursuant to
Section
9
.
2.52.
“Stockholders”
means the stockholders of the Company.
2.53.
“Subsidiary”
means any “subsidiary corporation” of the Company
within the meaning of Code Section 424(f).
2.54.
“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 an Affiliate or with which the Company or an Affiliate
combines.
2.55.
“Ten
Percent Stockholder”
means an individual who owns more
than 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 Code Section 424(d) shall be applied.
2.56.
“Termination
Date”
means the date that is 10 years after the
Restatement Effective Date, unless the Plan is earlier terminated
by the Board under
Section
5.2
.
2.57.
“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
Stockholders 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).
2.58.
“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 power and
authority of the Board to act hereunder, all references to the
Board shall be deemed to include a reference to the Committee,
unless such power or authority is specifically reserved by the
Board. 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. All actions, determinations and
decisions by the Board or the Committee under the Plan or any Award
Agreement, or with respect to any Award, shall be in the sole
discretion of the Board and shall be final, binding and conclusive
on all persons. Without limitation, the Board shall have full and
final power and 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 Grantees;
(iii) determine
the number of Shares to be subject to an Award;
(iv) establish
the terms and conditions of each Award (including 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 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.
Separation
from Service for Cause; Clawbacks; Breach of Restrictive
Covenants
3.2.1.
Separation
from Service for Cause
The
Company may annul an Award if the Grantee incurs a Separation from
Service for Cause.
3.2.2.
Clawbacks
All
awards, amounts or benefits received or outstanding under the Plan
shall be subject to clawback, cancellation, recoupment, rescission,
payback, reduction or other similar action in accordance with the
terms of any Company clawback or similar policy or any applicable
law related to such actions, as may be in effect from time to time.
A Grantee’s acceptance of an Award shall be deemed to
constitute the Grantee’s acknowledgement of and consent to
the Company’s application, implementation and enforcement of
any applicable Company clawback or similar policy that may apply to
the Grantee, whether adopted prior to or following the Restatement
Effective Date, and any provision of applicable law relating to
clawback, cancellation, recoupment, rescission, payback or
reduction of compensation, and the Grantee’s agreement that
the Company may take such actions as may be necessary to effectuate
any such policy or applicable law, without further consideration or
action.
3.2.3.
Breach
of Restrictive Covenants
Except
as otherwise provided by the Committee, notwithstanding any
provision of the Plan to the contrary, if a Participant breaches a
non-competition, non-solicitation, non-disclosure,
non-disparagement or other restrictive covenant set forth in an
Award Agreement or any other agreement between the Participant and
the Company or an Affiliate, whether during the Participant’s
service or after the Participant’s Separation from Service,
in addition to any other penalties or restrictions that may apply
under any such agreement, state law or otherwise, the Participant
shall forfeit or pay to the Company the following:
(a) any
and all outstanding Awards granted to the Participant, including
Awards that have become vested or exercisable;
(b) any
shares held by the Participant in connection with the Plan that
were acquired by the Participant after the Participant’s
Separation from Service and within the 12-month period immediately
before the Participant’s Separation from
Service;
(c) the
profit realized by the Participant from the exercise of any Options
or SARs that the Participant exercised after the
Participant’s Separation from Service or within the 12-month
period immediately before the Participant’s Separation from
Service, which profit is the difference between the Option Price of
the Option or SAR Exercise Price of the SAR and the Fair Market
Value of any shares or cash acquired by the Participant upon
exercise of such Option or SAR; and
(d) the
profit realized by the Participant from the sale, or other
disposition for consideration, of any shares received by the
Participant in connection with the Plan after the
Participant’s Separation from Service and within the 12-month
period immediately before the Participant’s Separation from
Service and where such sale or disposition occurs in such similar
time period.
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 Share 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 the Plan to the contrary, the Company may elect
to satisfy any requirement under the 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 that may be initially issued pursuant to the Plan shall
equal 18
%
of the total
number of Shares outstanding immediately following the completion
of the Initial Public Offering (assuming for this purpose the
issuance of all Shares issuable under the Company’s equity
compensation plans, 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 and including Shares and warrants issued to
the underwriters for such Initial Public Offering upon exercise of
their over-allotment option, if any) ([_________] Shares). A
maximum of 3,000,000 Shares shall be available for issuance under
Incentive Stock Options under the Plan; provided for avoidance of
doubt such number shall be automatically adjusted in connection
with any stock split that takes place after the Restatement
Effective Date. 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.
4.2.
Share
Counting
Any
Award settled in cash shall not be counted as issued Shares for any
purpose under the Plan. If any Award expires, or is terminated,
surrendered or forfeited, in whole or in part, the unissued Shares
covered by such Award shall again be available for the grant of
Awards. If Shares issued pursuant to the Plan are repurchased by,
or are surrendered or forfeited to the Company at no more than
cost, such Shares shall again be available for the grant of Awards.
If Shares issuable upon exercise, vesting or settlement of an
Award, or Shares 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 shall again be available for the grant of Awards.
Substitute Awards shall not be counted against the number of Shares
available for the grant of Awards.
4.3.
Individual
Award Limits
The
maximum value of Awards granted during any calendar year to any
Non-employee Director, taken together with any cash fees paid to
such Non-employee Director during the calendar year and the value
of awards granted to the Non-employee Director under any other
equity compensation plan of the Company or an Affiliate during the
calendar year, shall not exceed the following in total value
(calculating the value of any Awards or other equity compensation
plan awards based on the grant date fair value for financial
reporting purposes): $300,000 for each Non-employee Director;
provided, however, that awards granted to Non-employee Directors
upon their initial election to the Board or the board of directors
of an Affiliate shall not be counted towards the limit under this
Section
4.3.1
.
4.3.2.
Section
162(m) Limits
No
later than the end of the Transition Period, the maximum number of
Shares for each type of Other Share-based Award, and the maximum
amount of cash for any cash-based Award, intended to qualify as
Performance-Based Compensation granted to any Grantee in any
specified period shall be established by the Company and approved
by the Stockholders.
5.
EFFECTIVE
DATE; AMENDMENT AND TERMINATION
5.1.
Effective
Date
The
Plan is effective as of the Restatement Effective
Date.
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 Stockholders to
the extent stated by the Board, required by applicable law or
required by applicable securities 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 may determine and designate from time to
time.
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 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 or 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 may 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 Shares subject to the Award is equivalent in value to
the cash compensation (for example, RSUs or Restricted
Stock).
The
grant of any Award may be contingent upon the Grantee executing an
appropriate 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 Nonqualified Stock Options
or Incentive Stock Options, and in the absence of such
specification such options shall be deemed Nonqualified 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;
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 on the Grant Date. In no case shall the
Option Price of any Option be less than the par value of a
Share.
8.2.
Vesting
Subject
to
Section
8.3
, each Option shall become
exercisable at such times and under such conditions (including
performance requirements) as stated in the Award
Agreement.
Each
Option shall terminate, and all rights to purchase Shares
thereunder shall cease, upon the expiration of the Option term
stated in the Award Agreement not to exceed 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
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 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 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 provided in the applicable 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 or to
direct the voting of the subject Shares) until the Shares
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 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 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. No Option shall be treated as an Incentive Stock
Option unless the Plan has been approved by the Stockholders in a
manner intended to comply with the stockholder approval
requirements of Code Section 422(b)(i);
provided
that any Option intended to be
an Incentive Stock Option shall not fail to be effective solely on
account of a failure to obtain such approval, but rather such
Option shall be treated as a Nonqualified Stock Option unless and
until such approval is obtained.
8.9.
Early
Exercise
An
Option may, but need not, include a provision whereby the Grantee
may elect at any time before the Grantee’s Separation from
Service to exercise the Option as to any part or all of the Shares
subject to the Option prior to the full vesting of the Option. Any
unvested Shares so purchased may be subject to a repurchase option
in favor of the Company or to any other restriction the Board
determines to be appropriate.
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 on the date
of exercise over (ii) the SAR Exercise Price. The Award
Agreement for a 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;
provided
,
however
, that such term
shall not exceed 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 Shares, as set forth in the Award
Agreement) in an amount determined by
multiplying:
(i) the
difference between the Fair Market Value on the date of exercise
over the SAR Exercise Price; by
(ii) the
number of Shares 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 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 RSUs. Each
Award of Restricted Stock or RSUs may be subject to a different
Restricted Period and additional restrictions. Neither Restricted
Stock nor RSUs 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 Shares, 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
otherwise provided in the applicable Award Agreement, holders of
Restricted Stock shall have rights as Stockholders, including
voting and dividend rights.
10.4.
Rights
of Holders of RSUs
10.4.1.
Settlement
of RSUs
RSUs
may be settled in cash or Shares, as set forth in the Award
Agreement. The Award Agreement shall also set forth whether the
RSUs shall be settled (i) within the time period specified in
Section 409A
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 RSUs shall be settled.
10.4.2.
Voting
and Dividend Rights
Unless
otherwise provided in the applicable Award Agreement, holders of
RSUs shall not have rights as Stockholders, including voting or
dividend or dividend equivalents rights.
10.4.3.
Creditor’s
Rights
A
holder of RSUs shall have no rights other than those of a general
creditor of the Company. RSUs 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 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, if so determined by the Board,
in consideration for past services rendered.
10.6.
Delivery
of Shares
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 RSUs
settled in Shares shall lapse, and, unless otherwise provided in
the applicable 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 Shares
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, 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 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 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 the Company’s withholding of Shares
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 reduce the amounts payable under any Award subject to
performance conditions, except as limited under
Section
12.2
in the case of Performance-Based
Compensation.
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, 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 may provide for Performance Awards to
Covered Employees that are not intended qualify as
Performance-Based Compensation.
12.2.1.
Performance
Goals Generally
The
performance goals for 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 Section 162(m), 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
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 the Performance Awards. Performance
goals may be established on a Company-wide basis, or with respect
to one or more business units, divisions, Affiliates 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 the impact
of charges for restructuring, discontinued operations and other
extraordinary, unusual or 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 Affiliates 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 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 stockholder 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
or 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 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 and operating income).
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 Performance Awards, or at such other date as may be
required or permitted for Performance-Based
Compensation.
12.2.4.
Settlement
of Performance Awards; Other Terms
Settlement of
Performance Awards may be in cash, Shares, other Awards or other
property. The Board may 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 the achievement of performance
goals relating to Performance Awards, shall be made in writing in
the case of any Award intended to qualify as Performance-Based
Compensation to the extent required by Section 162(m). To the
extent permitted by Section 162(m), the Board may delegate any
responsibility relating to Performance Awards.
12.4.
Status of Section 12.2
Awards under Section 162(m)
The
provisions of this
Section
12.4
are applicable following the
Transition Period. The validity and exercisability of any and all
Awards that are intended to qualify as Performance-Based
Compensation granted after the Transition Period are contingent
upon approval of the Plan by the Stockholders in a manner intended
to comply with the stockholder approval requirements of
Section 162(m). 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 Section 162(m) shall, if so designated by the
Board, qualify as Performance-Based Compensation. 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 Section 162(m). 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
Section 162(m), such provision shall be construed or deemed
amended to the extent necessary to conform to such
requirements.
13.1.
Grant
of Other Share-based Awards
Other
Share-based Awards may be granted either alone or in addition to or
in conjunction with other Awards. Other Share-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 under any other
compensation plan or arrangement of the Company, including any
other Company incentive compensation plan. The Board shall
determine the persons to whom and the time or times at which such
Awards will be made, the number of Shares to be granted pursuant to
such Awards, and all other terms and 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 the Plan with respect to such
Award.
13.2.
Terms
of Other Share-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 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 any federal or state securities
laws or regulations. If at any time the Board determines 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 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 underlying an Award, unless a registration statement
under such Act is in effect with respect to the Shares 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. 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 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 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. The Committee may require
the Participant to sign such additional documentation, make such
representations and furnish such information as it may consider
appropriate in connection with the grant of Awards or issuance or
delivery of Shares in compliance with applicable laws, rules and
regulations.
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 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 modify the 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, in the event of any
change in the Common 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 in a form other than Shares (excepting normal cash
dividends) that has a material effect on the Fair Market Value,
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. 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 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, which such
actions need not be the same for all Grantees:
(a)
Accelerated Vesting.
The Board may
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 terms and conditions, including a Grantee’s
Separation from Service prior to, upon, or following such Change in
Control, to such extent as determined by the Board.
(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
, an
Award denominated in Shares 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 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 Stockholder 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 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 Stockholders pursuant to the Change
in Control. If any portion of such consideration may be received by
Stockholders pursuant to the Change in Control on a contingent or
delayed basis, the Board may determine such Fair Market Value as of
the time of the Change in Control on the basis of the Board’s
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,
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) 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 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 Stockholders pursuant to the Change in Control on a
contingent or delayed basis, the Board may determine such Fair
Market Value as of the time of the Change in Control on the basis
of the Board’s 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
Unless
other provided in the applicable Award Agreement, a
“
Change in
Control
” means the consummation of any of the
following events following the Restatement Effective
Date:
(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) 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 ; “
Incumbent Directors
” means
individuals who were members of the Board at the beginning of such
period or individuals whose election or nomination for election to
the Board by the 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 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 for purposes of the Plan 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 or other securities
of the Company shall be made by the Board. 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 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 provided 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 the 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 for approval shall be construed as creating any
limitations upon the right or authority of the Board or its
delegate to adopt such other compensation arrangements as the Board
or its delegate 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 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 Board, 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
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 already owned by the Grantee. The
Shares so delivered or withheld shall have an aggregate Fair Market
Value equal to such withholding obligations. The Fair Market Value
of the Shares 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 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
Unless
otherwise provided in the applicable 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 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 continue to 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
Unless
otherwise provided in the applicable 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 from 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
issued to such Grantee under the Plan for the purchase price paid
by the Grantee for such Shares (or the Fair Market Value of such
Common Stock at the time of repurchase, if lower).
17.5.
Market Standoff
Requirement
Unless
otherwise provided in the applicable 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 Shares delivered under the Plan (other than those
Shares 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.
Other
Provisions; Legends
Each
Award Agreement may contain such other terms and conditions not
inconsistent with the Plan as may be determined by the Board. Any
stock certificates for any Shares issued under the Plan shall be
subject to such stop-transfer orders and other restrictions as the
Company in its sole discretion may deem advisable under the rules,
regulations and other requirements of the SEC, any securities
exchange on which the Common Stock may then be listed and any
applicable federal or state securities law, and the Company in its
sole discretion may cause a legend or legends to be placed on such
certificates to make appropriate reference to such
restrictions.
17.7.
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.
17.8.
Governing
Law
The
Plan shall be governed by and construed in accordance with the
internal laws of the State of Delaware without regard to the
principles of conflicts of law thereof or principles of conflicts
of laws of any other jurisdiction that could cause the application
of the laws of any jurisdiction other than the State of Delaware.
For purposes of resolving any dispute that arises directly or
indirectly in connection with the Plan, each Participant, by virtue
of receiving an Award, shall be deemed to have submitted to and
consented to the exclusive jurisdiction of the State of Michigan
and to have agreed that any related litigation shall be conducted
solely in the courts of Washtenaw County, Michigan or the federal
courts for the United States for the Eastern District of Michigan,
where the Plan is made and/or to be performed, and no other
courts.
17.9.
Section 409A
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-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 Board shall have any liability to any
Grantee for such tax or penalty.
17.10.
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 applicable 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
accelerated vesting or termination, depending upon the
circumstances surrounding the Separation from Service.
17.11.
Transferability
of Awards and Issued Shares
17.11.1.
Transfers
in General
Except
as provided in
Section
17.11.2
, 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.
17.11.2.
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
17.11.2
, 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 50% 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
17.11.2
, 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
17.11.2
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
17.11.3
), (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 terms and conditions of the
Plan (including
Sections
17.4
and
17.5
and this
Section
17.11.3
). 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
17.11.3
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 applicable Award Agreement, 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 the Plan (including
Sections
17.4
and
17.5
and this
Section
17.11.3
) 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 terms
and conditions of the 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.
17.12.
Dividends
and Dividend Equivalent Rights
If
specified in the Award Agreement, the recipient of an Award 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 or other
securities of the Company at a price per unit equal to the Fair
Market Value on the date that such dividend was paid to
Stockholders.
17.13.
Data
Protection
A
Participant’s acceptance of an Award shall be deemed to
constitute the Participant’s acknowledgement of and consent
to the collection and processing of personal data relating to the
Participant so that the Company and the Affiliates can fulfill
their obligations and exercise their rights under the Plan and
generally administer and manage the Plan. This data shall include
data about participation in the Plan and Shares offered or
received, purchased or sold under the Plan and other appropriate
financial and other data (such as the date on which the Awards were
granted) about the Participant and the Participant’s
participation in the Plan.
17.14.
Plan
Construction
In the
Plan, unless otherwise stated, the following uses apply:
(i) references to a statute or law refer to the statute or law
and any amendments and any successor statutes or laws, and to all
valid and binding governmental regulations, court decisions and
other regulatory and judicial authority issued or rendered
thereunder, as amended, or their successors, as in effect at the
relevant time; (ii) in computing periods from a specified date
to a later specified date, the words “from” and
“commencing on” (and the like) mean “from and
including,” and the words “to,”
“until” and “ending on” (and the like) mean
“to and including”; (iii) indications of time of
day shall be based upon the time applicable to the location of the
principal headquarters of the Company; (iv) the words
“include,” “includes” and
“including” (and the like) mean “include, without
limitation,” “includes, without limitation” and
“including, without limitation” (and the like),
respectively; (v) all references to articles and sections are
to articles and sections in the Plan; (vi) all words used
shall be construed to be of such gender or number as the
circumstances and context require; (vii) the captions and
headings of articles and sections have been inserted solely for
convenience of reference and shall not be considered a part of the
Plan, nor shall any of them affect the meaning or interpretation of
the Plan or any of its provisions; (viii) any reference to an
agreement, plan, policy, form, document or set of documents, and
the rights and obligations of the parties under any such agreement,
plan, policy, form, document or set of documents, shall mean such
agreement, plan, policy, form, document or set of documents as
amended from time to time, and any and all modifications,
extensions, renewals, substitutions or replacements thereof; and
(ix) all accounting terms not specifically defined shall be
construed in accordance with GAAP.
Adopted
by the Board: _________________________, 2016
Approved
by the Stockholders: _________________________, 2016
Scheduled
Termination Date: _________________________, 2026
NOTICE
OF GRANT OF [INCENTIVE/NON-QUALIFIED] STOCK OPTION
ENDRA
LIFE SCIENCES INC.
2016
OMNIBUS INCENTIVE PLAN
FOR
GOOD AND VALUABLE CONSIDERATION, ENDRA Life Sciences Inc. (the
“
Company
”)
hereby grants, pursuant to the provisions of the ENDRA Life
Sciences Inc. 2016 Omnibus Incentive Plan (the “
Plan
”), to the Grantee designated
in this Notice of Grant of [Incentive/Non-qualified] Stock Option
(“
Notice of
Grant
”) [an Incentive/a Non-qualified] Stock Option to
purchase the number of Shares set forth in this Notice of Grant
(the “
Option
”),
subject to certain terms and conditions as outlined below in this
Notice of Grant and the additional terms and conditions set forth
in the attached Terms and Conditions of Stock Option (together with
this Notice of Grant, the “
Award Agreement
”).
Grantee:
|
[______]
|
Type of Option:
|
[Incentive/Non-qualified]
Stock Option
|
Grant Date:
|
[______]
|
Number of Shares Purchasable:
|
[______]
|
Option Price per Share:
|
$[_____], which is
the Fair Market Value as of the Grant Date
|
Expiration Date:
|
[______], which is
[__] years from the Grant Date
|
Exercisability Schedule:
|
[Notwithstanding
the foregoing Exercisability Schedule, exercisability of all or
some portion of the Option may be accelerated in accordance with
the terms and conditions of Section 2(c) of the attached Terms
and Conditions.]
|
Exercise after Separation from Service:
|
Separation from Service for any reason other
than death, Disability or Cause
: any non-exercisable portion
of the Option expires immediately and any exercisable portion of
the Option remains exercisable for [90 days] following Separation
from Service for any reason other than death, Disability or
Cause.
Separation from Service due to death or
Disability
: any non-exercisable portion of the Option
expires immediately and any exercisable portion of the Option
remains exercisable for [12 months] following Separation from
Service due to death or Disability.
Separation from Service for Cause
: the
entire Option, including any exercisable and non-exercisable
portion, expires immediately upon Separation from Service for
Cause.
IN NO EVENT MAY THE OPTION BE EXERCISED AFTER THE EXPIRATION DATE
AS PROVIDED ABOVE.
|
By
signing below, the Grantee agrees that the Option is granted under
and governed by the terms and conditions of the Plan and the Award
Agreement, as of the Grant Date.
GRANTEE
|
|
ENDRA
LIFE SCIENCES INC.
|
|
|
|
Sign Name:
_________________________________
|
|
Sign
Name:
_________________________________
|
|
|
|
Print
Name:
_________________________________
|
|
Print
Name:
_________________________________
|
|
|
|
|
|
Title:______
_________________________________
|
|
|
|
TERMS
AND CONDITIONS OF STOCK OPTION
1.
Grant
of Option
. The Option granted to the Grantee and described
in the Notice of Grant is subject to the terms and conditions of
the Plan. The terms and conditions of the Plan are hereby
incorporated herein by reference. Except as otherwise expressly set
forth herein, the Award Agreement shall be construed in accordance
with the terms and conditions of the Plan. Any capitalized term not
otherwise defined in the Award Agreement shall have the definition
set forth in the Plan.
The
Committee has approved the grant to the Grantee of the Option,
conditioned upon the Grantee’s acceptance of the terms and
conditions of the Award Agreement within 60 days after the Award
Agreement is presented to the Grantee for review.
[If
designated in the Notice of Grant as an Incentive Stock Option, the
Option is intended to qualify as an Incentive Stock Option. To the
extent that the Option fails to meet the requirements of an
Incentive Stock Option or is not designated as an Incentive Stock
Option, the Option shall be treated as a Non-qualified Stock
Option.]
2.
Exercise
of Option
.
(a)
Right
to Exercise
. The Option shall be exercisable, in whole or in
part, during its term in accordance with the Exercisability
Schedule set forth in the Notice of Grant and with the applicable
provisions of the Plan and the Award Agreement. No Shares shall be
issued pursuant to the exercise of the 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,
shall not be entitled to receive dividends or other distributions
with respect thereto and shall not have any other rights of a
Stockholder with respect thereto.
(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 Option Price as to all
Shares exercised. The Option shall be deemed to be exercised upon
receipt by the Company of such fully executed Exercise Notice
accompanied by the aggregate Option Price (as well as any
applicable withholding or other taxes).
(c)
Acceleration
of Exercisability under Certain Circumstances
. [The
exercisability of the Option shall not be accelerated under any
circumstances, except as otherwise provided in the Plan. / The
exercisability of the Option shall not be accelerated under any
circumstances, except as otherwise provided in the Plan;
provided
,
however
, that the Option shall become
fully exercisable immediately prior to, and contingent upon, a
Change in Control.]
3.
Method
of Payment
. If the Grantee elects to exercise the Option by
submitting an Exercise Notice in accordance with Section 2(b)
above, the aggregate Option Price (as well as any applicable
withholding or other taxes) shall be paid by cash or check;
provided, however
, that the
Committee may, but is not required to, consent 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 issued upon exercise by the largest whole number
of Shares with a Fair Market Value that does not exceed the
aggregate Option 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;
Terms
and Conditions - Page
1
(c) surrender
of other Shares owned by the Grantee that have a Fair Market Value
on the date of surrender equal to the aggregate Option Price of the
exercised Shares and any applicable withholding; or
(d) any
other consideration that the Committee deems appropriate and in
compliance with applicable law.
4.
Restrictions
on Exercise
. The Option may not be exercised until such time
as the Plan has been approved by the Stockholders, 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.
Transferability
.
(a) The
Option may not be transferred in any manner other 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[;
provided
,
however
, that the Grantee may transfer
the Option (a) pursuant to a domestic relations order by a court of
competent jurisdiction or (b) to any Family Member of the Grantee
in accordance with Section 17.11.2 of the Plan (entitled
“Family Transfers,” or any successor provision thereto)
by delivering to the Company a notice of assignment in a form
acceptable to the Company. No transfer or assignment of the Option
to or on behalf of a Family Member under this Section 5 shall
be effective until the Company has acknowledged such transfer or
assignment in writing].
(b) Without
limitation of Section 9 below, any Issued Shares in connection with
the Option shall be subject to the Company’s right of first
refusal under Section 17.4.1 of the Plan (entitled “Right of
First Refusal,” or any successor provision thereto), the
Company’s right of repurchase under Section 17.4.2 of the
Plan (entitled “Right of Repurchase,” or any successor
provision thereto), the market standoff requirement under Section
17.5 of the Plan (entitled “Market Standoff
Requirement,” or any successor provision thereto), and the
transfer restrictions under Section 17.11.3 of the Plan (entitled
“Issued Shares,” or any successor provision
thereto).
6.
Term
of Option
. The Option may be exercised only within the term
set forth in the Notice of Grant, and may be exercised during such
term only in accordance with the Plan and the terms of the Award
Agreement.
7.
Withholding
.
(a) The
Committee 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.
(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 (entitled “Withholding Taxes,” or any
successor provision thereto).
(c) [Subject
to any rules prescribed by the Committee, the Grantee shall have
the right to elect to meet any withholding requirement (i) by
having withheld from the Option at the appropriate time that number
of whole Shares whose Fair Market Value is equal to the amount of
any taxes required to be withheld with respect to the Option, (ii)
by direct payment to the Company in cash of the amount of any taxes
required to be withheld with respect to the Option or (iii) by a
combination of Shares and cash.]
(d) [If
the Grantee makes any disposition of Shares delivered pursuant to
the exercise of an Incentive Stock Option under the circumstances
described in Code Section 421(b) (relating to certain disqualifying
dispositions), the Grantee shall notify the Company of such
disposition within 10 days of such disposition.]
8.
Adjustment
.
Upon any event described in Section 15 of the Plan (entitled
“Effect of Changes in Capitalization,” or any successor
provision thereto) occurring after the Grant Date, the adjustment
provisions as provided for under Section 15 of the Plan (or
any successor provision thereto) shall apply to the
Option.
Terms
and Conditions - Page
2
9.
Bound
by Plan and Committee Decisions
. By accepting the Option,
the Grantee acknowledges that the Grantee has received a copy of
the Plan, has had an opportunity to review the Plan, and agrees to
be bound by all of the terms and conditions of the Plan. In the
event of any conflict between the provisions of the Award Agreement
and the Plan, the provisions of the Plan shall control. The
authority to manage and control the operation and administration of
the Award Agreement and the Plan shall be vested in the Committee,
and the Committee shall have all powers with respect to the Award
Agreement as it has with respect to the Plan. Any interpretation of
the Award Agreement or the Plan by the Committee and any decision
made by the Committee with respect to the Award Agreement or the
Plan shall be final and binding on all persons.
10.
Grantee
Representations
. The Grantee hereby represents to the
Company that the Grantee has read and fully understands the
provisions of the Award Agreement and the Plan and that 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 the Option.
11.
Regulatory
Limitations on Exercises
. Notwithstanding the other
provisions of the Award Agreement, the Committee may 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 the Option unless and until the Committee determines
that such issuance complies with (a) any applicable registration
requirements under the Securities Act or the Committee has
determined that an exemption therefrom is available, (b) any
applicable listing requirement of any stock exchange on which the
Common Stock is listed, (c) any applicable Company policy or
administrative rules, and (d) any other applicable provision of
state, federal, or foreign law, including foreign securities laws
where applicable.
12.
Miscellaneous
.
(a)
Notices
.
Any notice that 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
Award Agreement shall not operate or be construed as a waiver of
any other or subsequent breach.
(c)
Entire
Agreement
. The Award Agreement and the Plan constitute the
entire agreement between the parties with respect to the Option.
Any prior agreements, commitments, or negotiations concerning the
Option are superseded.
(d)
Binding
Effect; Successors
. The obligations and rights of the
Company under the Award Agreement shall be binding upon and inure
to the benefit of the Company and any successor corporation or
organization resulting from the merger, consolidation, sale, or
other reorganization of the Company, or upon any successor
corporation or organization succeeding to substantially all of the
assets and business of the Company. The obligations and rights of
the Grantee under the Award Agreement shall be binding upon and
inure to the benefit of the Grantee and the beneficiaries,
executors, administrators, heirs, and successors of the
Grantee.
(e)
Governing
Law; Consent to Jurisdiction; Consent to Venue
. The Award
Agreement shall be construed and interpreted in accordance with the
internal laws of the State of Delaware without regard to principles
of conflicts of law thereof, or principles of conflicts of laws of
any other jurisdiction that could cause the application of the laws
of any jurisdiction other than the State of Delaware. For purposes
of resolving any dispute that arises directly or indirectly from
the relationship of the parties evidenced by the Option or the
Award Agreement, the parties hereto hereby submit to and consent to
the exclusive jurisdiction of the State of Michigan and agree that
any related litigation shall be conducted solely in the courts of
Washtenaw County, Michigan or the federal courts for the United
States for the Eastern District of Michigan where the Award
Agreement is made and/or to be performed, and no other
courts.
Terms
and Conditions - Page
3
(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
the Award Agreement.
(g)
Amendment
.
The Award Agreement may be amended at any time by the Committee,
provided
that no amendment
may, without the consent of the Grantee, materially impair the
Grantee’s rights with respect to the Option.
(h)
Severability
.
The invalidity or unenforceability of any provision of the Award
Agreement shall not affect the validity or enforceability of any
other provision of the Award Agreement, and each other provision of
the Award Agreement shall be severable and enforceable to the
extent permitted by law.
(i)
No
Rights to Service
. Nothing contained in the Award Agreement
shall be construed as giving the Grantee any right to be retained,
in any position, as a director, officer, employee, or consultant of
the Company or its Affiliates, or shall interfere with or restrict
in any way the rights of the Company or its Affiliates, which are
hereby expressly reserved, to remove, terminate, or discharge the
Grantee at any time for any reason whatsoever or for no reason,
subject to the Company’s articles of incorporation, bylaws,
and other similar governing documents and applicable
law.
(j)
Section
409A
. It is intended that the Award Agreement and the Option
will be exempt from (or in the alternative will comply with) Code
Section 409A, and the Award Agreement shall be administered
accordingly and interpreted and construed on a basis consistent
with such intent. This Section 12(j) shall not be construed as
a guarantee of any particular tax effect for the Grantee’s
benefits under the Award Agreement and the Company does not
guarantee that any such benefits will satisfy the provisions of
Code Section 409A or any other provision of the Code.
(j)
Further
Assurances
. The Grantee agrees, upon demand of the Company
or the Committee, to do all acts and execute, deliver, and perform
all additional documents, instruments, and agreements that may be
reasonably required by the Company or the Committee, as the case
may be, to implement the provisions and purposes of the Award
Agreement and the Plan.
(k)
Confidentiality
.
The Grantee agrees that the terms and conditions of the Option
award reflected in the Award Agreement are strictly confidential
and, with the exception of the 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
shall 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.
Terms
and Conditions - Page
4
NOTICE
OF GRANT OF RESTRICTED STOCK UNITS
ENDRA
LIFE SCIENCES INC.
2016
OMNIBUS INCENTIVE PLAN
FOR
GOOD AND VALUABLE CONSIDERATION, ENDRA Life Sciences Inc. (the
“
Company
”)
hereby grants, pursuant to the provisions of the ENDRA Life
Sciences Inc. 2016 Omnibus Incentive Plan (the “
Plan
”), to the Grantee designated
in this Notice of Grant of Restricted Stock Units
(“
Notice of
Grant
”), the number of restricted stock units
(“
RSUs
”) set
forth in this Notice of Grant (the “
Award
”), subject to certain terms
and conditions as outlined below in this Notice of Grant and the
additional terms and conditions set forth in the attached Terms and
Conditions of Restricted Stock Units (the “
Terms and Conditions
,” and
together with this Notice of Grant, the “
Award Agreement
”).
Grantee:
|
[______]
|
Grant Date:
|
[______]
|
Number of RSUs Granted:
|
[______]
|
Definition of RSU:
|
Each
RSU shall entitle the Grantee to receive one Share at such future
date or dates and subject to such terms and conditions as set forth
in the Award Agreement.
|
Vesting Schedule:
|
Subject
to the provisions of the Terms and Conditions, the Award shall vest
in accordance with the following schedule, in the event the Grantee
does not have a Separation from Service prior to the applicable
vesting date:
|
Acceleration of Vesting on Separation from Service:
|
|
Acceleration of Vesting on Change in Control:
|
|
GRANTEE
|
|
ENDRA
LIFE SCIENCES INC.
|
|
|
|
Sign Name:
_________________________________
|
|
Sign
Name:
_________________________________
|
|
|
|
Print
Name:
_________________________________
|
|
Print
Name:
_________________________________
|
|
|
|
|
|
Title:______
_________________________________
|
|
|
|
Notice
of Grant of Restricted Stock Units - Page
1
TERMS
AND CONDITIONS OF RESTRICTED STOCK UNITS
(a) The
Award granted to the Grantee and described in the Notice of Grant
is subject to the terms and conditions of the Plan. The terms and
conditions of the Plan are hereby incorporated herein by reference.
Except as otherwise expressly set forth herein, the Award Agreement
shall be construed in accordance with the terms and conditions of
the Plan. Any capitalized term not otherwise defined in the Award
Agreement shall have the definition set forth in the
Plan.
(b) The
Committee has approved the grant to the Grantee of the Award,
conditioned upon the Grantee’s acceptance of the terms and
conditions of the Award Agreement within 60 days after the Award
Agreement is presented to the Grantee for review.
(c) As
of the Grant Date, the Company grants to the Grantee the number of
RSUs set forth in the Notice of Grant, subject to the terms and
conditions of the Plan and the Award Agreement. Each RSU shall
entitle the Grantee to receive one Share, at such future date or
dates and subject to such terms and conditions as set forth in the
Award Agreement.
(a) The
Grantee shall have no rights or privileges of a Company stockholder
as to the RSUs prior to settlement in accordance with Section 5 of
these Terms and Conditions (“
Settlement
”), including no right
to vote or receive dividends or other distributions with respect to
the RSUs; in addition, the following provisions shall
apply:
(i) the
Grantee shall not be entitled to delivery of a certificate or
certificates for Shares in connection with the RSUs until
Settlement (if at all), and upon the satisfaction of all other
applicable conditions;
(ii) none
of the RSUs may be sold, transferred (other than by will or the
laws of descent and distribution), assigned, pledged or otherwise
encumbered or disposed of prior to Settlement; and
(iii) all
of the RSUs shall be forfeited and all rights of the Grantee with
respect to the RSUs shall terminate in their entirety on the terms
and conditions set forth in Section 4 below.
(b) Any
attempt to dispose of RSUs or any interest in the RSUs in a manner
contrary to the restrictions set forth in the Award Agreement shall
be void and of no effect.
3.
Restricted Period and Vesting
.
The “
Restricted
Period
” is the period beginning on the Grant Date and
ending on the date the RSUs, or such applicable portion of the
RSUs, are deemed vested under the schedule set forth in the Notice
of Grant.
4.
Forfeiture
. If, during the
Restricted Period, (i) the Grantee incurs a Separation from
Service, (ii) there occurs a material breach of the Award
Agreement by the Grantee or (iii) the Grantee fails to meet the tax
withholding obligations described in Section 6 below, all rights of
the Grantee to the RSUs that have not vested in accordance with
Section 3 above shall terminate immediately and be forfeited in
their entirety.
5.
Settlement of RSUs
. Delivery of
Shares or other amounts under the Award Agreement shall be subject
to the following:
(a) The
Company shall deliver to the Grantee one Share for each RSU that
has vested and not otherwise been forfeited within 30 days
following the end of the applicable Restricted Period;
Terms
and Conditions of Restricted Stock Units - Page
1
(b) Any
issuance of Shares pursuant to the Award Agreement may be effected
on a non-certificated basis, to the extent not prohibited by
applicable law or the applicable rules of any securities exchange
or similar entity; and
(c) In
the event that a certificate for Shares is delivered to the Grantee
in connection with the Award, such certificate shall bear the
following legend (or such other legend as determined appropriate by
the Company in its sole discretion):
The
ownership and transferability of this certificate and the shares of
stock represented hereby are subject to the terms and conditions
(including forfeiture) of the ENDRA Life Sciences Inc. 2016 Omnibus
Incentive Plan and a restricted stock unit award agreement entered
into between the registered owner and ENDRA Life Sciences Inc.
Copies of such plan and agreement are on file in the executive
offices of ENDRA Life Sciences Inc.
In
addition, the stock certificate or certificates for any Shares
shall be subject to such stop-transfer orders and other
restrictions as the Company may deem advisable under the rules,
regulations and other requirements of the SEC, any stock exchange
upon which the Common Stock is then listed, and any applicable
federal or state securities law, and the Company may cause a legend
or legends to be placed on such certificate or certificates to make
appropriate reference to such restrictions.
(a) The
Committee 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
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 (entitled “Withholding Taxes,” or any
successor provision thereto).
(c) [Subject
to any rules prescribed by the Committee, the Grantee shall have
the right to elect to meet any withholding requirement (i) by
having withheld from the Award at the appropriate time that number
of whole Shares whose Fair Market Value is equal to the amount of
any taxes required to be withheld with respect to the Award, (ii)
by direct payment to the Company in cash of the amount of any taxes
required to be withheld with respect to the Award or (iii) by a
combination of Shares and cash.]
7.
Issued Shares
. Without
limitation of Section 9 below, any Issued Shares in connection with
the Award shall be subject to the Company’s right of first
refusal under Section 17.4.1 of the Plan (entitled “Right of
First Refusal,” or any successor provision thereto), the
Company’s right of repurchase under Section 17.4.2 of the
Plan (entitled “Right of Repurchase,” or any successor
provision thereto), the market standoff requirement under Section
17.5 of the Plan (entitled “Market Standoff
Requirement,” or any successor provision thereto), and the
transfer restrictions under Section 17.11.3 of the Plan (entitled
“Issued Shares,” or any successor provision
thereto).
8.
Adjustment
. Upon any event
described in Section 15 of the Plan (entitled “Effect of
Changes in Capitalization,” or any successor provision
thereto) occurring after the Grant Date, the adjustment provisions
as provided for under Section 15 of the Plan (or any successor
provision thereto) shall apply to the Award.
9.
Bound by Plan and Committee
Decisions
. By accepting the Award, the Grantee acknowledges
that the Grantee has received a copy of the Plan, has had an
opportunity to review the Plan, and agrees to be bound by all of
the terms and conditions of the Plan. In the event of any conflict
between the provisions of the Award Agreement and the Plan, the
provisions of the Plan shall control. The authority to manage and
control the operation and administration of the Award Agreement and
the Plan shall be vested in the Committee, and the Committee shall
have all powers with respect to the Award Agreement as it has with
respect to the Plan. Any interpretation of the Award Agreement or
the Plan by the Committee and any decision made by the Committee
with respect to the Award Agreement or the Plan shall be final and
binding on all persons.
Terms
and Conditions of Restricted Stock Units - Page
2
10.
Grantee Representations
. The
Grantee hereby represents to the Company that the Grantee has read
and fully understands the provisions of the Award Agreement and the
Plan and that 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 the Award.
11.
Regulatory Restrictions on the
RSUs
. Notwithstanding the other provisions of the Award
Agreement, the Committee may impose such conditions, restrictions
and limitations on the issuance of Common Stock with respect to the
Award unless and until the Committee determines that such issuance
complies with (a) any applicable registration requirements under
the Securities Act or the Committee has determined that an
exemption therefrom is available, (b) any applicable listing
requirement of any stock exchange on which the Common Stock is
listed, (c) any applicable Company policy or administrative rules
and (d) any other applicable provision of state, federal or foreign
law, including foreign securities laws where
applicable.
(a)
Notices
.
Any notice that 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
Award Agreement shall not operate or be construed as a waiver of
any other or subsequent breach.
(c)
Entire
Agreement
. The Award Agreement and the Plan constitute the
entire agreement between the parties with respect to the Award. Any
prior agreements, commitments or negotiations concerning the Award
are superseded.
(d)
Binding
Effect; Successors
. The obligations and rights of the
Company under the Award Agreement shall be binding upon and inure
to the benefit of the Company and any successor corporation or
organization resulting from the merger, consolidation, sale, or
other reorganization of the Company, or upon any successor
corporation or organization succeeding to substantially all of the
assets and business of the Company. The obligations and rights of
the Grantee under the Award Agreement shall be binding upon and
inure to the benefit of the Grantee and the beneficiaries,
executors, administrators, heirs and successors of the
Grantee.
(e)
Governing
Law; Consent to Jurisdiction; Consent to Venue
. The Award
Agreement shall be construed and interpreted in accordance with the
internal laws of the State of Delaware without regard to principles
of conflicts of law thereof, or principles of conflicts of laws of
any other jurisdiction that could cause the application of the laws
of any jurisdiction other than the State of Delaware. For purposes
of resolving any dispute that arises directly or indirectly from
the relationship of the parties evidenced by the Award or the Award
Agreement, the parties hereto hereby submit to and consent to the
exclusive jurisdiction of the State of Michigan and agree that any
related litigation shall be conducted solely in the courts of
Washtenaw County, Michigan or the federal courts for the United
States for the Eastern District of Michigan where the Award
Agreement is made and/or to be performed, and no other
courts.
(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
the Award Agreement.
Terms
and Conditions of Restricted Stock Units - Page
3
(g)
Amendment
.
The Award Agreement may be amended at any time by the Committee,
provided
that no amendment
may, without the consent of the Grantee, materially impair the
Grantee’s rights with respect to the Award.
(h)
Severability
.
The invalidity or unenforceability of any provision of the Award
Agreement shall not affect the validity or enforceability of any
other provision of the Award Agreement, and each other provision of
the Award Agreement shall be severable and enforceable to the
extent permitted by law.
(i)
No
Rights to Service
. Nothing contained in the Award Agreement
shall be construed as giving the Grantee any right to be retained,
in any position, as a director, officer, employee or consultant of
the Company or its Affiliates, or shall interfere with or restrict
in any way the rights of the Company or its Affiliates, which are
hereby expressly reserved, to remove, terminate or discharge the
Grantee at any time for any reason whatsoever or for no reason,
subject to the Company’s articles of incorporation, bylaws
and other similar governing documents and applicable
law.
(j)
Section
409A
. It is intended that the Award Agreement and the Award
will be exempt from (or in the alternative will comply with) Code
Section 409A, and the Award Agreement shall be administered
accordingly and interpreted and construed on a basis consistent
with such intent. This Section 12(j) shall not be construed as a
guarantee of any particular tax effect for the Grantee’s
benefits under the Award Agreement and the Company does not
guarantee that any such benefits will satisfy the provisions of
Code Section 409A or any other provision of the Code.
(k)
Further
Assurances
. The Grantee agrees, upon demand of the Company
or the Committee, to do all acts and execute, deliver and perform
all additional documents, instruments and agreements that may be
reasonably required by the Company or the Committee, as the case
may be, to implement the provisions and purposes of the Award
Agreement and the Plan.
(l)
Confidentiality
.
The Grantee agrees that the terms and conditions of the Award
reflected in the Award Agreement are strictly confidential and,
with the exception of the 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 shall 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.
Terms
and Conditions of Restricted Stock Units - Page
4
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 Amendment
No. 1.
/s/
RBSM LLP
Henderson,
NV
December 6,
2016