Aditxt, Inc S-1/A, filed May 14, 2020
Aditxt, Inc. (ADTX)
As filed with the Securities and Exchange Commission on May 14, 2020.
Registration Statement No. 333-235933
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 4 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Aditx Therapeutics,
Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 2834 | 82-3204328 | ||
| (State or other jurisdiction of | (Primary Standard Industrial | (I.R.S. Employer | ||
| incorporation or organization) | Classification Code Number) | Identification Number) |
Aditx Therapeutics, Inc.
11161 Anderson Street
Suite 105-10014
Loma Linda, CA 92354
(909) 488-0844
(Address and telephone number of registrant’s principal executive offices)
Amro Albanna
Aditx Therapeutics, Inc.
Chief Executive Officer
11161 Anderson Street
Suite 105-10014
Loma Linda, CA 92354
(909) 488-0844
(Name, address, including zip code, and telephone number, including area code, of agent for service)
| Copies to: | ||
|
Richard A. Friedman Alexander T. Yarbrough Facsimile: (212) 653-8701 |
Ralph V. De Martino Cavas S. Pavri Schiff Hardin LLP 901 K Street NW, Suite 700 Washington, DC 20001 Telephone: (202) 778-6400 Facsimile: (202) 778-6460 | |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: ☐
If this Form is filed to register additional securities for a registration statement 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 registration statement. ☐
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 registration statement. ☐
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 registration statement. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Non-accelerated filer ☒ | Smaller reporting company ☒ |
| Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
Title of each Class of Securities to be Registered | Maximum
Aggregate Offering Price(1) (2) | Amount of Registration | ||||||
| Common stock, par value $0.001 per share | $ | 12,017,500 | $ | 1,560 | ||||
| Warrants to purchase common stock, par value $0.001 per share (3) | ||||||||
| Shares of common stock issuable upon exercise of the Warrants | $ | 12,017,500 | $ | 1,560 | ||||
| Underwriter’s unit purchase option (4) | ||||||||
| Common Stock underlying underwriter’s unit purchase option (4) | $ | 721,050 | 94 | |||||
| Warrants underlying Underwriter’s unit purchase option (3) | ||||||||
| Common Stock underlying warrants included in Underwriter’s unit purchase option (4) | $ | 721,050 | $ | 94 | ||||
| Total | $ | 25,477,100 | $ | 3,308 | * | |||
| (1) | Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. |
| (2) | Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional securities as may be issuable to prevent dilution resulting from stock splits, stock dividends or similar transactions. |
| (3) | No fee is required pursuant to Rule 457(i) under the Securities Act. |
| (4) | We have agreed to issue upon the closing of this offering, a unit purchase option to the representatives of the underwriters entitling it to purchase up to 6% of the aggregate shares of common stock units sold in this offering. The exercise price of the unit purchase option is equal to 125% of the public offering price of the common stock units offered hereby. The unit purchase option is exercisable commencing six (6) months after the date of effectiveness of this Registration Statement and will terminate five (5) years after the date of effectiveness of this Registration Statement. |
| * | Previously paid. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant will file a further amendment which specifically states that this registration statement will thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement will become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary 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 nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 14, 2020
PRELIMINARY PROSPECTUS
1,900,000 Units
Common Stock and Warrants
ADITX THERAPEUTICS, INC.
This is an initial public offering of units of securities (the “Units”) of Aditx Therapeutics, Inc. Prior to this offering, there has been no public market for shares of our common stock. The public offering price per Unit is $5.50.
Each Unit consists of (a) one share of our common stock, and (b) one warrant to purchase one share of our common stock at an exercise price equal to $6.875 from the date that is six-months from the date of issuance until the fifth anniversary of the issuance date. The shares of our common stock and warrants are immediately separable and will be issued separately, but will be purchased together in this offering.
Prior to this offering, there has been no public market for our common stock. We have applied to list our common stock on The Nasdaq Capital Market under the symbol “ADTX” upon our satisfaction of the exchange’s initial listing criteria. If our common stock is not approved for listing on The Nasdaq Capital Market, we will not consummate this offering. No assurance can be given that our application will be approved. We do not intend to apply for any listing of the warrants on The Nasdaq Capital Market or any other securities exchange or nationally recognized trading system, and we do not expect a market to develop for the warrants.
We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and, as such, have elected to comply with certain reduced public company reporting requirements.
Investing in our securities involves risks. See “Risk Factors” beginning on page 8.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
| Per Unit(2) | Total | |||||||
| Public offering price | $ | $ | ||||||
| Underwriting discounts and commissions(1) | ||||||||
| Proceeds to Aditx Therapeutics, Inc. before expenses | ||||||||
| (1) | The underwriters will receive compensation in addition to the underwriting discounts and commissions. We refer you to “Underwriting” beginning on page 66 of this prospectus for additional information regarding underwriting compensation. |
| (2) | The public offering corresponds to an assumed public offering price per share of common stock of $ and an assumed public offering price per warrant of $0.01. |
We have granted the underwriter an option, exercisable one or more times in whole or in part, to purchase up to 285,000 additional shares of common stock and/or warrants to purchase up to an aggregate of 285,000 shares of common stock, in any combinations thereof, from us at the public offering price per security, less the underwriting discounts and commissions, for 45 days after the date of this prospectus to cover over-allotments, if any.
The underwriters are offering the Units as set forth under “Underwriting.” Delivery of the securities underlying the Units will be made on or about , 2020.
Sole Book-Running Manager
DAWSON JAMES SECURITIES, INC.
Co-Manager
Network 1 Financial Securities, Inc.
Prospectus dated , 2020
TABLE OF CONTENTS
We have not, and the underwriters have not, authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for and can provide no assurance as to the reliability of, any other information that others may give to you. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock.
You should rely only on the information contained in this prospectus. No dealer, salesperson or other person is authorized to give information that is not contained in this prospectus. This prospectus is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of these securities.
Through and including, , 2020 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
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The following summary highlights selected information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and financial statements included elsewhere in this prospectus. It does not contain all the information that may be important to you and your investment decision. You should carefully read this entire prospectus, including the matters set forth under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and related notes included elsewhere in this prospectus. In this prospectus, unless context requires otherwise, references to “we,” “us,” “our,” “ADTX,” “Aditx Therapeutics,” or “the Company” refer to Aditx Therapeutics, Inc.
Overview
We were incorporated in the State of Delaware on September 28, 2017 and our headquarters are located in Loma Linda, CA. We are a life sciences company with a mission of prolonging life and enhancing its quality by improving the health of the immune system.
Our Business
We are developing technologies specifically focused on improving the health of the immune system through immune reprogramming and monitoring. Our immune reprogramming technology is designed to retrain the immune system to induce tolerance with an objective of addressing rejection of transplanted organs, autoimmune diseases, and allergies. Our immune monitoring technology is designed to provide a personalized comprehensive profile of the immune system and we plan to utilize it in our upcoming clinical trials to monitor subjects’ immune response before, during and after drug administration. We are also evaluating plans to obtain FDA approval for this monitoring tool’s use as a clinical assay.
Immune Reprogramming
The discovery of immunosuppressive (anti-rejection and monoclonal) drugs over 40 years ago has made possible life-saving organ transplantation procedures and blocking of unwanted immune responses in autoimmune diseases. However, immune suppression leads to significant undesirable side effects, such as increased susceptibility to life-threatening infections and cancers, because it indiscriminately and broadly suppresses immune function throughout the body. While the use of these drugs has been justifiable because they prevent or delay organ rejection, their use for treatment of autoimmune diseases and allergies may not be acceptable because of the above-mentioned side effects. Furthermore, transplanted organs often ultimately fail despite the use of immune suppression, and about 40% of transplanted organs survive no more than 5 years.
New, focused therapeutic approaches are needed to modulate only the small portion of immune cells that are involved in rejection of the transplanted organ, as this approach can be safer for patients than indiscriminate immune suppression. Such approaches are referred to as immune tolerance, and when therapeutically induced, may be safer for patients and also potentially allow long-term survival of transplanted tissues and organs.
In the late 1990s, academic research on these approaches was conducted at the Transplant Center in Loma Linda University (“LLU”) in connection with a project that secured initial grant funding from the U.S. Department of Defense. The focus of that project was for skin grafting for burn victims. Twenty years of research at LLU and an affiliated incubator led to a series of discoveries that have been translated into a large patent portfolio of therapeutic approaches that may be applied to the modulation of the immune system in order to induce tolerance to self and transplanted organs.
We have an exclusive worldwide license for commercializing this nucleic acid-based technology, named Apoptotic DNA Immunotherapy™ (ADi™), which utilizes a novel approach that mimics the way the body naturally induces tolerance to our own tissues (“therapeutically induced immune tolerance”). While immune suppression requires continuous administration to prevent rejection of a transplanted organ, induction of tolerance has the potential to retrain the immune system to accept the organ for longer periods of time. Thus, ADi™ may allow patients to live with transplanted organs with significantly reduced immune suppression. ADi™ is a technology platform which we believe can be engineered to address a wide variety of indications.
We are developing ADi™ products for organ transplantation including skin grafting, autoimmune diseases, and allergies. Our initial focus will be on skin allografts and psoriasis, as we believe these indications will be most efficient in providing safety and efficacy data in clinical trials. To submit a Biologics License Application (“BLA”) for a biopharmaceutical product, clinical safety and efficacy must be demonstrated in a series of clinical studies conducted with human subjects. For products in our class of drugs, the first-in-human trials will be a combination of Phase I (safety/tolerability) and Phase II (efficacy) in affected subjects. To obtain approval to initiate the Phase I/IIa studies, an Investigational New Drug Application will be submitted to compile non-clinical efficacy data as well as manufacturing and pre-clinical safety/toxicology data. To date, we have conducted non-clinical studies in a stringent model of skin transplantation using genetically mismatched donor and recipient animals demonstrating a 3-fold increase in the survival of the skin graft in animals that were tolerized with ADi™ compared to animals that receive immune suppression alone. Prolongation of graft life was observed despite discontinuation of immune suppression after the first 5 weeks. Additionally, in an induced non-clinical model for psoriasis, ADi™ treatment resulted in a 69% reduction in skin thickness and a 38% decrease in skin flaking (two clinical parameters for assessment of psoriasis skin lesions). The Phase I/IIa studies in psoriasis will evaluate the safety/tolerability of ADi™ in patients diagnosed with psoriasis. Since the drug will be administered in subjects diagnosed with psoriasis, effectiveness of the drug to improve psoriatic lesions will also be evaluated. In another Phase I/IIa study, patients requiring skin allografts will receive weekly intra-dermal injections of ADi™ in combination with standard immune suppression to assess safety/tolerability and possibility of reducing levels of immunosuppressive drugs as well as prolongation of graft life. Later phase trials are planned after successful completion of these studies in preparation for submission for a BLA to regulatory agencies.
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Immune Monitoring
Understanding the status of an individual’s immune system is key to developing and administering immunotherapies such as ADi™. We have secured an exclusive worldwide license for commercializing a technology platform named Aditxt Immune Monitor™ (AiM™), which provides a personalized comprehensive profile of the immune system. It is intended to be informative for individual immune responses to viruses, bacterial antigens, peptides, drugs, bone marrow and solid organ transplants, and cancer. It has broad applicability to many other agents of clinical interest impacting the immune system, including those not yet identified such as future infectious agents.
AiM™ is being designed to allow individuals to understand, manage and monitor their immune profiles in order to be informed about attacks on or by their immune system. We believe AiM™ can also assist the medical community in anticipating possible immune responses and reactions to viruses, bacteria, allergens and transplanted organs. It can be useful in anticipating attacks on the body by having the ability to determine its potential response and for developing a plan to deal with an undesirable reaction by the immune system. Its advantages include the ability to provide a simple, rapid, accurate, high throughput, single platform assay that can be multiplexed to determine the immune status with respect to several factors simultaneously, in 3-16 hours, as well as detect antigen and antibody in a single test (i.e. infectious, recovered, immune). In addition, it can determine and differentiate between various types of cellular and humoral immune responses (T and B cells). It also provides for simultaneous monitoring of cell activation and levels of cytokine release (i.e., cytokine storms).
We plan to utilize AiM™ in our upcoming clinical trials to monitor subjects’ immune response before, during and after ADi™ drug administration. We are also evaluating plans to obtain FDA approval for AiM™’s use as a clinical assay and seeking to secure manufacturing, marketing and distribution partnerships for application in the Infectious Diseases market, by end of 2020. Beyond 2020, we plan to develop AiM™ for applications in additional markets such as Organ Rejection, Allergies, Drug/Vaccine Response, and Disease Susceptibility.
License Agreement with Loma Linda University
On March 8, 2018, we entered into an Assignment Agreement (the “Assignment Agreement”) with Sekris Biomedical, Inc. (“Sekris”). Sekris was party to a License Agreement with Loma Linda University (“LLU”), entered into and made effective on May 25, 2011, and amended on June 24, 2011, July 16, 2012 and December 27, 2012 (the “Original Agreement,” and together with the Assignment Agreement, the “Sekris Agreements”). Pursuant to the Assignment Agreement, Sekris transferred and assigned all of its rights and obligations in and to and liabilities under the Original Agreement, of whatever kind or nature, to us. In exchange, on March 8, 2018, we issued a warrant to Sekris to purchase up to 1,000,000 shares of our common stock (the “Sekris Warrant”). The warrant was immediately exercisable and has an exercise price of $2.00 per share. The expiration date of the warrant is March 8, 2023. On March 15, 2018, we entered into a Patent & Technology License Agreement directly with LLU (the “LLU License Agreement”), which amends and restates the Sekris Agreements.
Pursuant to the LLU License Agreement, we obtained the exclusive royalty-bearing worldwide license in and to all intellectual property, including patents, technical information, trade secrets, proprietary rights, technology, know-how, data, formulas, drawings, and specifications, owned or controlled by LLU and/or any of its affiliates (the “LLU Patent and Technology Rights”) and related to therapy for immune-mediated inflammatory diseases (the ADi™ technology). See the section titled “Our Business—Intellectual Property—Patent Rights” for a summary of the patents and patent applications that we licensed from LLU pursuant to the LLU License Agreement. In consideration for the LLU License Agreement, we issued LLU 50,000 shares of our common stock.
Pursuant to the LLU License Agreement, we are required to pay an annual license fee to LLU. Additionally, upon completion of this offering, we will be required to pay $200,000 to LLU as a milestone payment that was originally due within thirty (30) days of July 31, 2018 upon the completion of a “financing” round. Thereafter, we are required to pay to LLU milestone payments in connection with certain development milestones. As consideration for prior expenses incurred by LLU to prosecute, maintain and defend the LLU Patent and Technology Rights, we are currently obligated to pay LLU approximately $130,000. We are also required to defend the LLU Patent and Technology Rights during the term of the LLU License Agreement. Additionally, we will owe royalty payments of (i) 1.5% of Net Product Sales and Net Service Sales on any Licensed Products (defined as any finished pharmaceutical products which utilizes the LLU Patent and Technology Rights in its development, manufacture or supply), and (ii) 0.75% of Net Product Sales and Net Service Sales for Licensed Products and Licensed Services not covered by a valid patent claim for technology rights and know-how for a three (3) year period beyond the expiration of all valid patent claims. We also are required to produce a written progress report to LLU, discussing our development and commercialization efforts, within 45 days following the end of each year. All intellectual property rights in and to LLU Patent and Technology Rights shall remain with LLU (other than improvements developed by or on our behalf).
The LLU License Agreement will terminate on the last day that a patent granted to us by LLU is valid and enforceable or the day that the last patent application licensed to us is abandoned. The LLU License Agreement may be terminated by mutual agreement or by us upon 90 days written notice to LLU. LLU may terminate the LLU License Agreement in the event of (i) non-payments or late payments of royalty, milestone and license maintenance fees not cured within 90 days after delivery of written notice by LLU, (ii) a breach of any non-payment provision (including the provision that requires us to meet certain deadlines for milestone events (each, a “Milestone Deadline”)) not cured within 90 days after delivery of written notice by LLU and (iii) LLU delivers notice to us of three or more actual breaches of the LLU License Agreement by us in any 12-month period. Additional Milestone Deadlines include: (i) the requirement to have regulatory approval of an IND application to initiate a first-in-human clinical trials on or before March 31, 2020, (ii) the completion of first-in-human (phase I/II) clinical trials by March 31, 2022, (iii) the completion of Phase III clinical trials by March 31, 2024 and (iv) biologic licensing approval by the Food and Drug Administration (“FDA”) by March 31, 2025.
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License Agreement with Leland Stanford Junior University (“Stanford”)
On February 3, 2020, we entered into an exclusive license agreement (the “February 2020 License Agreement”) with Stanford with regard to a patent concerning a method for detection and measurement of specific cellular responses. Pursuant to the February 2020 License Agreement, we received an exclusive worldwide license to Stanford’s patent with regard to use, import, offer, and sale of Licensed Products (as defined int the agreement). The license to the patent is exclusive, including the right to sublicense, beginning on the effective date of the agreement and ending when the patent expires. Under the exclusivity agreement, Aditxt acknowledged that Stanford had already granted a non-exclusive license in the Nonexclusive Field of Use, under the Licensed Patents in the Licensed Field of Use in the Licensed Territory. However, Stanford agreed to not grant further licenses under the Licensed Patents in the Licensed Field of Use in the Licensed Territory.
We were obligated to pay a fee of $25,000 to Stanford within 60 days of February 3, 2020. We also issued 37,500 shares of the Company’s common stock to Stanford. An annual licensing maintenance fee is payable by us on the anniversary of the February 2020 License Agreement in the amount of $40,000 for 2021 through 2024 and $60,000 in starting in 2025 until the license expires upon the expiration of the patent. The Company will pay milestone fees of $50,000 on the first commercial sales of a licensed product and $25,000 at the beginning of any clinical study for regulatory clearance of an in vitro diagnostic product developed and a potential licensed product.
In addition to the annual license maintenance fees outlined above, we will pay Stanford royalties on Net Sales (as such term is defined in the February 2020 License Agreement) during the of the term of the agreement as follows: 4% when Net Sales are below or equal to $5 million annually or 6% when Net Sales are above $5 million annually. The February 2020 License Agreement may be terminated upon our election on at least 30 days advance notice to Stanford, or by Stanford if we: (i) are delinquent on any report or payment; (ii) are not diligently developing and commercializing Licensed Product; (iii) miss certain performance milestones; (iv) are in breach of any provision of the February 2020 License Agreement; or (v) provide any false report to Stanford. Should any events in the preceding sentence occur, we have a thirty (30) day cure period to remedy such violation.
Our Team
We have assembled a team of experts coming from a variety of different scientific fields and commercial backgrounds, with a collective experience that range from founding startup biotech companies, to developing and marketing biopharmaceutical products, to designing clinical trials, and management of private and public companies.
Risks Related to Our Business
Our business and our ability to execute our business strategy are subject to a number of risks as more fully described in the section titled “Risk Factors” beginning on page 8. These risks include, among others:
| ● | The success of our product candidates will require significant capital resources and years of clinical development efforts. We have incurred losses and expect to continue to operate at a net loss for at least the next several years and our auditors have indicated that our financial conditions raise substantial doubt about our ability to continue as a going concern; | |
| ● | Our short-to-medium term prospects depend largely on our ability to develop and commercialize one technology, the ADi™ technology, and our ability to generate revenues in the future will depend heavily on the successful development and commercialization of the ADi™ technology; |
| ● | Our ability to comply with the provisions of our license agreement with Loma Linda University, including regulatory approval deadlines therein; |
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| ● | The results of clinical testing and trial activities of our products; |
| ● | Our ability to obtain regulatory approval and market acceptance of, and reimbursement for our products; |
| ● | Our ability to protect our intellectual property and to develop, maintain and enhance a strong brand; |
| ● | Our ability to compete and succeed in a highly competitive and evolving industry; |
| ● | Our lack of operating history on which to judge our business prospects and management; |
| ● | Our ability to raise capital and the availability of future financing; |
| ● | Our ability to manage our research, development, expansion, growth and operating expenses; and |
| ● | Our reliance on third parties to conduct our research, preclinical studies and expected clinical trials. |
Our financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our future viability is largely dependent upon our ability to raise additional capital to finance our operations. Our management expects that future sources of funding may include sales of equity, obtaining loans, or other strategic transactions. Although our management continues to pursue these plans, there is no assurance that we will be successful with this offering or in obtaining sufficient financing on terms acceptable to us to continue to finance our operations, if at all. These circumstances raise substantial doubt on our ability to continue as a going concern, and our financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Corporate Information
We were incorporated as a Delaware corporation on September 28, 2017. Our principal executive offices are located at 11161 Anderson Street, Suite 105-10014, Loma Linda, CA 92354, and our telephone number is (909) 488-0844. Our website address is www.aditxt.com. The information contained on our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common shares.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenues during our last fiscal year, we qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, enacted in 2012. As an emerging growth company, we expect to take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
| ● | being permitted to present only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this prospectus; |
| ● | not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended; |
| ● | reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and |
| ● | exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. |
We may use these provisions until the last day of our fiscal year following the fifth anniversary of the completion of this offering. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.07 billion or we issue more than $1.07 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.
As an emerging growth company, we intend to take advantage of an extended transition period for complying with new or revised accounting standards as permitted by The JOBS Act.
To the extent that we continue to qualify as a “smaller reporting company,” as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company, including: (i) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley Act; (ii) scaled executive compensation disclosures; and (iii) the requirement to provide only two years of audited financial statements, instead of three years.
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THE OFFERING
| Securities stock offered by us | Each Unit consists of (a) one share of our common stock, par value $0.001 per share, and (b) one warrant to purchase one share of our common stock, at an exercise price equal to $6.875, from the date that is six-months from the date of issuance until the fifth anniversary of the date of issuance. | |
| Common stock outstanding prior to this offering (1) | 7,844,695 shares | |
| Common stock to be outstanding immediately after this offering (1)(2)(3) | 9,744,695 shares | |
| Underwriter’s over-allotment option | We have granted the underwriter an option, exercisable one or more times in whole or in part, to purchase up to 285,000 additional shares of common stock and/or warrants to purchase up to an aggregate of 285,000 shares of common stock, in any combinations thereof, from us at the public offering price per security, less the underwriting discounts and commissions, for 45 days after the date of this prospectus to cover over-allotments, if any. See “Underwriting” for additional information regarding the over-allotment option.
Because the warrants will not be listed on a national securities exchange or other nationally recognized trading market, the underwriters will be unable to satisfy any overallotment of shares and warrants without exercising the underwriters’ overallotment option with respect to the warrants. As a result, the underwriters will exercise their overallotment option for all of the warrants which are over-allotted, if any, at the time of the initial offering of the shares and the warrants. However, because our common stock is publicly traded, the underwriters may satisfy some or all of the overallotment of shares of our common stock, if any, by purchasing shares in the open market and will have no obligation to exercise the overallotment option with respect to our common stock. | |
| Use of proceeds (4) | We will use these net proceeds for clinical studies, for product development expenses, for the repayment of debt, to pay a licensing fees to Loma Linda University and Stanford, and for offering expenses, working capital and general corporate purposes, and such other purposes described in the “Use of Proceeds” section of this prospectus. | |
| Risk factors | Investing in our securities involves a high degree of risk. You should carefully consider the information set forth in the “Risk Factors” section beginning on page 8. | |
| Listing and proposed Nasdaq Capital Market symbol |
We have applied for the listing of our common stock on The Nasdaq Capital Market under the symbol “ADTX.”
We do not intend to apply for any listing of the warrants The Nasdaq Capital Market or any other securities exchange or nationally recognized trading system, and we do not expect a market for the warrants to develop. |
(1) The number of shares of common stock outstanding is based on 7,844,695 shares of common stock issued and outstanding as of May 14, 2020 and excludes the following:
| ● | 2,220,000 shares of common stock issuable upon the exercise of outstanding stock options as of that date having a weighted average exercise price of $2.00 per share; | |
| ● | 2,384,951 shares of common stock issuable upon the exercise of outstanding warrants as of that date having a weighted average exercise price of $2.26 per share; and | |
| ● | 5,000,000 shares of our common stock reserved for future issuance under our 2017 Equity Incentive Plan, or the 2017 Plan. |
Except as otherwise indicated herein, all information in this prospectus assumes:
| ● | no exercise of the outstanding options or warrants described above; | |
| ● | no exercise of the underwriters’ option to purchase up to an additional securities to cover over-allotments, if any; and | |
| ● | the effectiveness of our Amended and Restated Bylaws (the “Amended and Restated Bylaws”) upon the effectiveness of the registration statement of which this prospectus forms a part. |
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SUMMARY FINANCIAL DATA
We present below our summary historical financial and operating data. The historical financial data as of December 31, 2019 and 2018 has been derived from our audited financial statements and the related notes thereto, which are included elsewhere in this prospectus and which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).
Our historical results are not necessarily indicative of the financial results to be expected in any future periods. You should read this information in conjunction with our financial statements and related notes included elsewhere in this prospectus, as well as the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Balance Sheets
| March 31, | December 31, | |||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| (unaudited) | ||||||||||||
| ASSETS | ||||||||||||
| CURRENT ASSETS | ||||||||||||
| Cash | $ | 46,577 | $ | 4,090 | $ | 115,709 | ||||||
| TOTAL CURRENT ASSETS | 46,577 | 4,090 | 115,709 | |||||||||
| Deferred offering costs | 161,038 | 119,442 | — | |||||||||
| TOTAL ASSETS | $ | 207,615 | $ | 123,532 | $ | 115,709 | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||
| CURRENT LIABILITIES | ||||||||||||
| Accounts payable and accrued expenses | 1,974,858 | $ | 1,847,458 | $ | 1,056,226 | |||||||
| Accrued compensation to related parties | 1,091,629 | 962,651 | 432,615 | |||||||||
| Notes payable - related party | 10,000 | 10,000 | 42,502 | |||||||||
| Notes payable | 655,211 | 155,600 | 121,100 | |||||||||
| TOTAL CURRENT LIABILITIES | 3,731,698 | 2,975,709 | 1,652,443 | |||||||||
| TOTAL LIABILITIES | 3,731,698 | 2,975,709 | 1,652,443 | |||||||||
| COMMITMENTS AND CONTINGENCIES | — | — | — | |||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||||||
| Preferred stock, $0.001 par value, 3,000,000 shares authorized, 0 shares issued and outstanding | — | — | — | |||||||||
| Common stock, $0.001 par value, 27,000,000 shares authorized, 8,041,300, 7,831,800 and 7,527,850 shares issued and 7,839,695 7,642,175 and 7,527,850 shares outstanding | 8,041 | 7,832 | 7,528 | |||||||||
| Treasury stock, 201,605, 189,625 and 0 shares | (201,605 | ) | (189,625 | ) | — | |||||||
| Additional paid-in capital | 9,588,795 | 9,059,567 | 4,357,961 | |||||||||
| Accumulated deficit | (12,919,314 | ) | (11,729,951 | ) | (5,902,223 | ) | ||||||
| TOTAL STOCKHOLDERS’ DEFICIT | (3,524,083 | ) | (2,852,177 | ) | (1,536,734 | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 207,615 | $ | 123,532 | $ | 115,709 | ||||||
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Statements of Operations
| March 31, | December 31, | |||||||||||||||
| 2020 | 2019 | 2019 | 2018 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Statements of Operations Data: | ||||||||||||||||
| REVENUE | — | — | ||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative expenses | 856,427 | 1,199,783 | 5,694,806 | 5,044,634 | ||||||||||||
| Research and development | 200,371 | 44,868 | 175,441 | 525,000 | ||||||||||||
| Sales and marketing | — | 38 | 551 | 39,837 | ||||||||||||
| Total Operating Expenses | 1,056,798 | 1,244,689 | 5,870,798 | 5,609,471 | ||||||||||||
| NET LOSS FROM OPERATIONS | (1,056,798 | ) | (1,244,689 | ) | (5,870,798 | ) | (5,609,471 | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest expense | (454 | ) | (579 | ) | (1,930 | ) | (3,009 | ) | ||||||||
| Gain on forgiveness of debt | 32,500 | 45,000 | 45,000 | — | ||||||||||||
| Amortization of debt discount | (164,611 | ) | — | — | (76,757 | ) | ||||||||||
| Total Other Income (Expense) | (132,565 | ) | 44,421 | 43,070 | (79,766 | ) | ||||||||||
| Net loss before provision for income taxes | (1,189,363 | ) | (1,200,268 | ) | (5,827,728 | ) | (5,689,237 | ) | ||||||||
| Provision for income taxes | — | — | — | — | ||||||||||||
| NET LOSS | (1,189,363 | ) | (1,200,268 | ) | (5,827,728 | ) | (5,689,237 | ) | ||||||||
| Net loss per share - basic and diluted | (0.15 | ) | (0.16 | ) | (0.76 | ) | (0.78 | ) | ||||||||
| Weighted average number of shares outstanding during the period - basic and diluted | 7,812,903 | 7,598,333 | 7,661,943 | 7,261,637 | ||||||||||||
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An investment in our securities involves a high degree of risk. Before making an investment decision, you should give careful consideration to the following risk factors, in addition to the other information included in this prospectus, including our financial statements and related notes, before deciding whether to invest in our securities. The occurrence of any of the adverse developments described in the following risk factors could materially and adversely harm our business, financial condition, results of operations or prospects. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Financial Position and Need for Capital
We have generated no revenue from commercial sales to date and our future profitability is uncertain.
We were incorporated in September 2017 and have a limited operating history and our business is subject to all of the risks inherent in the establishment of a new business enterprise. Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with development and expansion of a new business enterprise. Since inception, we have incurred losses and expect to continue to operate at a net loss for at least the next several years as we commence our research and development efforts, conduct clinical trials and develop manufacturing, sales, marketing and distribution capabilities. Our net loss as of December 31, 2019 and 2018 was $5,827,728 and $5,689,237, respectively, and our accumulated deficit as of December 31, 2019 was $11,729,951. Our net loss as of March 31, 2020 and 2019 was $1,189,363 and $1,200,268, respectively, and our accumulated deficit as of March 31, 2020 was $12,919,314. There can be no assurance that the products under development by us will be approved for sale in the U.S. or elsewhere. Furthermore, there can be no assurance that if such products are approved, they will be successfully commercialized, and the extent of our future losses and the timing of our profitability are highly uncertain. If we are unable to achieve profitability, we may be unable to continue our operations.
If we fail to obtain the capital necessary to fund our operations, we will be unable to continue or complete our product development and you will likely lose your entire investment.
We will need to continue to seek capital from time to time to continue development of our lead drug candidate beyond our initial combined Phase I/IIa clinical trial and to acquire and develop other product candidates. Once approved for commercialization, we cannot provide any assurances that any revenues it may generate in the future will be sufficient to fund our ongoing operations. We expect the net proceeds of this offering to be sufficient to satisfy our capital requirements for a period of eighteen (18) months from the date of this prospectus. Accordingly, we believe that we will need to raise substantial additional capital to fund our continuing operations and the development and commercialization of our product candidate in or before eighteen months from the date of this prospectus.
Our business or operations may change in a manner that would consume available funds more rapidly than anticipated and substantial additional funding may be required to maintain operations, fund expansion, develop new or enhance products, acquire complementary products, business or technologies or otherwise respond to competitive pressures and opportunities, such as a change in the regulatory environment or a change in preferred treatment modalities. In addition, we may need to accelerate the growth of our sales capabilities and distribution beyond what is currently envisioned, and this would require additional capital. However, we may not be able to secure funding when we need it or on favorable terms. We may not be able to raise sufficient funds to commercialize the product candidates we intend to develop.
If we cannot raise adequate funds to satisfy our capital requirements, we will have to delay, scale back or eliminate our research and development activities, clinical studies or future operations. We may also be required to obtain funds through arrangements with collaborators, which arrangements may require us to relinquish rights to certain technologies or products that we otherwise would not consider relinquishing, including rights to future product candidates or certain major geographic markets. This could result in sharing revenues which we might otherwise retain for ourselves. Any of these actions may harm our business, financial condition and results of operations.
The amount of capital we may need depends on many factors, including the progress, timing and scope of our product development programs; the progress, timing and scope of our preclinical studies and clinical trials; the time and cost necessary to obtain regulatory approvals; the time and cost necessary to further develop manufacturing processes and arrange for contract manufacturing; our ability to enter into and maintain collaborative, licensing and other commercial relationships; and our partners’ commitment of time and resources to the development and commercialization of our products.
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Our financial situation creates doubt whether we will continue as a going concern.
The Company was incorporated on September 28, 2017 and through the date of this prospectus has generated no revenues. For the years ended December 31, 2019 and 2018, the Company had a net loss of $5,827,728 and $5,689,237, respectively. For the three months ended March 31, 2020, the Company had a net loss of $1,189,363. There can be no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or obtain funding from this offering or additional financing through private placements, public offerings and/or bank financing necessary to support our working capital requirements. To the extent that funds generated from any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on acceptable terms. These conditions raise substantial doubt about our ability to continue as a going concern. If adequate working capital is not available, we may be forced to discontinue operations, which would cause investors to lose their entire investment. Our auditors have indicated that these conditions raise substantial doubt about the Company’s ability to continue as a going concern.
We may need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.
We expect that the net proceeds of this offering will be sufficient to fund our current operations for at least the next 18 months. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. In any event, we will require additional capital to obtain regulatory approval for, and to commercialize, our product candidates. Raising funds in the current economic environment may present additional challenges. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.
Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities may dilute our existing stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidate or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
Even if we can raise additional funding, we may be required to do so on terms that are dilutive to you.
The capital markets have been unpredictable in the past for unprofitable companies such as ours. In addition, it is generally difficult for development stage companies to raise capital under current market conditions. The amount of capital that a company such as ours is able to raise often depends on variables that are beyond our control. As a result, we may not be able to secure financing on terms attractive to us, or at all. If we are able to consummate a financing arrangement, the amount raised may not be sufficient to meet our future needs. If adequate funds are not available on acceptable terms, or at all, our business, including our results of operations, financial condition and our continued viability will be materially adversely affected.
9
Risks Related to Product Development, Regulatory Approval, Manufacturing and Commercialization
The regulatory approval process is expensive, time-consuming and uncertain and may prevent us from obtaining approvals for the commercialization of our future product candidates, if any.
We will not be permitted to market our product candidates in the United States until we receive approval from the FDA, or in any foreign countries until we receive the requisite approval from corresponding agencies in such countries. The testing, manufacturing, labeling, approval, selling, marketing and distribution of health- and life science-related products are subject to extensive regulation, which regulations differ from country to country.
Successfully completing our clinical program and obtaining approval of a Biologics License Application (“BLA”) is a complex, lengthy, expensive and uncertain process, and the FDA or other applicable foreign regulator may delay, limit or deny approval of our product candidates for many reasons, including, among others, because:
| ● | we may not be able to demonstrate that our product candidates are safe and effective in treating patients to the satisfaction of the FDA or foreign regulator; |
| ● | the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA or foreign regulator for marketing approval; |
| ● | the FDA or foreign regulator may disagree with the number, design, size, conduct or implementation of our clinical trials; |
| ● | the FDA or foreign regulator may require that we conduct additional clinical trials; |
| ● | the FDA or foreign regulator may not approve the formulation, labeling or specifications of our product candidates; |
| ● | the contract research organizations (CROs) and other contractors that we may retain to conduct our clinical trials may take actions outside of our control that materially adversely impact our clinical trials; |
| ● | the FDA or foreign regulator may find the data from preclinical studies and clinical trials insufficient to demonstrate that our product candidate(s) are safe and effective for their proposed indications; |
| ● | the FDA or foreign regulator may disagree with our interpretation of data from our preclinical studies and clinical trials; |
| ● | the FDA or foreign regulator may not accept data generated at our clinical trial sites or may disagree with us over whether to accept efficacy results from clinical trial sites outside the United States or outside the EU, as applicable, where the standard of care is potentially different from that in the United States or in the EU, as applicable; |
| ● | if and when our BLAs or foreign equivalents are submitted to the applicable regulatory authorities, such agencies may have difficulties scheduling the necessary review meetings in a timely manner, may recommend against approval of our application or may recommend or require, as a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions; |
| ● | the FDA or foreign regulator may require development of a Risk Evaluation and Mitigation Strategy (REMS), which would use risk minimization strategies to ensure that the benefits of certain prescription drugs outweigh their risks, as a condition of approval or post-approval; |
| ● | the FDA or other applicable foreign regulatory agencies may not approve the manufacturing processes or facilities of third-party manufacturers with which we contract; or |
| ● | the FDA or the other applicable foreign regulatory agencies may change their approval policies or adopt new regulations. |
We may encounter substantial delays in completing our clinical studies which in turn will require additional costs, or we may fail to demonstrate adequate safety and efficacy to the satisfaction of applicable regulatory authorities.
It is difficult to predict if or when any of our product candidates, will prove safe or effective in humans or will receive regulatory approval. Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical studies to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is expensive, time-consuming and uncertain as to outcome. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical studies can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:
| ● | delays in reaching, or failing to reach, a consensus with regulatory agencies on study design; |
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| ● | delays in reaching, or failing to reach, agreement on acceptable terms with a sufficient number of prospective contract research organizations (“CROs”) and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; | |
| ● | delays in obtaining required Institutional Review Board (“IRB”) or Ethics Committee (“EC”) approval at each clinical study site; | |
| ● | delays in recruiting a sufficient number of suitable patients to participate in our clinical studies; | |
| ● | imposition of a clinical hold by regulatory agencies, after an inspection of our clinical study operations or study sites; |
| ● | failure by our CROs, other third parties or us to adhere to the clinical study, regulatory or legal requirements; | |
| ● | failure to perform in accordance with the FDA’s good clinical practices (“GCP”) or applicable regulatory guidelines in other countries; | |
| ● | delays in the testing, validation, manufacturing and delivery of sufficient quantities of our product candidates to the clinical sites; | |
| ● | delays in having patients’ complete participation in a study or return for post-treatment follow-up; | |
| ● | clinical study sites or patients dropping out of a study; | |
| ● | delay or failure to address any patient safety concerns that arise during the course of a trial; | |
| ● | unanticipated costs or increases in costs of clinical trials of our product candidates; | |
| ● | occurrence of serious adverse events associated with the product candidates that are viewed to outweigh their potential benefits; or | |
| ● | changes in regulatory requirements and guidance that require amending or submitting new clinical protocols. |
We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs or ECs of the institutions in which such trials are being conducted, by an independent Safety Review Board (“SRB”) for such trial or by the FDA, European Medicines Agency (“EMA”), or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA, EMA, or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. In addition, if we make manufacturing or formulation changes to our product candidates, we may need to conduct additional studies to bridge our modified product candidates to earlier versions.
Clinical study delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
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The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Further, preclinical and clinical data are often susceptible to various interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have, nonetheless, failed to obtain marketing approval. If the results of our clinical studies are inconclusive or if there are safety concerns or adverse events associated with our other product candidates, we may:
| ● | be delayed in obtaining marketing approval for our product candidates, if approved at all; |
| ● | obtain approval for indications or patient populations that are not as broad as intended or desired; | |
| ● | obtain approval with labeling that includes significant use or distribution restrictions or safety warnings; | |
| ● | be required to change the way the product is administered; | |
| ● | be required to perform additional clinical studies to support approval or be subject to additional post-marketing testing requirements; | |
| ● | have regulatory authorities withdraw their approval of a product or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation strategy; | |
| ● | be sued; or | |
| ● | experience damage to our reputation. |
Additionally, our product candidates could potentially cause other adverse events that have not yet been predicted. The inclusion of ill patients in our clinical studies may result in deaths or other adverse medical events due to other therapies or medications that such patients may be using. As described above, any of these events could prevent us from achieving or maintaining market acceptance of our product candidates and impair our ability to commercialize our products.
If our future pre-clinical development and future clinical Phase I/II studies are unsuccessful, we may be unable to obtain regulatory approval of, or commercialize, our product candidates on a timely basis or at all.
The successful completion of pre-clinical development and multiple clinical trials is critical to the success of our future products. If the pre-clinical development and clinical trials are unsuccessful or produce inconsistent results or unanticipated adverse side effects, or if we are unable to collect reliable data, regulatory approval of our products could be delayed or not given and as a result we may be unable to commercialize our products. Generally, we expect to engage third parties such as consultants, universities or other collaboration partners to conduct clinical trials on our behalf. Incompatible practices or misapplication of our products by these third parties could impair the success of our clinical trials.
Even if we receive regulatory approval for any of our product candidates, we may not be able to successfully commercialize the product and the revenue that we generate from their sales, if any, may be limited.
If approved for marketing, the commercial success of our product candidates will depend upon each product’s acceptance by the medical community, including physicians, patients and health care payors. The degree of market acceptance for any of our product candidates will depend on a number of factors, including:
| ● | demonstration of clinical safety and efficacy; | |
| ● | relative convenience, dosing burden and ease of administration; | |
| ● | the prevalence and severity of any adverse effects; | |
| ● | the willingness of physicians to prescribe our product candidates, and the target patient population to try new therapies; |
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| ● | efficacy of our product candidates compared to competing products; | |
| ● | the introduction of any new products that may in the future become available targeting indications for which our product candidates may be approved; | |
| ● | new procedures or therapies that may reduce the incidences of any of the indications in which our product candidates may show utility; | |
| ● | pricing and cost-effectiveness; | |
| ● | the inclusion or omission of our product candidates in applicable therapeutic and vaccine guidelines; | |
| ● | the effectiveness of our own or any future collaborators’ sales and marketing strategies; |
| ● | limitations or warnings contained in approved labeling from regulatory authorities; | |
| ● | our ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third-party payors or to receive the necessary pricing approvals from government bodies regulating the pricing and usage of therapeutics; and | |
| ● | the willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement or government pricing approvals. |
If any of our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, health care payors, and patients, we may not generate sufficient revenues and we may not be able to achieve or sustain profitability. Our efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.
In addition, even if we obtain regulatory approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize our product candidates successfully. For example, if the approval process takes too long, we may miss market opportunities and give other companies the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render our product candidates not commercially viable. For example, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve any of our product candidates with a label that does not include the labeling claims necessary or desirable for the successful commercialization for that indication. Further, the FDA or comparable foreign regulatory authorities may place conditions on approvals or require risk management plans or a Risk Evaluation and Mitigation Strategy (“REMS”) to assure the safe use of the drug. If the FDA or applicable foreign regulatory agency concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS; the regulatory agencies will not approve the BLA without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The regulatory agencies may also require a REMS for an approved product when new safety information emerges. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of our product candidates. Moreover, product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following the initial marketing of the product. Any of the foregoing scenarios could materially harm the commercial success of our product candidates.
Adverse events involving our products may lead the FDA or applicable foreign regulatory agency to delay or deny clearance for our products or result in product recalls that could harm our reputation, business and financial results.
Once a product receives regulatory clearance or approval, the agency has the authority to require the recall of commercialized products in the event of adverse side effects, material deficiencies or defects in design or manufacture. The authority to require a recall must be based on a regulatory finding that there is a reasonable probability that the product would cause serious injury or death. Manufacturers may, under their own initiative, recall a product if any material deficiency in a product is found. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of adverse side effects, impurities or other product contamination, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our products would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations. The regulatory agencies require that certain classifications of recalls be reported to them within ten (10) working days after the recall is initiated. Companies are required to maintain certain records of recalls, even if they are not reportable to the regulatory agency. We may initiate voluntary recalls involving our products in the future that we determine do not require notification of the regulatory agencies. If the regulatory agency disagrees with our determinations, they could require us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition, the regulatory agency could take enforcement action for failing to report the recalls when they were conducted.
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The in-licensing of technologies and the successful testing and early development of technologies in the laboratory may not be indicative of future results and may not result in commercially viable technologies or products. Further, our future products may have to be modified from their originally conceived versions in order to reach or be successful in the market.
Positive results from laboratory testing and early developmental successes, may not be predictive of future successful development, commercialization and sales results and should not be relied upon as evidence that products developed from our technologies will become commercially viable and successful. Further, the products we plan to develop in the future may have to be significantly modified from their originally conceived versions in order for us to control costs, compete with similar products, receive market acceptance, meet specific development and commercialization timeframes, avoid potential infringement of the proprietary rights of others, or otherwise succeed in developing our business and earning ongoing revenues. This can be a costly and resource draining activity. What appear to be promising technologies when we license them may not lead to viable technologies or products, or to commercial success.
Risks Related to the Company and our Business
Our technology is subject to licenses from LLU and Stanford, each of which are revocable in certain circumstances, including in the event we do not achieve certain payments and milestone deadlines. Without these licenses, we may not be able to continue to develop our product candidates.
The LLU License Agreement may be terminated by LLU in the event of a breach by us of any non-payment provision (including the provision that requires us to meet certain deadlines for milestone events (each, a “Milestone Deadline”)) not cured within 90 days after delivery of written notice by LLU. Additional Milestone Deadlines include: (i) the requirement to have regulatory approval of an IND application to initiate first-in-human clinical trials on or before March 31, 2020, (ii) the completion of first-in-human (phase I/II) clinical trials by March 31, 2022, (iii) the completion of Phase III clinical trials by March 31, 2024 and (iv) biologic licensing approval (BLA) by the FDA by March 31, 2025. If the LLU License Agreement were to be terminated by LLU, we would lose our most significant asset and may no longer be able to develop our product candidates, which would have a material adverse effect on our operations.
The February 2020 License Agreement with Stanford may be terminated by Stanford if we (i) are delinquent on any report or payments; (ii) are not diligently developing and commercializing Licensed Product (as defined in the February 2020 License Agreement); (iii) miss a milestone described in the agreement; (iv) are in breach of any other provision of the agreement; or (v) if we provide a false report to Stanford. The Termination discussed above will take effect only upon 30 days written notice by Stanford unless we remedy the breach within a 30 day cure period. If the February 2020 License Agreement were to be terminated by Stanford, we would lose a significant asset and may no longer be able to develop our product candidates, which would have a material adverse effect on our operations.
Our results of operations will be affected by the level of royalty and milestone payments that we are required to pay to third parties.
The LLU License Agreement and February 2020 License Agreement with Stanford each require us to remit royalty payments and meet certain performance milestones related to in-licensed intellectual property. Any failure on our part to pay royalties owed or meet milestones could lead to us losing rights under our licenses and could thereby adversely affect our business. As our product sales increase, we may, from time-to-time, disagree with our third-party collaborators as to the appropriate royalties owed and the resolution of such disputes may be costly and may consume management’s time. Furthermore, we may enter into additional license agreements in the future, which may also include royalty payments.
Specifically, we were contractually obligated to pay (i) LLU, within thirty (30) days of July 31, 2018, a milestone fee of $200,000 (the “LLU Milestone Fee”) upon the completion of a “financing” round; and (ii) Stanford a $25,000 license issue fee (the “Stanford Fee”) within sixty days of February 3, 2020. As of the date of this prospectus, we have not received a written demand for payment from either LLU or Stanford. The Company intends to pay the LLU Milestone Fee and the Stanford Fee from the proceeds of this offering. There can be no assurance that the Company will raise sufficient capital to pay the Milestone Fee and the Stanford Fee, or complete the offering at all, thus potentially causing a material adverse effect to the Company.
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We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
The development and commercialization of drugs is highly competitive. We compete with a variety of multinational pharmaceutical companies and specialized biotechnology companies, as well as products and processes being developed at universities and other research institutions. Our competitors have developed, are developing or will develop product candidates and processes competitive with our product candidates. Competitive therapeutic treatments include those that have already been approved and accepted by the medical community and any new treatments that may enter the market. We believe that a significant number of products are currently available, under development, and may become commercially available in the future, for the treatment of indications for which we may try to develop product candidates.
More established companies may have a competitive advantage over us due to their greater size, cash flows and institutional experience. Compared to us, many of our competitors may have significantly greater financial, technical and human resources. As a result of these factors, our competitors may have an advantage in marketing their approved products and may obtain regulatory approval of their product candidates before we are able to, which may limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs that are safer, more effective, more widely used and less expensive than ours, and may also be more successful than us in manufacturing and marketing their products.
Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These companies compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
Our technologies and products under development, and our business, may fail if we are not able to successfully commercialize them and ultimately generate significant revenues as a result.
Successful development of technologies and our product candidates will require significant additional investment, including costs associated with additional development, completing trials and obtaining regulatory approval, as well as the ability to manufacture or have others manufacture our products in sufficient quantities at acceptable costs while also preserving product quality. Difficulties often encountered in scaling up production include problems involving production yields, quality control and assurance, shortage of qualified personnel, production costs and process controls. In addition, we are subject to inherent risks associated with new technologies and products. These risks include the possibility that any of our technologies or future products may:
| ● | be found unsafe; |
| ● | be ineffective or less effective than anticipated; |
| ● | fail to receive necessary regulatory approvals; |
| ● | be difficult to competitively price relative to alternative solutions; |
| ● | be harmful to consumers or the environment; |
| ● | be difficult to manufacture on an economically viable scale; |
| ● | be subject to supply chain constraints for raw materials; |
| ● | fail to be developed and accepted by the market prior to the successful marketing of alternative products by competitors; |
| ● | be difficult to market because of infringement on the proprietary rights of third parties; or |
| ● | be too expensive for commercial use. |
Furthermore, we may be faced with lengthy market partner or distributor evaluation and approval processes. Consequently, we may incur substantial expenses and devote significant management effort in order to customize products for market partner or distributor acceptance, though there can be no assurance of such acceptance. As a result, we cannot accurately predict the volume or timing of any future sales.
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Customers may not adopt our products quickly, or at all.
Customers in the sector in which we operate can be generally cautious in their adoption of new products and technologies. In addition, given the relative novelty of our future planned products, customers of those products may require education regarding their utility and use, which may delay their adoption. There can be no assurance that customers will adopt our products quickly, or at all.
The significant level of competition in the markets for our products developed in the future may result in pricing pressure, reduced margins or the inability of our future products to achieve market acceptance.
The markets for our future products are intensely competitive and rapidly changing. We may be unable to compete successfully, which may result in price reductions, reduced margins and the inability to achieve market acceptance for our products.
Our competitors may have longer operating histories, significantly greater resources, greater brand recognition and large customer bases than we do. As a result, they may be able to devote greater resources to the manufacture, promotion or sale of their products, receive greater resources and support from market partners and independent distributors, initiate or withstand substantial price competition or more readily take advantage of acquisition or other opportunities.
We may rely on third parties for the production of our future products. If these parties do not produce our products at a satisfactory quality, in a timely manner, in sufficient quantities or at an acceptable cost, our sales and development efforts could be delayed or otherwise negatively affected.
We may rely on third parties for the manufacture of our future products. Our reliance on third parties to manufacture our future products may present significant risks to us, including the following:
| ● | reduced control over delivery schedules, yields and product reliability; |
| ● | price increases; |
| ● | manufacturing deviations from internal and regulatory specifications; |
| ● | the failure of a key manufacturer to perform as we require for technical, market or other reasons; |
| ● | difficulties in establishing additional manufacturer relationships if we are presented with the need to transfer our manufacturing process technologies to them; |
| ● | misappropriation of our intellectual property; and |
| ● | other risks in potentially meeting our product development schedule or satisfying the requirements of our market partners, distributors, direct customers and end users. |
If we need to enter into agreements for the manufacturing of our future products, there can be no assurance we will be able to do so on favorable terms, if at all.
If we are unable to establish successful relations with third-party market partners or distributors, or these market partners or distributors do not focus adequate resources on selling our products or are otherwise unsuccessful in selling them, sales of our products may not develop.
We anticipate relying on independent market partners and distributors to distribute and assist us with the marketing and sale of our products. Our future revenue generation and growth will depend in large part on our success in establishing and maintaining this sales and distribution channel. If our market partners and distributors are unable to sell our products, or receive negative feedback from end users, they may not continue to purchase or market our products. In addition, there can be no assurance that our market partners and distributors will focus adequate resources on selling our products to end users or will be successful in selling them. Many of our potential market partners and distributors are in the business of distributing and sometimes manufacturing other, possibly competing, products. As a result, these market partners and distributors may perceive our products as a threat to various product lines currently being distributed or manufactured by them. In addition, these market partners and distributors may earn higher margins by selling competing products or combinations of competing products. If we are unable to establish successful relationships with independent market partners and distributors, we will need to further develop our own sales and distribution capabilities, which would be expensive and time-consuming and might not be successful.
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If we are not able to attract and retain highly skilled employees and contractors, we may not be able to implement our business model successfully.
We will rely upon employees and third-party consultant/contractors to effectively establish, manage and grow our business. Consequently, we believe that our future viability will depend largely on our ability to attract and retain highly skilled personnel. In order to do so, we may need to pay higher compensation, fees, and/or other incentives to our employees or consultants than we currently expect, and such higher compensation payments would have a negative effect on our operating results. Competition for experienced, high-quality employees, consultants and contractors is intense and we cannot assure that we will be able to recruit and retain such personnel. We may not be able to hire or retain the necessary personnel to implement our business strategy. Our failure to hire and retain such personnel could impair our ability to develop new products and manage our business effectively.
The loss of our management team or other key personnel would have an adverse impact on our future development and impair our ability to succeed.
In the early stages of development, our business will be significantly dependent on the Company’s management team and other key personnel. Our success will be particularly dependent upon Mr. Amro Albanna and Dr. Shahrokh Shabahang. The loss of any one of these individuals or any other future key personnel could have a material adverse effect on the Company and our ability to further execute our intended business.
The use of our products may be limited by regulations, and we may be exposed to product liability and remediation claims.
The use of our planned products may be regulated by various local, state, federal and foreign regulators. Even if we are able to comply with all such regulations and obtain all necessary registrations, we cannot provide assurance that our future products will not cause injury to the environment, people, or animals and/or otherwise have unintended adverse consequences, under all circumstances. For example, our products may be improperly combined with other chemicals or, even when properly combined, our products may be blamed for damage caused by those other chemicals. The costs of remediation or products liability could materially adversely affect our results, financial condition and operations.
We may be held liable for, or incur costs to settle, liability and remediation claims if any products we develop, or any products that use or incorporate any of our technologies, cause injury or are found unsuitable during product testing, manufacturing, marketing, sale or use. These risks exist even with respect to products that have received, or may in the future receive, regulatory approval, registration or clearance for commercial use. We cannot guarantee that we will be able to avoid product liability exposure.
At the stage customary to do so, we expect to maintain product liability insurance at levels we believe are sufficient and consistent with industry standards for like companies and products. However, we cannot guarantee that our product liability insurance will be sufficient to help us avoid product liability-related losses. In the future, it is possible that meaningful insurance coverage may not be available on commercially reasonable terms or at all. In addition, a product liability claim could result in liability to us greater than our assets or insurance coverage. Moreover, even if we have adequate insurance coverage, product liability claims or recalls could result in negative publicity or force us to devote significant time and attention to these matters, which could harm our business.
There may be limitations on the effectiveness of our internal controls, and a failure of our control systems to prevent error or fraud may materially harm our Company.
We do not expect that internal control over financial accounting and disclosure, even if timely and well established, will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Failure of our control systems to prevent error or fraud could materially adversely affect our business.
We are currently in default of several outstanding promissory notes.
Currently, the Company has various outstanding promissory notes in default. There is a risk that the continued default of such notes could prevent management from raising additional capital in the future and such continued default could result in our having to allocate some of the proceeds in this offering away from our research and development budget.
COVID-19 may impact our operations.
On January 30, 2020 the World Health Organization declared the COVID-19 coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The COVID-19 coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial effect will be to the Company, capital raise efforts and additional development of our technologies may be negatively affected.
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Risks Relating to Our Intellectual Property Rights
The failure to obtain or maintain patents, licensing agreements and other intellectual property could materially impact our ability to compete effectively.
In order for our business to be viable and to compete effectively, we need to develop and maintain, and we will heavily rely on, a proprietary position with respect to our technologies and intellectual property. However, there are significant risks associated with our actual or proposed intellectual property. The risks and uncertainties that we face with respect to our rights principally include the following:
| ● | pending patent applications we have filed or will file may not result in issued patents or may take longer than we expect to result in issued patents; |
| ● | we may be subject to interference proceedings; |
| ● | we may be subject to reexamination proceedings; |
| ● | we may be subject to post grant review proceedings; |
| ● | we may be subject to inter partes review proceedings; |
| ● | we may be subject to derivation proceedings; |
| ● | we may be subject to opposition proceedings in the U.S. or in foreign countries; |
| ● | any patents that are issued to us may not provide meaningful protection; |
| ● | we may not be able to develop additional proprietary technologies that are patentable; |
| ● | other companies may challenge patents licensed or issued to us; |
| ● | other companies may have independently developed and patented (or may in the future independently develop and patent) similar or alternative technologies, or duplicate our technologies; |
| ● | other companies may design around technologies we have licensed or developed; |
| ● | enforcement of patents is complex, uncertain and very expensive and we may not be able to secure, enforce and defend our patents; and |
| ● | in the event that we were to ever seek to enforce our patents in ligation, there is some risk that they could be deemed invalid, not infringed, or unenforceable. |
We cannot be certain that any patents will be issued as a result of any pending or future applications, or that any patents, once issued, will provide us with adequate protection from competing products. For example, issued patents may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope. In addition, since publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot be certain that we or our licensors were the first to invent or to file patent applications covering them.
It is also possible that others may have or may obtain issued patents that could prevent us from commercializing our products or require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. There is no guarantee that such licenses will be available based on commercially reasonable terms. As to those patents that we have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement, and we may be unable to do so.
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If we are unable to obtain and maintain patent protection for our products, or if the scope of the patent protection obtained is not sufficiently broad, competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products could be impaired.
The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost, in a timely manner, or in all jurisdictions. It is also possible that we will fail to identify patentable aspects of our development output before it is too late to obtain patent protection.
The patent position of life science companies generally is highly uncertain, involves complex legal and factual questions and has in past years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States and we may fail to seek or obtain patent protection in all major markets. For example, unlike the U.S., European patent law restricts the patentability of methods of treatment of the human body. Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection, even post-grant.
Recent patent reform legislation has increased the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The U.S. Patent and Trademark Office, or USPTO, recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.
Moreover, we may be subject to a third-party pre-issuance submission of prior art to the USPTO, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights (whether licensed or otherwise held) or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights (whether licensed or otherwise held), allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications (whether licensed or otherwise held) is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.
Even if our patent applications (whether licensed or otherwise held) result in the issuance of patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our licensed or owned patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical products, or limit the duration of the patent protection of our products. Given the amount of time required for the development, testing and regulatory review of new life science product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our intellectual property rights portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
We may become involved in lawsuits to protect or enforce our intellectual property rights, which could be expensive, time-consuming and ultimately unsuccessful.
Competitors may infringe our intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property or that our intellectual property is invalid or unenforceable. In addition, in a patent infringement proceeding, a court may decide that a licensed or owned patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover that technology. Moreover, lawsuits to protect or enforce our intellectual property rights could be expensive, time-consuming and ultimately unsuccessful.
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Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain.
Our commercial success depends upon our ability to develop, manufacture, market and sell our product candidates without infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the life sciences industry. We cannot guarantee that our product candidates will not infringe third-party patents or other proprietary rights. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including inter partes review, interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringement claims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.
If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our products. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our own patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance fees and annuities on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter our markets, which could have a material adverse effect on our business.
We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property or claiming ownership of what we regard as our own intellectual property.
Certain of our employees and contractors were previously employed at universities or other companies, including potential competitors. Although we try to ensure that our employees and contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these employees or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims, and any such litigation could have an unfavorable outcome.
In addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.
If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and adverse results, and be a distraction to management.
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Some intellectual property which we own or have licensed may have been discovered through government funded programs such as, for example, the government funded programs referenced in intellectual property licensed under the LLU License Agreement, and thus may be subject to federal regulations such as “march-in” rights, certain reporting requirements, and a preference for United States industry. Compliance with such regulations may limit our exclusive rights, subject us to expenditure of resources with respect to reporting requirements, and limit our ability to contract with non-U.S. manufacturers.
Some of the intellectual property rights we own or have licensed have been generated through the use of United States government funding and may therefore be subject to certain federal regulations. As a result, the United States government may have certain rights to intellectual property embodied in our current or future products and product candidates pursuant to the Bayh-Dole Act of 1980. These United States government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the United States government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”). The United States government also has the right to take title to these inventions if we fail to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits. In addition, the United States government may acquire title to these inventions in any country in which a patent application is not filed within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us to expend substantial resources. In addition, the United States government requires that any products embodying the subject invention or produced through the use of the subject invention be manufactured substantially in the United States. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for United States manufacturers may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property. Any exercise by the government of any of the foregoing rights could harm our competitive position, business, financial condition, results of operations and prospects.
Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have an adverse effect on the price of our common stock. Such litigation or proceedings could increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace.
We may spend considerable resources developing and maintaining patents, licensing agreements and other intellectual property that may later be abandoned or may otherwise never result in products brought to market.
Not all technologies and candidate products that initially show potential as the basis for future products ultimately meet the rigors of our development process and as a result may be abandoned and/or never otherwise result in products brought to market. In some cases, prior to abandonment we may be required to incur significant costs developing and maintaining intellectual property and/or maintaining license agreements and our business could be harmed by such costs.
We rely on information technology, and if we are unable to protect against service interruptions, data corruption, cyber-based attacks or network security breaches, our operations could be disrupted, and our business could be negatively affected.
We rely on information technology networks and systems to process, transmit and store electronic and financial information; to coordinate our business; and to communicate within our Company and with customers, suppliers, partners and other third-parties. These information technology systems may be susceptible to damage, disruptions or shutdowns, hardware or software failures, power outages, computer viruses, cyber-attacks, telecommunication failures, user errors or catastrophic events. If our information technology systems suffer severe damage, disruption or shutdown, and our business continuity plans do not effectively resolve the issues in a timely manner, our operations could be disrupted, and our business could be negatively affected. In addition, cyber-attacks could lead to potential unauthorized access and disclosure of confidential information, and data loss and corruption. There is no assurance that we will not experience these service interruptions or cyber-attacks in the future.
Risks Related to the Offering and Our Common Stock
There is no assurance that an active and liquid trading market in our common stock will develop.
This offering will close only if our common stock is accepted to be listed on The Nasdaq Capital Market. There can be no assurance any broker will be interested in trading our common stock. Therefore, it may be difficult to sell any securities you purchase in this offering if you desire or need to sell them. Neither we nor the underwriters can provide any assurance that an active and liquid trading market in our common stock will develop or, if developed, that the market will continue.
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There is no guarantee that we will successfully have our common stock listed on The Nasdaq Capital Market. Even if our common stock is accepted for listing on The Nasdaq Capital Market upon our satisfaction of the exchange’s initial listing criteria, the exchange may subsequently delist our common stock.
In the event we are able to list our common stock on The Nasdaq Capital Market upon our satisfaction of the exchange’s initial listing criteria, the exchange will require us to meet certain financial, public float, bid price and liquidity standards on an ongoing basis in order to continue the listing of our common stock. If we fail to meet these continued listing requirements, our common stock may be subject to delisting. If our common stock is delisted and we are not able to list our common stock on another national securities exchange, we expect our securities would be quoted on an over-the-counter market. If this were to occur, our stockholders could face significant material adverse consequences, including limited availability of market quotations for our common stock and reduced liquidity for the trading of our securities. In addition, we could experience a decreased ability to issue additional securities and obtain additional financing in the future. Even if our common stock is listed on The Nasdaq Capital Market, there can be no assurance that an active trading market for our common stock will develop or be sustained after our initial listing.
The Nasdaq Capital Market may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
If we are approved to list our common stock on The Nasdaq Capital Market, we cannot assure you that our securities will be, or will continue to be, listed on such exchange in the future. In order to continue to have our securities listed on The Nasdaq Capital Market, we must maintain and comply with certain standards including, but not limited to, standards relating to corporate governance, stockholders’ equity and market value of listed securities. If we are unable to comply with the continued listing requirements of The Nasdaq Capital Market, our securities may be delisted from The Nasdaq Capital Market. If our securities are delisted from The Nasdaq Capital Market, we could face significant adverse consequences including, but not limited to:
| ● | a limited availability of market quotations for our securities; |
| ● | a limited amount of news and analyst coverage for our Company; and |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
The warrants may not have value.
The warrants being offered by us in this offering are exercisable for the period commencing on the date that is six-months from the date of issuance of the warrant, have an exercise price of $6.875 per share, and expire three (3) years from the date of issuance. In the event that our common stock does not exceed the exercise price of the warrants during the period when the warrants are exercisable, the warrants may not have any value.
Holders of our warrants will have no rights as shareholders until they acquire shares of our common stock, if ever.
If you acquire the warrants to purchase shares of our common stock in this offering, you will have no rights with respect to our common stock until you acquire shares of such common stock upon exercise of your warrants. Upon exercise of your warrants, you will be entitled to exercise the rights of a holder of common stock only as to matters for which the record date occurs after the exercise date.
There is no public market for the warrants being offered by us in this offering and an active trading market for the warrants is not expected to develop.
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 for any listing of the warrants on The Nasdaq Capital Market or any other securities exchange or nationally recognized trading system. Without an active market, the liquidity of the warrants will be severely limited.
We do not expect to pay dividends in the foreseeable future.
We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any and all future earnings in the development and growth of our business. Therefore, investors will not receive any funds unless they sell their securities, and holders may be unable to sell their securities on favorable terms or at all. We cannot assure you of a positive return on your investment or that you will not lose the entire amount of your investment.
Upon dissolution of our Company, you may not recoup all or any portion of your investment.
In the event of a liquidation, dissolution or winding-up of our Company, whether voluntary or involuntary, our assets would be used to pay all of our debts and liabilities, and only thereafter would any remaining assets be distributed to our stockholders, subject to rights of the holders of the Preferred Stock, if any, on a pro rata basis. There can be no assurance that we will have assets available from which to pay any amounts to our stockholders upon such a liquidation, dissolution or winding-up. In such an event, you would lose all of your investment.
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Limitation of Liability and Indemnification of Management.
The Delaware Corporation Law and the Company’s Amended and Restated Certificate of Incorporation provides for the limitation of the liability of directors for monetary damages. Such provisions may discourage shareholders from bringing a lawsuit against directors for breaches of fiduciary duty and may also have the effect of reducing the likelihood of derivative litigation against directors and officers even though such action, if successful, might otherwise be a benefit to the Company’s shareholders. In addition, a shareholder’s investment in the Company may be adversely affected to the extent that costs of settlement and damage awards against the Company’s officers or directors are paid by the Company pursuant to such provisions. Additionally, in accordance with Delaware law and the Company’s Amended and Restated Certificate of Incorporation, the Company shall indemnify, hold harmless and provide advancement of expenses, to the fullest extent permitted by applicable law, directors, officers, employees, and agents that are made a party or threatened to be made a party to legal proceedings by reason of the fact that such parties were working at the request of the Company. We direct you to the Company’s Amended and Restated Certificate of Incorporation for more information.
Anti-takeover provisions under Delaware law could discourage, delay or prevent a change in control of our Company and could affect the trading price of our securities.
We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders.
Upon completion of this offering, we will incur increased costs as a result of our public reporting obligations, and our management team will be required to devote substantial time to new compliance initiatives.
Upon the effectiveness of the Form S-1, of which this prospectus forms a part, particularly after we are no longer an “emerging growth company,” we will incur significant legal, accounting and other expenses that we did not incur as a private company. Our management and other personnel would need to devote a substantial amount of time to comply with our reporting obligations. Moreover, these reporting obligations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
Failure to develop our internal controls over financial reporting as we grow could have an adverse impact on us.
As our Company matures, we will need to develop our current internal control systems and procedures to manage our growth. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish appropriate controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, disclosure of management’s assessment of our internal controls over financial reporting or disclosure of our public accounting firm’s attestation to or report on management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.
Our executive officers, directors, and their respective affiliates will continue to exercise significant control over our Company after this offering, which will limit your ability to influence corporate matters and could delay or prevent a change in corporate control.
Immediately following the completion of this offering, and disregarding any shares of common stock that they purchase in this offering, if any, the existing holdings of our executive officers, directors, and their affiliates, will represent beneficial ownership, in the aggregate, of approximately 35.97% of our outstanding common stock. Please see “Security Ownership of Beneficial Owners and Management” on page 57 for more information. As a result, these stockholders will be able to influence our management and affairs and control the outcome of matters submitted to our stockholders for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets. These stockholders acquired their shares of common stock for substantially less than the price of the shares of common stock being acquired in this offering, and these stockholders may have interests, with respect to their common stock, that are different from those of investors in this offering and the concentration of voting power among one or more of these stockholders may have an adverse effect on the price of our common stock. In addition, this concentration of ownership might adversely affect the market price of our common stock by:
| ● | delaying, deferring or preventing a change of control of the Company; |
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| ● | impeding a merger, consolidation, takeover or other business combination involving the Company; or |
| ● | discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company. |
If you purchase our Units in this offering, you will incur immediate and substantial dilution in the book value of your Shares.
You will suffer immediate and substantial dilution in the net tangible book value of the common stock you purchase in this offering. Assuming an initial offering price of $5.50 per unit, purchasers in this offering will experience immediate dilution of $4.91 per share of common stock in net tangible book value of the common stock. See “Dilution” on page 30 for a more detailed description of the dilution to new investors in the offering.
We have broad discretion in how we use the proceeds of this offering and may not use these proceeds effectively, which could affect our results of operations and cause our common stock and Warrant price to decline.
We will have considerable discretion in the application of the net proceeds of this offering. We intend to use the net proceeds from this offering to fund our business strategy, including without limitation, new and ongoing product development expenses, offering expenses, working capital and other general corporate purposes, which may include funding for the hiring of additional personnel. As a result, investors will be relying upon management’s judgment with only limited information about our specific intentions for the use of the balance of the net proceeds of this offering. We may use the net proceeds for purposes that do not yield a significant return or any return at all for our stockholders. In addition, pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
If our stock price fluctuates after the offering, you could lose a significant part of your investment.
The market price of our common stock could be subject to wide fluctuations in response to, among other things, the risk factors described in this section of this prospectus, and other factors beyond our control, such as fluctuations in the valuation of companies perceived by investors to be comparable to us. Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political, and market conditions, such as recessions, interest rate changes or international currency fluctuations, may negatively affect the market price of our common stock. In the past, many companies that have experienced volatility in the market price of their stock have been subject to 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.
After the completion of this offering, we may be at an increased risk of securities class action litigation.
Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and pharmaceutical companies have experienced significant stock price volatility in past years. If we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.
We could issue “blank check” preferred stock without stockholder approval with the effect of diluting interests of then-current stockholders and impairing their voting rights, and provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.
Our Amended and Restated Certificate of Incorporation provides for the authorization to issue up to 3,000,000 shares of “blank check” preferred stock with designations, rights and preferences as may be determined from time to time by our board of directors. Our board of directors is empowered, without stockholder approval, to issue one or more series of preferred stock with dividend, liquidation, conversion, voting or other rights which could dilute the interest of, or impair the voting power of, our common stockholders. The issuance of a series of preferred stock could be used as a method of discouraging, delaying or preventing a change in control. For example, it would be possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of our company. In addition, advanced notice is required prior to stockholder proposals, which might further delay a change of control.
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Our Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between the Company and its stockholders, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with the Company or its directors, officers or employees.
Our Amended and Restated Certificate of Incorporation provides that unless the Company consents in writing to the selection of an alternative forum, the State of Delaware is the sole and exclusive forum for: (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim against the Company, its directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”) or our Amended and Restated Certificate of Incorporation or the Company’s Amended and Restated Bylaws (which will be effective upon the effectiveness of the registration statement of which this prospectus forms a part), or (iv) any action asserting a claim against the Company, its directors, officers, employees or agents governed by the internal affairs doctrine, except for, as to each of (i) through (iv) 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. This exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. However, our Amended and Restated Bylaws (which will be effective upon the effectiveness of the registration statement of which this prospectus forms a part) contain a federal forum provision which provides that unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation are deemed to have notice of and consented to this provision.
These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers or other employees, which may discourage such lawsuits against the Company and its directors, officers and other employees. Alternatively, if a court were to find our choice of forum provisions contained in either our Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws (which will be effective upon the effectiveness of the registration statement of which this prospectus forms a part) to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions, which could harm its business, results of operations, and financial condition.
We are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could 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 (the “JOBS Act”), and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, pursuant to Section 107 of the JOBS Act, as an “emerging growth company” we intend to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.
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 may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
25
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and uncertainties. You should not place undue reliance on these forward-looking statements. All statements other than statements of historical facts contained in this prospectus are forward-looking statements. The forward-looking statements in this prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. In some cases, you can identify these forward-looking statements by terms such as “anticipate,” “believe,” “continue,” “could,” “depends,” “estimate,” “expects,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms or other similar expressions, although not all forward-looking statements contain those words. We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements include, but are not limited to, statements concerning the following:
| ● | our plans to initiate clinical trials for our product candidates; | |
| ● | our plans to research, develop and commercialize our product candidates |
| ● | Our ability to comply with the provisions of our license agreement with Loma Linda University; |
| ● | The results of clinical testing and trial activities of our product candidates; |
| ● | Our ability to obtain regulatory approval and market acceptance of, and reimbursement for our products; |
| ● | Our ability to protect our intellectual property and to develop, maintain and enhance a strong brand; |
| ● | Our ability to compete and succeed in a highly competitive and evolving industry; |
| ● | Our lack of operating history on which to judge our business prospects and management; |
| ● | Our ability to raise capital and the availability of future financing; |
| ● | Our ability to manage our research, development, expansion, growth and operating expenses; |
| ● | Our reliance on third parties to conduct our research, preclinical studies and expected clinical trials; and |
| ● | the impact of government laws and regulation. |
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.
You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
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This prospectus contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this prospectus from our own research as well as from industry and general publications, surveys and studies conducted by third parties. These data involve a number of assumptions and limitations and contain projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty, including those discussed in “Risk Factors.” We caution you not to give undue weight to such projections, assumptions and estimates. Further, industry and general publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these publications, studies and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source.
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We estimate that the net proceeds from our issuance and sale of 1,900,000 Units in this offering will be approximately $9,404,000, assuming an initial public offering price of $5.50 per Unit, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate that the net proceeds from this offering will be approximately $10,846,100, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use approximately $5.3 million of the net proceeds from this offering to fund product development, including the commencement of Phase I/IIa clinical testing. We believe that such funds will be sufficient for the completion of Phase I/IIa clinical testing. The balance of the net proceeds is expected to be used for other general working capital purposes. We intend to repay promissory notes totaling $800,600 and the related interest thereon that are due or are coming due in the near term. We also intend to pay a $200,000 milestone licensing fee to LLU in connection with the LLU License Agreement and a $25,000 fee to Stanford in connection with the February 2020 License Agreement, to which we are a party. Finally, the Company intends to pay all other currently due payments to LLU and Stanford pursuant to our license agreements with each of those institutions, which in the aggregate, total approximately $152,635.
We believe that the net proceeds from this offering and our existing cash, cash equivalents and investments will be sufficient to fund our current operations for at least eighteen months from the date of this prospectus. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect.
Predicting the cost necessary to develop product candidates can be difficult and the amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development and commercialization efforts, the status of and results from clinical trials, any collaborations that we may enter into with third parties for our product candidates and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering and our existing cash and cash equivalents.
In the ordinary course of our business, we expect to, from time to time, evaluate the acquisition of, investment in or in-license of complementary products, technologies or businesses, and we could use a portion of the net proceeds from this offering for such activities. We currently do not have any agreements, arrangements or commitments with respect to any potential acquisition, investment or license.
We plan to retain any earnings for the foreseeable future for our operations. We have never paid any dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the sole discretion of our Board and will depend on our financial condition, operating results, capital requirements and such other factors as our Board deems relevant.
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The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2020:
| ● | on an actual basis; |
| ● | on a pro forma as adjusted basis to give further effect to our issuance and sale of 1,900,000 shares of our common stock being sold as part of the Units in this offering at an initial public offering price of $5.50 per share, after deducting the estimated underwriting discounts and commissions and our estimated offering expenses. |
You should read this capitalization table together with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and the related notes appearing elsewhere in this prospectus.
| March 31, 2020 | ||||||||
| (in thousands, except share and per share data) | Actual | Pro Forma, As Adjusted (unaudited) | ||||||
| Cash | $ | 47 | 9,451 | |||||
| Common stock, par value $0.001 per share | 8 | 10 | ||||||
| Treasury stock | (202 | ) | (202 | ) | ||||
| Additional paid-in capital | 9,589 | 18,991 | ||||||
| Accumulated deficit | (12,919 | ) | (12,919 | ) | ||||
| Total stockholders’ equity/(deficit) | (3,524 | ) | 5,880 | |||||
| Total capitalization | $ | (3,524 | ) | 5,880 | ||||
The number of shares of our common stock to be outstanding after this offering is based on 7,839,695 shares of our common stock outstanding as of March 31, 2020, assumes (i) no exercise by the underwriter of its over-allotment option and (ii) no exercise of the unit purchase option to be issued to the underwriter in this offering, and excludes:
| ● | 2,220,000 shares of common stock issuable upon the exercise of outstanding stock options as of that date having a weighted average exercise price of $2.00 per share; | |
| ● | 2,364,951 shares of common stock issuable upon the exercise of outstanding warrants as of that date having a weighted average exercise price of $2.26 per share; and | |
| ● | 5,000,000 shares of our common stock reserved for future issuance under our 2017 Equity Incentive Plan, or the 2017 Plan. |
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If you invest in our common stock, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering.
As of March 31, 2020 we had a historical net tangible book value (deficit) of $(3,685,121), or $(0.47) per share of common stock, based on shares of common stock outstanding at March 31, 2020. Our historical net tangible book value per share is the amount of our total tangible assets less our total liabilities at March 31, 2020, divided by the number of shares of common stock outstanding at March 31, 2020.
After giving effect to the sale of 1,900,000 Units (and the shares of common stock thereunder) in this offering at an initial public offering price of $5.50 per Unit (assuming no exercise of the warrants included in the Units, no value is attributed to such warrants and such warrants are classified and accounted for as equity), and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value at March 31, 2020 would have been $5,718,879, or $0.59 per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $1.06 per share to existing shareholders and immediate dilution of $4.91 per share to new investors purchasing shares of common stock in this offering.
The following table illustrates this dilution on a per share basis
| Initial public offering price per share | 5.50 | |||||||
| Net tangible book value per share as of March 31, 2020 | (0.47 | ) | ||||||
| Increase in pro forma as adjusted net tangible book value per share attributable to new investors in this offering | 1.06 | |||||||
| Pro forma as adjusted net tangible book value per share immediately after this offering | 0.59 | |||||||
| Dilution per share to new investors in this offering | 4.91 |
The number of shares of our common stock to be outstanding after this offering is based on 7,839,695 shares of our common stock outstanding as of March 31, 2020 assumes (i) no exercise by the underwriter of its over-allotment option and (ii) no exercise of the unit purchase option to be issued to the underwriter in this offering, and excludes:
| ● | 2,220,000 shares of common stock issuable upon the exercise of outstanding stock options as of that date having a weighted average exercise price of $2.00 per share; | |
| ● | 2,364,951 shares of common stock issuable upon the exercise of outstanding warrants as of that date having a weighted average exercise price of $2.26 per share; and | |
| ● | 5,000,000 shares of our common stock reserved for future issuance under our 2017 Equity Incentive Plan, or the 2017 Plan. |
The following tables set forth, assuming the sale of all of the shares offered for sale in this offering the total number of shares previously sold to existing stockholders as of March 31, 2020, the total consideration paid for the foregoing and the respective percentages applicable to such purchased shares and consideration paid based on an average price of $0.15 per share paid by our existing stockholders and $5.50 per share paid by investors in this Offering.
| Shares Purchased | Total Consideration | |||||||||||||||
| Number | Percentage | Amount | Percentage | |||||||||||||
| Assuming All Units Sold: | ||||||||||||||||
| Existing stockholders | 7,839,695 | 80 | % | $ | 1,225,600 | 10 | % | |||||||||
| New Investors | 1,900,000 | 20 | % | $ | 10,450,000 | 90 | % | |||||||||
| Total | 9,739,695 | 100 | % | $ | 11,675,600 | 100 | % | |||||||||
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The following table sets forth our selected financial data as of the dates and for the periods indicated. We have derived the statements of operations data for the three months ended March 31, 2020 and year ended December 31, 2019 from our audited financial statements included elsewhere in this prospectus. The following summary financial data should be read with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes and other information included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected in future periods.
| March 31, 2020 |
December 31, 2019 |
|||||||
| Statements of Operations Data: | (Unaudited) | |||||||
| REVENUE | — | — | ||||||
| OPERATING EXPENSES | ||||||||
| General and administrative expenses, includes $529,437 and $4,221,733 in stock-based compensation | 856,427 | 5,694,806 | ||||||
| Research and development, includes $0 and $10,000 in stock-based compensation | 200,371 | 175,441 | ||||||
| Sales and marketing, includes $0 and $0 in stock-based compensation | — | 551 | ||||||
| Total Operating Expenses | 1,056,798 | 5,870,798 | ||||||
| NET LOSS FROM OPERATIONS | (1,056,798 | ) | (5,870,798 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest expense | (454 | ) | (1,930 | ) | ||||
| Gain on forgiveness of debt | 32,500 | 45,000 | ||||||
| Amortization of debt discount | (164,611 | ) | — | |||||
| Total Other Income (Expense) | (132,565 | ) | 43,070 | |||||
| Net loss before provision for income taxes | (1,189,363 | ) | (5,827,728 | ) | ||||
| Provision for income taxes | — | — | ||||||
| NET LOSS | (1,189,363 | ) | (5,827,728 | ) | ||||
| Net loss per share - basic and diluted | (0.15 | ) | (0.76 | ) | ||||
| Weighted average number of shares outstanding during the period - basic and diluted | 7,812,903 | 7,661,943 | ||||||
| Balance Sheet Data: | ||||||||
| Cash and cash equivalents | 46,577 | 4,090 | ||||||
| Working capital | (3,685,121 | ) | (2,791,619 | ) | ||||
| Total assets | 207,615 | 123,532 | ||||||
| Total liabilities | 3,731,698 | 2,975,709 | ||||||
| Total stockholders’ deficit | (3,524,083 | ) | (2,852,177 | ) | ||||
| Total liabilities and stockholders’ deficit | 207,615 | 123,532 | ||||||
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS
You should read the following discussion and analysis of our financial condition and plan of operations together with “Selected Financial Data” and our financial statements and the related notes appearing elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this prospectus. All amounts in this report are in U.S. dollars, unless otherwise noted.
Overview
We are a life sciences company with a mission of prolonging life and enhancing its quality by improving the health of the immune system. Our immune reprogramming technology is designed to retrain the immune system to induce tolerance with an objective of addressing rejection of transplanted organs, autoimmune diseases, and allergies. Our immune monitoring technology is designed to provide a personalized comprehensive profile of the immune system and we plan to utilize it in our upcoming clinical trials to monitor subjects’ immune response before, during and after drug administration. We are also evaluating plans to obtain FDA approval for this monitoring tool’s use as a clinical assay.
Immune Reprogramming
The discovery of immunosuppressive (anti-rejection and monoclonal) drugs over 40 years ago has made possible life-saving organ transplantation procedures and blocking of unwanted immune responses in autoimmune diseases. However, immune suppression leads to significant undesirable side effects, such as increased susceptibility to life-threatening infections and cancers, because it indiscriminately and broadly suppresses immune function throughout the body. While the use of these drugs has been justifiable because they prevent or delay organ rejection, their use for treatment of autoimmune diseases and allergies may not be acceptable because of the aforementioned side effects. Furthermore, transplanted organs often ultimately fail despite the use of immune suppression, and about 40% of transplanted organs survive no more than 5 years.
New, focused therapeutic approaches are needed that modulate only the small portion of immune cells that are involved in rejection of the transplanted organ, as this approach can be safer for patients than indiscriminate immune suppression. Such approaches are referred to as immune tolerance, and when therapeutically induced, may be safer for patients and also potentially allow long-term survival of transplanted tissues and organs.
In the late 1990s, academic research on these approaches was conducted at the Transplant Center in Loma Linda University (“LLU”) in connection with a project that secured initial grant funding from the U.S. Department of Defense. The focus of that project was for skin grafting for burn victims. Twenty years of research at LLU and an affiliated incubator led to a series of discoveries that have been translated into a large patent portfolio of therapeutic approaches that may be applied to the modulation of the immune system in order to induce tolerance to self and transplanted organs.
We have an exclusive worldwide license for commercializing this nucleic acid-based technology, named Apoptotic DNA Immunotherapy™ (ADi™) from LLU, which utilizes a novel approach that mimics the way the body naturally induces tolerance to our own tissues (“therapeutically induced immune tolerance”). While immune suppression requires continuous administration to prevent rejection of a transplanted organ, induction of tolerance has the potential to retrain the immune system to accept the organ for longer periods of time. Thus, ADi™ may allow patients to live with transplanted organs with significantly reduced immune suppression. ADi™ is a technology platform which we believe can be engineered to address a wide variety of indications.
We are developing ADi™ products for organ transplantation including skin grafting, autoimmune diseases, and allergies, with the initial focus on skin allografts and psoriasis, as we believe these indications will be most efficient in providing safety and efficacy data in clinical trials. To submit a Biologics License Application (“BLA”) for a biopharmaceutical product, clinical safety and efficacy must be demonstrated in a series of clinical studies conducted with human subjects. For products in our class of drugs, the first-in-human trials will be a combination of Phase I (safety/tolerability) and Phase II (efficacy) in affected subjects. To obtain approval to initiate the Phase I/IIa studies, an Investigational New Drug Application will be submitted to compile non-clinical efficacy data as well as manufacturing and pre-clinical safety/toxicology data. To date, we have conducted non-clinical studies in a stringent model of skin transplantation using genetically mismatched donor and recipient animals demonstrating a 3-fold increase in the survival of the skin graft in animals that were tolerized with ADi™ compared to animals that receive immune suppression alone. Prolongation of graft life was observed despite discontinuation of immune suppression after the first 5 weeks. Additionally, in an induced non-clinical model for psoriasis, ADi™ treatment resulted in a 69% reduction in skin thickness and a 38% decrease in skin flaking (two clinical parameters for assessment of psoriasis skin lesions). The Phase I/IIa studies in psoriasis will evaluate the safety/tolerability of ADi™ in patients diagnosed with psoriasis. Since the drug will be administered in subjects diagnosed with psoriasis, effectiveness of the drug to improve psoriatic lesions will also be evaluated. In another Phase I/IIa study, patients requiring skin allografts will receive weekly intra-dermal injections of ADi™ in combination with standard immune suppression to assess safety/tolerability and possibility of reducing levels of immunosuppressive drugs as well as prolongation of graft life. Later phase trials are planned after successful completion of these studies in preparation for submission for a BLA to regulatory agencies.
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Immune Monitoring
Understanding the status of an individual’s immune system is key to developing and administering immunotherapies such as ADi™. We have secured an exclusive worldwide license for commercializing a technology platform named Aditxt Immune Monitor™ (AiM™), which provides a personalized comprehensive profile of the immune system. It is intended to be informative for individual immune responses to viruses, bacterial antigens, peptides, drugs, bone marrow and solid organ transplants, and cancer. It has broad applicability to many other agents of clinical interest impacting the immune system, including those not yet identified such as future infectious agents.
AiM™ is being designed to allow individuals to understand, manage and monitor their immune profiles in order to be informed about attacks on or by their immune system. We believe AiM™ can also assist the medical community in anticipating possible immune responses and reactions to viruses, bacteria, allergens and transplanted organs. It can be useful in anticipating attacks on the body by having the ability to determine its potential response and for developing a plan to deal with an undesirable reaction by the immune system. Its advantages include the ability to provide a simple, rapid, accurate, high throughput, single platform assay that can be multiplexed to determine the immune status with respect to several factors simultaneously, in 3-16 hours, as well as detect antigen and antibody in a single test (i.e. infectious, recovered, immune). In addition, it can determine and differentiate between various types of cellular and humoral immune responses (T and B cells). It also provides for simultaneous monitoring of cell activation and levels of cytokine release (i.e., cytokine storms).
We plan to utilize AiM™ in our upcoming clinical trials to monitor subjects’ immune response before, during and after ADi™ drug administration. We are also evaluating plans to obtain FDA approval for AiM™’s use as a clinical assay and seeking to secure manufacturing, marketing and distribution partnerships for application in the Infectious Diseases market, by end of 2020. Beyond 2020, we plan to develop AiM™ for applications in additional markets such as Organ Rejection, Allergies, Drug/Vaccine Response, and Disease Susceptibility.
License Agreement with Loma Linda University
On March 8, 2018, we entered into an Assignment Agreement (the “Assignment Agreement”) with Sekris Biomedical, Inc. (“Sekris”). Sekris was a party to a License Agreement with Loma Linda University (“LLU”), entered into and made effective on May 25, 2011, and amended on June 24, 2011, July 16, 2012 and December 27, 2012 (the “Original Agreement,” and together with the Assignment Agreement, the “Sekris Agreements”). Pursuant to the Assignment Agreement, Sekris transferred and assigned all of its rights and obligations in and to and liabilities under the Original Agreement, of whatever kind or nature, to us. In exchange, on March 8, 2018, we issued a warrant to Sekris to purchase up to 1,000,000 shares of our common stock (the “Sekris Warrant”). The warrant was immediately exercisable and has an exercise price of $2.00 per share. The expiration date of the warrant is March 8, 2023. On March 15, 2018, we entered into a LLU License Agreement directly with Loma Linda University, which amends and restates the Sekris Agreements.
Pursuant to the LLU License Agreement, we obtained the exclusive royalty-bearing worldwide license in and to all intellectual property, including patents, technical information, trade secrets, proprietary rights, technology, know-how, data, formulas, drawings, and specifications, owned or controlled by LLU and/or any of its affiliates (the “LLU Patent and Technology Rights”) and related to therapy for immune-mediated inflammatory diseases (the ADi™ technology). We refer you to the section titled “Our Business—Intellectual Property—Patent Rights” for a summary of the patents and patent applications that we licensed from LLU pursuant to the LLU License Agreement. In consideration for the LLU License Agreement, we issued 50,000 shares of common stock to LLU.
Pursuant to the LLU License Agreement, we are required to pay an annual license fee to LLU. Also, upon completion of this offering, we will be required to pay $200,000 to LLU as a milestone payment within thirty (30) days of July 31, 2018. We are also required to pay to LLU milestone payments in connection with certain development milestones. Additionally, as consideration for prior expenses incurred by LLU to prosecute, maintain and defend the LLU Patent and Technology Rights, we are obligated to make the following payments to LLU:, $70,000 due at the end of December 2018, and a final payment of $60,000 due at the end of March 2019. We are required to defend the LLU Patent and Technology Rights during the term of the LLU License Agreement. Additionally, we will owe royalty payments of (i) 1.5% of Net Product Sales and Net Service Sales on any Licensed Products (defined as any finished pharmaceutical products which utilizes the LLU Patent and Technology Rights in its development, manufacture or supply), and (ii) 0.75% of Net Product Sales and Net Service Sales for Licensed Products and Licensed Services not covered by a valid patent claim for technology rights and know-how for a three (3) year period beyond the expiration of all valid patent claims. We also are required to produce a written progress report to LLU, discussing our development and commercialization efforts, within 45 days following the end of each year. All intellectual property rights in and to LLU Patent and Technology Rights shall remain with LLU (other than improvements developed by or on our behalf).
The LLU License Agreement shall terminate on the last day that a patent granted in to us by LLU is valid and enforceable or the day that the last patent application licensed to us is abandoned. The LLU License Agreement may be terminated by mutual agreement or by us upon 90 days written notice to LLU. LLU may terminate the LLU License Agreement in the event of (i) non-payments or late payments of royalty, milestone and license maintenance fees not cured within 90 days after delivery of written notice by LLU, (ii) a breach of any non-payment provision (including the provision that requires us to meet certain deadlines for milestone events (each, a “Milestone Deadline”)) not cured within 90 days after delivery of written notice by LLU and (iii) LLU delivers notice to us of three or more actual breaches of the LLU License Agreement by us in any 12-month period. Additional Milestone Deadlines include: (i) the requirement to have regulatory approval of an IND application to initiate a first-in-human clinical trials on or before March 31, 2020, (ii) the completion of first-in-human (phase I/II) clinical trials by March 31, 2022, (iii) the completion of Phase III clinical trials by March 31, 2024 and (iv) biologic licensing approval by the FDA by March 31, 2025.
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License Agreement with Leland Stanford Junior University (“Stanford”)
On February 3, 2020, we entered into an exclusive license agreement (the “February 2020 License Agreement”) with Stanford with regard to a patent concerning a method for detection and measurement of specific cellular responses. Pursuant to the February 2020 License Agreement, we received an exclusive worldwide license to Stanford’s patent with regard to use, import, offer, and sale of Licensed Products (as defined in the agreement). The license to the patented technology is exclusive, including the right to sublicense, beginning on the effective date of the agreement and ending when the patent expires. Under the exclusivity agreement, we acknowledged that Stanford had already granted a non-exclusive license in the Nonexclusive Field of Use, under the Licensed Patents in the Licensed Field of Use in the Licensed Territory (as those terms are defined in the February 2020 License Agreement”). However, Stanford agreed to not grant further licenses under the Licensed Patents in the Licensed Field of Use in the Licensed Territory.
We were obligated to pay a fee of $25,000 to Stanford within 60 days of February 3, 2020. We also issued 37,500 shares of the Company’s common stock to Stanford. An annual licensing maintenance fee is payable by us on the first anniversary of the February 2020 License Agreement in the amount of $40,000 for 2021 through 2024 and $60,000 in starting in 2025 until the license expires upon the expiration of the patent. The Company will pay milestone fees of $50,000 on the first commercial sales of a licensed product and $25,000 at the beginning of any clinical study for regulatory clearance of an in vitro diagnostic product developed and a potential licensed product.
In addition to the annual license maintenance fees outlined above, we will pay Stanford royalties on Net Sales (as such term is defined in the February 2020 License Agreement) during the of the term of the agreement as follows: 4% when Net Sales are below or equal to $5 million annually or 6% when Net Sales are above $5 million annually. The February 2020 License Agreement may be terminated upon our election on at least 30 days advance notice to Stanford, or by Stanford if we: (i) are delinquent on any report or payment; (ii) are not diligently developing and commercializing Licensed Product; (iii) miss certain performance milestones; (iv) are in breach of any provision of the February 2020 License Agreement; or (v) provide any false report to Stanford. Should any events in the preceding sentence occur, we have a thirty (30) day cure period to remedy such violation.
Going Concern
The Company was incorporated on September 28, 2017 and has not generated revenues to date. For the year and period ended December 31, 2019 and March 31, 2020, respectively, the Company had a net loss of $5,827,728 and $1,189,363 and will require significant additional capital in order to operate in the normal course of business and fund clinical studies. As a result, these conditions have raised substantial doubt regarding our ability to continue as a going concern beyond one year. While the Company believes in the viability of management’s strategy to generate sufficient revenue, control costs and the ability to raise additional funds if necessary, there can be no assurances to that effect. The Company’s ability to continue as a going concern is dependent upon the ability to complete clinical studies and implement the business plan, generate sufficient revenues and to control operating expenses.
Financial Results
We have a limited operating history. Therefore, there is limited historical financial information upon which to base an evaluation of our performance. Our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies in their early stages of operations. Our financial statements as of December 31, 2019, show a net loss of $5,827,728. Our financial statements as of March 31, 2020, show a net loss of $1,189,363. We expect to incur additional net expenses over the next several years as we continue to maintain and expand our existing operations. The amount of future losses and when, if ever, we will achieve profitability are uncertain.
Results of Operations
During the year ended December 31, 2019, we incurred a loss from operations of $5,870,798. This is due to general and administrative expenses of $5,694,806, which includes $4,221,733 in stock-based compensation, research and development of $175,441, which includes $10,000 in stock-based compensation, and sales and marketing expenses of $551. The $175,441 in research and development is comprised of $18,396 in licensing fees, $54,000 in product development, and $103,045 in other research and development expense.
During the year ended December 31, 2018, we incurred a loss from operations of $5,609,471. This is due to general and administrative expenses of $5,044,634, which includes $3,417,526 in stock-based compensation, research and development of $525,000, and sales and marketing expenses of $39,837. The $525,000 in research and development is comprised of licensing fees.
During the three months ended March 31, 2020, we incurred a loss from operations of $1,056,798. This is due to general and administrative expenses of $856,427, which includes $529,437 in stock-based compensation, research and development of $200,371, and sales and marketing expenses of $0. The $200,371 in research and development is comprised of $126,045 in licensing fees, $13,500 in product development, and $60,825 in other research and development expense.
During the three months ended March 31, 2019, we incurred a loss from operations of $1,244,689. This is due to general and administrative expenses of $1,199,783, which includes $723,608 in stock-based compensation, research and development of $44,868, and sales and marketing expenses of $38. The $525,587 in research and development is comprised of $13,500 in product development and $31,368 in other research and development expense.
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Liquidity
We have incurred substantial operating losses since inception and expect to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of March 31, 2020, we had an accumulated deficit of approximately $12.9 million. The Company had a working capital deficit of $3,685,121 as of March 31, 2020.
Our financial statements have been prepared assuming that we will continue as a going concern. We will require additional capital to meet our long-term operating requirements.
The Company has funded its operations from proceeds from the sale of equity and debt securities. Currently, the Company has various promissory notes in default. There is a risk that the continued default of such notes could prevent management from raising additional capital in the future and such continued default could result in the Company having to allocate some of the proceeds away from the research and development budget. The Company will require significant additional capital to sustain its short-term operations and make the investments it needs to execute its longer-term business plan. The Company’s ability to successfully raise sufficient funds through the sale of debt or equity securities when needed is subject to many risks and uncertainties and, even if it were successful, future equity issuances would result in dilution to its existing stockholders and any future debt or debt securities may contain covenants that limit the Company’s operations or ability to enter into certain transactions. The Company will need to raise additional funding through strategic relationships, public or private equity or debt financings, grants or other arrangements to develop and seek regulatory approvals for the Company’s existing and new product candidates. If such funding is not available or not available on terms acceptable to the Company, the Company’s current development plan and plans for expansion of its general and administrative infrastructure may be curtailed.
We will need to raise significant additional capital to continue to fund our operations and the clinical trials. We may seek to sell common stock, preferred stock or convertible debt securities, enter into a credit facility or another form of third-party funding or seek other debt financing. In addition, we may seek to raise cash through collaborative agreements or from government grants. The sale of equity and convertible debt securities may result in dilution to our stockholders and certain of those securities may have rights senior to those of our common shares. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights.
The source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of our clinical development program. Funding may not be available when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us to, among other things, delay, scale back or eliminate expenses including some or all of our planned development, including our clinical trials. There is substantial doubt about the Company’s ability to continue as a going concern (See page F-2 and F-7).
Critical accounting policies
Research and Development
We incur research and development costs during the process of researching and developing our technologies and future offerings. Our research and development costs consist primarily of licensing costs. We expense these costs as incurred unless such costs qualify for capitalization under applicable guidance.
Stock-Based Compensation
The Company accounts for stock-based compensation costs under the provisions of ASC 718, “Compensation—Stock Compensation,” which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all stock-based payments granted to employees, officers, and directors based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or canceled during the periods reported.
Fair value of Common Stock
In order to determine the fair value of shares of our common stock, our board of directors considered, among other things, contemporaneous valuations of our common stock. Given the absence of a public trading market of our capital stock to date, our board of directors has exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including:
| ● | contemporaneous valuations of our common stock; |
| ● | our business, financial condition and results of operations, including related industry trends affecting our operations; |
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| ● | the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or sale of our company, given prevailing market conditions; |
| ● | the lack of marketability of our common stock; |
| ● | the market performance of comparable publicly-traded companies; |
| ● | U.S. and global economic and capital market conditions and outlook; and |
| ● | Common stock valuation methodology. |
In estimating the fair market value of our common stock, our board of directors first determined the equity value of our business using accepted valuation methods.
Property
The Company does not own any real estate. The Company does not currently lease any office space, but intends to sign an office lease in Northern California upon the completion of this offering.
JOBS Act
On April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act.
We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board (“PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.
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Overview
We are a life sciences company developing technologies specifically focused on improving the health of the immune system through immune reprogramming and monitoring. Our immune reprogramming technology is designed to retrain the immune system to induce tolerance with an objective of addressing rejection of transplanted organs, autoimmune diseases, and allergies. Our immune monitoring technology is designed to provide a personalized comprehensive profile of the immune system and we plan to utilize it in our upcoming clinical trials to monitor subjects’ immune response before, during and after drug administration. We are also evaluating plans to obtain FDA approval for this monitoring tool’s use as a clinical assay.
Immune Reprogramming
The discovery of immunosuppressive (anti-rejection and monoclonal) drugs over 40 years ago has made possible life-saving organ transplantation procedures and blocking of unwanted immune responses in autoimmune diseases. However, immune suppression leads to significant undesirable side effects, such as increased susceptibility to life-threatening infections and cancers, because it indiscriminately and broadly suppresses immune function throughout the body. While the use of these drugs has been justifiable because they prevent or delay organ rejection, their use for treatment of autoimmune diseases and allergies may not be acceptable because of the above-mentioned side effects. Furthermore, transplanted organs often ultimately fail despite the use of immune suppression, and about 40% of transplanted organs survive no more than 5 years.
New, focused therapeutic approaches are needed that modulate only the small portion of immune cells that are involved in rejection of the transplanted organ, as this approach can be safer for patients than indiscriminate immune suppression. Such approaches are referred to as immune tolerance, and when therapeutically induced, may be safer for patients and also potentially allow long-term survival of transplanted tissues and organs.
In the late 1990s, academic research on these approaches was conducted at the Transplant Center at Loma Linda University in connection with a project that secured initial grant funding from the U.S. Department of Defense. The focus of that project was for skin grafting for burn victims. Twenty years of research at LLU and an affiliated incubator led to a series of discoveries that have been translated into a large patent portfolio of therapeutic approaches that may be applied to the modulation of the immune system in order to induce tolerance to self and transplanted organs.
We have an exclusive worldwide license from LLU for commercializing this nucleic acid-based technology called Apoptotic DNA Immunotherapy™ (ADi™), which utilizes a novel approach that mimics the way our bodies naturally induce tolerance to our own tissues (“therapeutically induced immune tolerance”). While immune suppression requires continuous administration to prevent rejection of a transplanted organ, induction of tolerance has the potential to retrain the immune system to accept the organ for longer periods of time. Thus, ADi™ may allow patients to live with transplanted organs with significantly reduced immune suppression. ADi™ is a technology platform, which we believe can be engineered to address a wide variety of indications.
We are developing ADi™ products for organ transplantation including skin grafting, autoimmune diseases, and allergies, with the initial focus on skin allografts and psoriasis, as we believe these indications will be most efficient in providing safety and efficacy data in clinical trials. To submit a BLA for a biopharmaceutical product, clinical safety and efficacy must be demonstrated in a series of clinical studies conducted with human subjects. For products in our class of drugs, the first-in-human trials will be a combination of Phase I (safety/tolerability) and Phase II (efficacy) in affected subjects. To obtain approval to initiate the Phase I/IIa studies, an Investigational New Drug Application will be submitted to compile non-clinical efficacy data as well as manufacturing and pre-clinical safety/toxicology data. To date, we have conducted non-clinical studies in a stringent model of skin transplantation using genetically mismatched donor and recipient animals demonstrating a 3-fold increase in the survival of the skin graft in animals that were tolerized with ADi™ compared to animals that receive immune suppression alone. Prolongation of graft life was observed despite discontinuation of immune suppression after the first 5 weeks. Additionally, in an induced non-clinical model for psoriasis, ADi™ treatment resulted in a 69% reduction in skin thickness and a 38% decrease in skin flaking (two clinical parameters for assessment of psoriasis skin lesions). The Phase I/IIa studies in psoriasis will evaluate the safety/tolerability of ADi™ in patients diagnosed with psoriasis. Since the drug will be administered in subjects diagnosed with psoriasis, effectiveness of the drug to improve psoriatic lesions will also be evaluated. In another Phase I/IIa study, patients requiring skin allografts will receive weekly intra-dermal injections of ADi™ in combination with standard immune suppression to assess safety/tolerability and possibility of reducing levels of immunosuppressive drugs as well as prolongation of graft life. Later phase trials are planned after successful completion of these studies in preparation for submission for a BLA to regulatory agencies.
ADi™ Advantages
ADi™ is a nucleic acid-based technology (e.g., plasmid DNA-based) which we believe selectively suppresses only those immune cells involved in the rejection of tissue and organ transplants. It does so by tapping into the body’s natural process of cell death (apoptosis) to reprogram the immune system to stop unwanted attacks on self or transplanted tissues. Apoptosis is a natural process of “immune tolerance” used by the body to clear dying cells and to allow recognition and tolerance to self tissue. ADi™ triggers this process enabling the natural immune system cells to recognize the targeted tissues as “self”. Conceptually, it is designed to retrain the immune system to become accepting of the organ similar to how natural apoptosis reminds our immune system to be tolerant to our own “self” tissues.
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While efforts have been made by various groups to promote tolerance through cell therapies and ex vivo manipulation of patient cells (takes place outside the body typically requiring hospitalization), to our knowledge, we will be unique in our approach of using in-body induction of apoptosis to promote tolerance to specific tissues. In addition, ADi™ treatment itself will not require hospitalization, only an injection in minute amounts into the skin.
Reduce Chronic Rejection
While immunosuppressants control acute rejection during the early time-period after receiving an organ, chronic rejection of the organ that occurs one or more years after the transplant procedure continues to pose a major challenge for organ recipients.
Chronic rejection has been likened to autoimmunity (a misdirected immune response that occurs when the immune system goes awry), where specific tissues in the transplanted organ are attacked by the immune system. In other words, chronic rejection may not be caused just by differences between the donor and the recipient, but rather by an immune response by the recipient to specific tissues in the organ. Our pre-clinical studies suggest that ADi™ has the ability to tolerize to specific tissues in a transplanted organ, and conceivably, reducing incidences of chronic rejection.
Moreover, preclinical studies have demonstrated that ADi™ treatment significantly and substantially prolongs graft survival, in addition to successfully “reversing” other established immune-mediated inflammatory processes.
Reduce immune suppression
Studies in animal models have shown that conditioning/desensitizing the animals to receive the transplant, prolongs the survival of the transplanted tissue or organ. These studies have used repeated exposure to low doses of protein components in specific organs to reduce immunologic recognition and attack on the transplanted organ.
Based on some of our data, we believe that with ADi™ treatment, recipients can be conditioned/desensitized ahead of transplantation, thereby retraining the immune system to more readily accept the organ and also reduce the levels of immunosuppressive drugs needed post-transplantation.
Preformed Antibodies
Studies have shown that presence of preformed antibodies prior to transplantation procedures increases the rate of organ rejection. Preformed antibodies can develop in previously-transplanted patients, patients who have given birth, and patients who have previously received blood transfusions. With more than 113,000 patients on transplant waiting lists in the U.S. alone, patients with pre-existing antibodies have much lower chances at qualifying to receive organs due to their increased risk of rejection – even with immune suppression.
Sadly, transplanted patients have a probability of needing re-transplantation at some point due to eventual chronic rejection of their transplanted organ, with the possible exception of some newborn recipients. With increased incidence of preformed antibodies, these patients may never have the opportunity to receive another organ. Based on experimental data, we believe that ADi™ may have the potential to address this issue providing these individuals better opportunities at receiving an organ transplantation.
ADi™ Key Differentiators
Ease of Delivery
Therapeutic products are typically administered systemically (i.e., by mouth in pill form or injected intramuscularly/intravenously). This requires repeated large doses of the drug to allow sufficient concentrations to reach the affected sites. ADi™ is a DNA-based product that can be injected directly into the skin where the target cells of the immune system reside, thereby significantly simplifying the delivery of the product and reducing the amount of product needed.
Repeat Dosing
DNA-based products are less likely to result in formation of neutralizing antibodies, which lend themselves to repeat dosing as may be required by ADi™ products.
Cost of Goods Advantage
ADi™ products are DNA-based and cost-effective to manufacture. Furthermore, DNA-based products are very stable and do not require adherence to cold chain (temperature-controlled) protocols for shipping. This also makes the product ideal for global distribution.
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Simplified Therapy Delivery System
We believe that tolerance induction using ADi™ may potentially obviate the need for hospitalization because it can simply injected into the skin. This approach reduces treatment costs and complexities in treatment delivery. The anticipated administration of ADi™ will include an initial priming regimen that will require injections administered once a week for several weeks. Thereafter, booster or maintenance doses will be provided on an individual basis as determined by immune and inflammation testing. ADi™ treatments will be significantly more convenient and comfortable for patients because they do not require removal of patient cells for ex vivo manipulation.
ADi™ Technology Platform
ADi™ utilizes a novel approach that mimics the way our bodies naturally induce tolerance to our own tissues. It is a technology platform which we believe can be engineered to address a wide variety of indications. ADi™ includes two DNA molecules which are designed to deliver signals to induce tolerance. The first DNA molecule encodes a pro-apoptotic protein, which induces ‘programmed’ cell death. This is a core component of the technology because it is intended to greatly increase the recruitment of dendritic cells, which are implicated in regulating the immune system. The second DNA molecule encodes the protein of interest (guiding antigen), which is modified to promote a path of tolerance. The guiding antigen is intended to result in tolerance induction specific to the tissue where the protein is found.
ADi™ has been successfully tested in several preclinical models (skin grafting, psoriaris, type 1 diabetes, alopecia areata) and its efficacy can be attributed to multiple factors:
| 1. | ADi™ does not rely on a single mechanistic approach. It has multiple components (interchangeable target antigen, apoptosis, methylated plasmid DNA) that affect different arms of the immune system, which can be manipulated. |
| 2. | ADi™ activates key immune cells known to maintain tolerance in test animals and humans. |
| 3. | ADi™ has been successfully applied to a stringent transplantation model. |
| 4. | ADi™ lends itself to repeat dosing, which may be required to achieve its full potential therapeutic effect. |
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Proof of Concept: Skin Grafting
Results shown are 5 weeks post-transplantation
The proof of concept experiment performed in transplantation was a skin allograft transplantation procedure in which the donor skin was obtained from white BALB/c mice and transplanted to black C57BL/6 mice. The experiment was designed to address a more challenging scenario where the donor tissue was obtained from a donor which is genetically mismatched with the recipient. This is unlike clinical scenarios where the donor and recipient are genetically matched as much as possible. While these experiments were repeated in several separate experiments, the results shown here were obtained from a study conducted with 14 mice in the ADi™ treatment group and 7 mice in the control group. Prior to submission of an Investigational New Drug Application, additional non-clinical studies will be conducted in a pig model to establish the precise protocol (e.g. timing of vaccine administration, dosing, and appropriate immunosuppressive agents that will be used in combination with ADi™) that will be used in the clinical trials. In addition, IND-enabling safety/toxicology studies will be conducted by a GLP lab to ensure product safety for clinical testing.
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Proof of Concept: Psoriasis
| · | Psoriasis causes increased skin thickness and scaling in an established 10-day psoriasis model |
| · | ADiTM treatment resulted in a 69% reduction in skin thickening and 38% reduction in scaling over the 10-day study period |
Proof of Concept: Type 1 Diabetes
90% of female NOD mice developed spontaneous autoimmune diabetes. Disease progression may be different for individual animals.
ADiTM was administered once a week for 8 weeks after each animal developed hyperglycemia. All animals responded with 80% showing durable response for the entire 40-week study period.
| · | Type 1 or autoimmune diabetes is a condition where the body’s immune system mistakenly attacks cells in the pancreas resulting in diminished production of insulin |
| · | ADiTM incorporates an antigen (GAD) expressed in the pancreas |
| · | Administration of ADiTM using GAD as the antigen over an 8-week period in animals with T1D restores insulin production and reverses hyperglycemia |
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Proof of Concept: Alopecia Areata
ADiTM protects hair follicles from autoimmune attack
Immune Monitoring
We believe that understanding the status of an individual’s immune system is key to developing and administering immunotherapies such as ADi™. We have secured an exclusive worldwide license for commercializing a technology platform named Aditxt Immune Monitor™ (AiM™), which provides a personalized comprehensive profile of the immune system. It is intended to be informative for individual immune responses to viruses, bacterial antigens, peptides, drugs, bone marrow and solid organ transplants, and cancer. It has broad applicability to many other agents of clinical interest impacting the immune system, including those not yet identified such as future infectious agents.
AiM™ is being designed to allow individuals to understand, manage and monitor their immune profiles in order to be informed about attacks on or by their immune system. We believe AiM™ can also assist the medical community in anticipating possible immune responses and reactions to viruses, bacteria, allergens and transplanted organs. It can be useful in anticipating attacks on the body by having the ability to determine its potential response and for developing a plan to deal with an undesirable reaction by the immune system. Its advantages include the ability to provide a simple, rapid, accurate, high throughput, single platform assay that can be multiplexed to determine the immune status with respect to several factors simultaneously, in 3-16 hours, as well as detect antigen and antibody in a single test (i.e. infectious, recovered, immune). In addition, it can determine and differentiate between various types of cellular and humoral immune responses (T and B cells). It also provides for simultaneous monitoring of cell activation and levels of cytokine release (i.e., cytokine storms).
We plan to utilize AiM™ in our upcoming clinical trials to monitor subjects’ immune response before, during and after ADi™ drug administration. We are also evaluating plans to obtain FDA approval for AiM™’s use as a clinical assay and seeking to secure manufacturing, marketing and distribution partnerships for application in the Infectious Diseases market, by end of 2020. Beyond 2020, we plan to develop AiM™ for applications in additional markets such as Organ Rejection, Allergies, Drug/Vaccine Response, and Disease Susceptibility.
| (1) | Organ Rejection |
Typically, by the time a transplanted or a native organ shows signs of failure, the damage is already done, and reversal of the tissue injury becomes challenging. Access to early warning signs of damage would be invaluable to reverse or even prevent the damage. There are currently no practical, efficient assays available to measure cellular immune responses and available tools do not provide timely information for patients. AiM™ can be used to provide a sensitive and rapid tool to determine T cell response and to differentiate between various types of cellular immune responses. It can be multiplexed providing information about the number of cells responding as well as quantifying the amounts of various cytokines released by the cells in a single assay. Determination of cellular response has valuable applications for prediction, monitoring, early detection, and treatment of disease, including organ failure/rejection, as well as treatment efficacy. It can also reveal dysfunction of the immune system potentially contributing to more severe disease.
| (2) | Allergies |
Our immune system protects us by acting as a barrier against foreign substances and by eliminating them when they penetrate our bodies. Once the initial exposure has occurred, memory cells develop to prepare the body against a future exposure. This process is called immunity. In certain situations, however, instead of immunity, the immune system develops memory cells that result in a more severe reaction during a future exposure to the same substance. This type of response is called a hypersensitivity response, commonly known as an allergic response. AiM™ can be used to develop multiplex assays each designed to test and monitor immune response to allergens. Based on the ability of this technology to run multiple tests in a single assay, 100 or more substances can potentially be tested for simultaneously.
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| (3) | Drug/Vaccine Response |
There are currently no effective assays to predict and easily assess responses to vaccination. To determine whether an individual has responded to a particular vaccine, antibody titers are measured. This process may take several days. Furthermore, for vaccines that require a series of injections, titers are not measured between injections and may not be known for months. AiM™ can be used to determine whether a patient is a responder or non-responder. It can provide an effective and rapid tool for potentially determining beneficial responses to a vaccine and can be used to monitor titer development post vaccination. It can allow evaluation of multiple vaccines in a single test (for memory B cell detection). This application can be useful for vaccines, cancer therapeutics anti-rejection drugs, anti-viral drugs, among others.
| (4) | Disease Susceptibility |
Disease susceptibility can vary from one individual to another and it can be a function of various factors, including genetic variability and differences in human leukocyte antigens (HLA) encoded by major histocompatibility complex (MHC) and responsible for regulation of the immune system in humans. People with certain HLA types may have higher or lower susceptibility to diseases. AiM™ can be used to develop assays to evaluate differences in HLA types in individuals to help elucidate the relationship between certain HLA types and susceptibility to various diseases.
| (5) | Infectious Diseases |
Infectious diseases can cause a major predicament for scientific and medical professionals, epidemiologists, and infectious disease specialists, among others, who need to determine how to treat patients in real time while efficacious therapies are still being developed. Proper decision making requires understanding why some affected individuals show minor or no symptoms, some recover, and others die. This is fundamental to creating effective targeted therapeutics which may differ depending on the underlying profile of the individual at risk for, or with, disease. The immune system plays a major role in how any given individual responds to the infectious agent. This response can be inadequate or too robust or appropriately effective. Regardless, the kinetics of the response by the cellular and humoral (antibody) immune systems to the infectious agent are often unknown. A basic critical question, then, is what do the dynamics of the immune response look like from exposure to and through the disease period and during convalescence for those who survive and those who don’t; and how might vaccines and therapies alter these profiles such that predictions of vaccine/drug efficacy could be inferred prior to vaccination/treatment and/or disease severity or progression be prognosticated. AiM™ can be used to help address these questions with multiplex assays each designed to test and monitor the immune response to infectious agents. Based on the ability to run multiple tests in a single assay, 100 or more agents can potentially be tested for simultaneously.
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License Agreement with Loma Linda University
On March 8, 2018, we entered into an Assignment Agreement (the “Assignment Agreement”) with Sekris Biomedical, Inc. (“Sekris”). Sekris was a party to a License Agreement with Loma Linda University (“LLU”), entered into and made effective on May 25, 2011, and amended on June 24, 2011, July 16, 2012 and December 27, 2012 (the “Original Agreement,” and together with the Assignment Agreement, the “Sekris Agreements”). Pursuant to the Assignment Agreement, Sekris transferred and assigned all of its rights and obligations in and to and liabilities under the Original Agreement, of whatever kind or nature, to us. In exchange, on March 8, 2018, we issued a warrant to Sekris to purchase up to 1,000,000 shares of our common stock (the “Sekris Warrant”). The Sekris Warrant was immediately exercisable and the exercise price is $2.00 per share. The expiration date of the warrant is March 8, 2023. On March 15, 2018, we entered into the LLU License Agreement directly with Loma Linda University, which amends and restates the Sekris Agreements (the “LLU License Agreement”).
Pursuant to the LLU License Agreement, we obtained the exclusive royalty-bearing worldwide license in and to all intellectual property, including patents, technical information, trade secrets, proprietary rights, technology, know-how, data, formulas, drawings, and specifications, owned or controlled by LLU (the “LLU Patent and Technology Rights”) and/or any of its affiliates and related to therapy for immune-mediated inflammatory diseases (the ADi™ technology). We refer you to the section titled “Our Business—Intellectual Property—Patent Rights” for a summary of the patents and patent applications that we licensed from LLU pursuant to the LLU License Agreement. In consideration for the LLU License Agreement, we issued 50,000 shares of common stock to LLU.
Pursuant to the LLU License Agreement, we are required to pay an annual license fee of $25,000 to LLU. Additionally, upon completion of this offering, we will be required to pay $200,000 to LLU as a milestone payment that was due within thirty (30) days of July 31, 2018. Additionally, the Company has agreed to pay license fees of $25,000 annually starting March 31, 2020, milestone fees totaling up to $1,725,000, and a past patent fee of $200,000 which is to be paid in quarterly installments between September 2018 and March 2019. As consideration for prior expenses incurred by LLU to prosecute, maintain and defend the LLU Patent and Technology Rights, we are obligated to make the following payments to LLU: $70,000 that was due at the end of December 2018, and a final payment of $60,000 that was due at the end of March 2019. As of the date of this prospectus, we have not received any written demand for payment from LLU.
We are required to defend the LLU Patent and Technology Rights during the term of the LLU License Agreement. Additionally, we will owe low single-digit royalty payments on any Licensed Products (defined as any finished pharmaceutical product which utilizes the LLU Patent and Technology Rights in its development, manufacture or supply). We also are required to produce a written progress report to LLU, discussing our development and commercialization efforts, within 45 days following the end of each year. All intellectual property rights in and to LLU Patent and Technology Rights shall remain with LLU (other than improvements developed by or on our behalf).
The LLU License Agreement shall terminates on the last day that a patent granted in to us by LLU is valid and enforceable or the day that the last patent application licensed to us is abandoned. The LLU License Agreement may be terminated by mutual agreement or by us upon 90 days written notice to LLU. LLU may terminate the LLU License Agreement in the event of (i) non-payments or late payments of royalty, milestone and license maintenance fees not cured within 90 days after delivery of written notice by LLU, (ii) a breach of any non-payment provision (including the provision that requires us to meet certain deadlines for milestone events (each, a “Milestone Deadline”)) not cured within 90 days after delivery of written notice by LLU and (iii) LLU delivers notice to us of three or more actual breaches of the LLU License Agreement by us in any 12-month period. The next such Milestone Deadline is the requirement to complete a financing round by July 31, 2018. Additional Milestone Deadlines include: (i) the requirement to have regulatory approval of an IND application to initiate a first-in-human clinical trials on or before March 31, 2020, (ii) the completion of first-in-human (phase I/II) clinical trials by March 31, 2022, (iii) the completion of Phase III clinical trials by March 31, 2024 and (iv) biologic licensing approval by the FDA by March 31, 2025.
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License Agreement with Leland Stanford Junior University (“Stanford”)
On February 3, 2020, we entered into an exclusive license agreement (the “February 2020 License Agreement”) with Stanford with regard to a patent concerning a method for detection and measurement of specific cellular responses. Pursuant to the February 2020 License Agreement, we received an exclusive worldwide license to Stanford’s patent with regard to use, import, offer, and sale of Licensed Products (as defined int the agreement). The license to the patented technology is exclusive, including the right to sublicense, beginning on the effective date of the agreement and ending when the patent expires. Under the exclusivity agreement, we acknowledged that Stanford had already granted a non-exclusive license in the Nonexclusive Field of Use, under the Licensed Patents in the Licensed Field of Use in the Licensed Territory (as those terms are defined in the February 2020 License Agreement). However, Stanford agreed to not grant further licenses under the Licensed Patents in the Licensed Field of Use in the Licensed Territory.
We were obligated to pay a fee of $25,000 to Stanford within 60 days of February 3, 2020. We also issued 37,500 shares of the Company’s common stock to Stanford. An annual licensing maintenance fee is payable by us on the first anniversary of the February 2020 License Agreement in the amount of $40,000 for 2021 through 2024 and $60,000 in starting in 2025 until the license expires upon the expiration of the patent. The Company will pay milestone fees of $50,000 on the first commercial sales of a licensed product and $25,000 at the beginning of any clinical study for regulatory clearance of an in vitro diagnostic product developed and a potential licensed product.
In addition to the annual license maintenance fees outlined above, we will pay Stanford royalties on Net Sales (as such term is defined in the February 2020 License Agreement) during the of the term of the agreement as follows: 4% when Net Sales are below or equal to $5 million annually or 6% when Net Sales are above $5 million annually. The February 2020 License Agreement may be terminated upon our election on at least 30 days advance notice to Stanford, or by Stanford if we: (i) are delinquent on any report or payment; (ii) are not diligently developing and commercializing Licensed Product; (iii) miss certain performance milestones; (iv) are in breach of any provision of the February 2020 License Agreement; or (v) provide any false report to Stanford. Should any events in the preceding sentence occur, we have a thirty (30) day cure period to remedy such violation.
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Plan of Operations
If we are successful in raising the $10,450,000 contemplated by this offering, we believe that the Company will have sufficient cash resources to fund its plan of operations for the next eighteen (18) months, which will be focused on Phase I/IIa Clinical Trials in a transplantation and autoimmune indication.
High-level Objectives for Skin Allograft Clinical Program:
| ● | Dose optimization to determine optimum dose/ratio of product candidate in human subjects requiring skin and other organ and/or tissue allografts | |
| ● | Clinical Phase I/IIa First-In-Human (FIH) Study to demonstrate safety and clinical proof-of-concept in human subjects requiring skin allografts |
Our FIH clinical studies will combine Phase I (designed to test clinical safety) and Phase IIa (designed to obtain proof of effectiveness in human subjects), in subjects requiring skin and other organ and/or tissue allografts. We have selected this indication for several reasons, including:
| 1. | Our existing preclinical data has shown promising results of ADi™ in prolonging skin allografts; |
| 2. | The relative ease of visualization of the graft without the need for biopsies; and |
| 3. | The need for therapies that allow reduction of levels of immune suppression that are currently used for skin allografts to prevent rejection of skin, which is highly antigenic. |
We have already identified a clinical trial center with adequate patients, which we believe will simplify and reduce the time required for patient recruitment. Upon approval by the FDA and/or the applicable regulatory agency, and once the exact protocol has been determined in the preclinical studies, clinical trials will be initiated.
High-level Objectives for Psoriasis Clinical Program:
| ● | Dose optimization to determine optimum dose of product candidate in psoriasis subjects | |
| ● | Clinical Phase I/IIa FIH Study to demonstrate safety and clinical proof-of-concept in psoriasis |
Our FIH clinical studies will combine Phase I (designed to test clinical safety) and Phase IIa (designed to obtain proof of effectiveness in human subjects), in psoriasis patients. We have selected this indication for several reasons, including:
| 1. | Our existing preclinical data has shown promising results of ADi™ in reducing scaling and skin thickness in the mouse model; and | |
| 2. | The relative ease of visualization of the lesions to determine clinical effectiveness of the test article. |
We will be identifying clinical trial centers with adequate patients. Upon approval by the FDA and/or the applicable regulatory agency clinical trials will be initiated.
We are also evaluating plans to obtain FDA approval for AiM™’s use as a clinical assay and seeking to secure manufacturing, marketing and distribution partnerships for application in the Infectious Diseases market, by end of 2020. Beyond 2020, we plan to develop AiM™ for applications in additional markets such as Organ Rejection, Allergies, Drug/Vaccine Response, and Disease Susceptibility.
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Drug Approval Process
In the United States, Food and Drug Administration (“FDA”) approval is required before any new drugs can be introduced to the market. We currently have a product candidate for our first-in-human studies, but as of the date of this prospectus, we have not submitted an application to the regulatory agencies for approval.
We are working with a contract manufacturer who has the know-how, product ingredients including plasmid DNA molecules, and our patent-pending bacterial strain. Several batch runs have been successfully completed to demonstrate our ability to produce the DNA plasmids in a GMP facility. Based on validation studies, we are reasonably confident in our ability to produce clinical grade product candidates at larger scales. The contract manufacturer has provided a proposal for manufacturing of our clinical grade material, which will be signed and accepted once this offering is completed and we are ready to initiate GMP manufacturing. We are not currently party to an agreement with this contract manufacturer. We intend to enter into such an agreement after the completion of this offering.
The product candidate selected for clinical trials must be subjected to pre-clinical safety/toxicology studies by an independent GLP (Good Laboratory Practice) laboratory to demonstrate its suitability for clinical testing in human patients. Upon completion of manufacturing and safety/toxicology testing, an Investigation New Drug (IND) application will be prepared for submission to the regulatory agencies.
Upon receipt of clearance to initiate clinical testing, the ADi™ product can be tested in human patients. Our product will be tested in clinical trials, one in patients with psoriasis and one in patients who require skin allografting. Therefore, our first-in-human studies will be combined Phase I/Phase IIa studies in which safety and efficacy data will be obtained. We plan to start with in skin indications (psoriasis and skin allografting) because we believe these indications will be most efficient in providing safety and efficacy data in clinical trials. In parallel, we will continue to develop additional product formulations for other indications.
We are also evaluating plans to obtain FDA approval for AiM™’s use as a clinical assay. In the U.S., FDA approval is required before any In Vitro Diagnostic (“IVD”) device can be introduced to the market for clinical use (excluding research purposes). This process does not require clinical trials, but it does require validation data demonstrating accuracy of the device.
Target market
In the U.S. alone, there are over 36,000 patients who receive organ transplantations each year, with more than 113,000 on transplant waiting lists.
The field of organ transplantation has been made possible and continues to rely on broad-acting immunosuppressive drugs, high levels of which can result in a compromised immune system that renders organ recipients susceptible to cancer and potentially life-threatening infections including re-activation of latent viruses.
In addition, immunosuppressants control acute rejection during the early time-period after receiving an organ but chronic rejection of the organ remains an unmet challenge for surgeons and transplant recipients.
While efforts have been made by various groups to promote tolerance through cell therapies and ex vivo manipulation of patient cells, these procedures take place outside the body and typically require hospitalization.
Moreover, transplanted patients will need re-transplantation at some point, with the possible exception of some newborn recipients. With increased incidence of preformed antibodies, these patients may never have the opportunity to receive another organ. Preformed antibodies can develop in previously-transplanted patients, patients who have given birth, and patients who have previously received blood transfusions. These patients have much lower chances at qualifying to receive organs due to their increased risk of rejection – even with immune suppression. The potential to reduce formation of preformed antibodies in these patients will provide better opportunities for them to receive another transplanted organ.
There are gaps between current approaches and what the market needs. We believe that ADi™ addresses these gaps. ADi™ is easy to administer (does not require ex-vivo treatment of patient cells), it does not appear to suppress the immune system, it may allow patients to live with transplanted organs with significantly reduced immune suppression, it may provide for long-term survival of transplanted tissues and organs, may be more effective because it does not rely on a single immune pathway/mechanism, and potentially provides patients with pre-existing antibodies a chance to qualify to receive organs.
While these advantages present opportunities for unmet medical needs in the field of organ transplantation, the industry in which we operate is highly competitive. A small company such as us will meet significant challenges including regulatory requirements for approval of a new class of therapeutic agents, challenges in large scale manufacturing and marketing, cost of developing a novel therapeutic agent, which may require co-development partners who may or may not be willing to work with us, and the willingness of transplant surgeons to adopt our therapeutic vaccines in their existing immune suppression protocols. These challenges pose risks that we may not be able to overcome.
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Operational Advantages
Location
We intend to sign a lease in Northern California upon the completion of this offering. Assuming we do, we will be located near resources including Leland Stanford Junior University (“Stanford”).
Strategic Partners
Our plan is to work with strategic partners to leverage common resources to accomplish milestones over the next 3 years and potentially get access to expertise, materials, and infrastructure (such as laboratory space) which we believe can be advantageous to our development. We hope that this strategy will reduce costs by obviating the need to duplicate resources.
Intellectual Property (IP)
We strive to protect and enhance the proprietary technology, inventions, and improvements that are commercially important to our business, including seeking, maintaining and defending patent rights, whether developed internally or licensed from third parties. Our policy is to seek to protect our proprietary position by, among other methods, filing patent applications in the United States and in jurisdictions outside of the United States, to protect our proprietary technology, inventions, improvements and product candidates that are important to the development and implementation of our business. We also rely on trade secrets and know-how relating to our proprietary technology and product candidates, continuing innovation, and in-licensing opportunities to develop, strengthen and maintain our proprietary position in the field of immuno-therapy. We also plan to rely on data exclusivity, market exclusivity, and patent term extensions when available. Our commercial success will depend in part on our ability to obtain and maintain patent and other proprietary protection for our technology, inventions, and improvements; to preserve the confidentiality of our trade secrets; to obtain and maintain licenses to use intellectual property owned by third parties; to defend and enforce our proprietary rights, including any patents that we may own in the future; and to operate without infringing on the valid and enforceable patents and other proprietary rights of third parties.
The ADi™ technology and its various components are protected by multiple families of patents and patent applications, including several U.S. and non-U.S. issued patents. As of the date of this prospectus, our patent portfolio licensed from LLU includes 7 U.S. patents, 3 U.S. pending patent applications, 59 foreign patents, and 15 foreign pending patent applications directed to ADi™ and related technologies. The ADi™ patents are broadly categorized into three groups, one for autoimmune diseases and type 1 diabetes; one for organ transplantation and a method of producing plasmid DNA that is mammalian-like to prevent immune activation; and one providing patent protection for a composition of matter for a tolerance delivery system for antigens of interest that would be relevant for various given indications. The third group is the basis for a platform allowing development of a new class of immunotherapeutics for various indications. The projected expiration dates for these ADi™ patents ranges from 2021 to 2034. The AiM™ technology is protected by a U.S. patent which encompasses methods, systems and kits for detection and measurement of specific immune responses. We also possess and/or in-license substantial know-how and trade secrets relating to the development and commercialization of our product candidates, including related manufacturing processes and technology. We plan to continue expanding and strengthening our IP portfolio with additional patent applications in the future.
Corporate Advisors
Jeffrey Runge, MD, FACEP – Senior Advisor
Dr. Jeffrey Runge has over 35 years of experience as a physician, board certified in emergency medicine, with two decades of experience as a Federal government and healthcare executive. He has expertise across the fields of homeland defense, threat mitigation and prevention, medical preparedness, and medical services delivery. He also served as the head of two federal agencies (2001-2008) and now provides strategic consulting and executive services for companies in the health, defense and security sectors, as well as corporate board service for public companies in the medical, safety and biodefense sectors.
Charles Crocker – Senior Advisor
Mr. Charles Crocker is the retired Chairman and Chief Executive Officer of BEI Technologies, Inc. He has over 40 years background in founding and growing companies, including public-company experience in the medical field. He has served as a member of the board of multiple public and private companies.
Employees
We have two (2) full-time employees. We engage consultants on an as needed basis from time to time. Currently, we have engaged sixteen (16) consultants. We believe our relations with employees to be good.
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Executive Officers and Directors
The following table sets forth the name, age and position of each of our executive officers, key employees and directors as of the date of this prospectus.
| Name | Age | Positions | ||
| Amro Albanna | 50 | Chief Executive Officer, Director | ||
| David Briones | 43 | Interim Chief Financial Officer | ||
| Corinne Pankovcin (1) | 53 | Chief Financial Officer nominee | ||
| Shahrokh Shabahang | 57 | Chief Innovation Officer, Director | ||
| Brian Brady | 41 | Director | ||
| Namvar Kiaie (2) | 54 | Director nominee | ||
| Laura Anthony (2) | 51 | Director nominee |
| (1) | The board of directors intends to appoint Ms. Corinne Pankovcin as Chief Financial Officer upon the completion of this offering. | |
| (2) | The board of directors intends to appoint Mr. Namvar Kiaie and Ms. Laura Anthony as directors upon the completion of this offering. |
Amro Albanna – President, Chief Executive Officer, and Chairman of the Board
Mr. Albanna has been our President, Chief Executive Officer and a Director since we were formed in 2017. In 2010, Mr. Albanna co-founded Innovation Economy Corporation (“IEC”), formed to license and commercialize innovations and create a group of life and health subsidiaries. From 2010 until 2017, Mr. Albanna was Chief Executive Officer and a Director of IEC and Olfactor Laboratories, Inc., a majority-owned subsidiary of IEC. From 2010 to August 2016, he was the Chief Executive Officer and a Director of Nano Engineered Applications, Inc., another majority-owned subsidiary of IEC. In 2003, Mr. Albanna founded Qmotions, Inc. (subsequently renamed Deal A Day Group Corp.). He served as its Chief Executive Officer and a Director until 2011. Qmotions used 3-D spatial tracking and pattern recognition technologies to develop motion-capturing video game controllers. In 2002, Mr. Albanna was a co-founder of Digital Angel Corporation – a company formed via the merger of three private companies (one being TTC below) into a fourth publicly traded company (American Stock Exchange) and was placed in charge of commercializing its GPS/wireless technologies. Around that time, Mr. Albanna co-founded an incubator for startups at the University of California, Riverside Research Park which was acquired in 2007. In 1997, he founded Timely Technology Corporation (“TTC”), which designed and developed e-commerce software for education, retail and finance. TTC was acquired in 2000 by a Nasdaq-listed company. Mr. Albanna graduated from California State University San Bernardino in 1991 with a B.S. in Business Administration with concentration in Computer Information Systems. He completed graduate coursework in Computer Science and Engineering at California State University, Long Beach from 1992 to 1993. In 2019, Mr. Albanna completed coursework in Immunology and Genetics at Harvard Medical School HMX online learning platform. We believe that Mr. Albanna’s expertise leading technology companies across various sectors, leading private and public financing, and in positioning companies for mergers and acquisitions, qualifies him to serve as a director of our Company.
Shahrokh Shabahang – Chief Innovation Officer, Director
Dr. Shabahang has been our Chief Innovation Officer and Director since our inception. In 2009, Dr. Shabahang co-founded Sekris Biomedical Inc. to incubate immunotherapy technologies. He served as its Chairman of the board and Chief Executive Officer since its inception. In 2004, Dr. Shabahang joined Genelux Corporation to lead its clinical development program and to serve as board secretary. Genelux developed an oncolytic virus technology for treatment of cancer, co-invented by Dr. Shabahang. During his tenure from 2004-2007, Genelux raised $20M+ and obtained regulatory approval to initiate First-In-Human clinical studies in Europe with patients who had not responded to chemotherapy. In 2001, Dr. Shabahang became the Director of the Microbiology and Molecular Biology Lab at Loma Linda University (“LLU”). He led the research and development of an antimicrobial therapeutic agent for treatment of dental infections, which was licensed and marketed by one of the largest dental distribution companies. Dr. Shabahang attended the University of California, Santa Barbara from 1982 to 1984 and later received his DDS from the University of Pacific in 1987. He earned his PhD in Microbiology and Molecular Genetics at LLU in 2001. During the same year, he established his laboratory at LLU to study infectious diseases and host immune responses. We believe that Dr. Shabahang’s experience leading biotech startups, leading clinical development programs, and his expertise in immunology and immune tolerance qualifies him to serve as a director of our Company.
David Briones –Interim Chief Financial Officer
Mr. Briones has been our interim Chief Financial Officer since January 2018. Mr. Briones is the founder and managing member of Brio Financial Group since its inception in October 2010, with over nineteen years of public accounting and executive level experience. He consults with various public companies in financial reporting, internal control development and evaluation, budgeting and forecasting. Since March 2019, Mr. Briones has also been the Chief Financial Officer of Hoth Therapeutics, Inc. (NASDAQ: HOTH), a biopharmaceutical company. From August 2013 to January 2020, Mr. Briones was the Chief Financial Officer for Petro River Oil Corp., an independent energy company focused on the exploration and development of conventional oil and gas assets. From October 2017 to May 2018 Mr. Briones was the Chief Financial Officer of Bitzumi, Inc., a Bitcoin exchange and marketplace.
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Corinne Pankovcin –Chief Financial Officer Nominee
Ms. Pankovcin is a nominee for appointment as our Chief Financial Officer, and such appointment will be effective upon the completion of this offering. From December 2015 to July 2019, Ms. Pankovcin was the Chief Financial Officer and Managing Director and Treasurer of Business Development Corporation of America (“BDCA”), a business development company. Prior thereto, from January 2011 to August 2015, Ms. Pankovcin was the Chief Financial Officer and Treasurer of Blackrock Capital Investment Corporation (NASDAQ: BKCC), and a Managing Director of Finance at BlackRock Investment Management LLC. Prior to joining BlackRock, Ms. Pankovcin was a senior member of Finance & Accounting of Alternative Investments and served as Chief Financial Officer for the Global Emerging Markets products group at AIG Capital Partners. Ms. Pankovcin began her career with PricewaterhouseCoopers LLP, where she ultimately held the role of Senior Manager of Business Assurance for Consumer Products, Manufacturing, and Middle Market industries from 1991 to 2001. Ms. Pankovcin earned her B.S. in Accounting from Dowling College and her Master’s Degree in Business Administration from Hofstra University. She is a Certified Public Accountant.
Brian Brady – Director
Mr. Brian Brady has served as a Director since December 1, 2018. Mr. Brady has also been the Director of Investments at Prime Healthcare since March 2016, where he is responsible for the management of investment activity related to the organization and personal investments of the family that owns that company. From December 2011 to March 2016, Mr. Brady was the Vice President/Portfolio Manager at Northern Trust, where he served in an investment advisory role, including asset and portfolio management. Mr. Brady graduated in 2001 with a Bachelor’s degree in Finance from the University of Illinois at Chicago and in 2014 with a Master of Business Administration degree from the University of Chicago. We believe that Mr. Brady’s extensive experience with financial markets and management of investment activities qualifies him to serve as a director of our Company.
Namvar Kiaie – Director Nominee
Mr. Namvar Kiaie is a nominee for appointment as a director, and such appointment will be effective upon completion of this offering. Mr. Kiaie has been associated with Abbott Diabetes Care since December 2005 (Director of Engineering 2005-2007; R&D Director 2007-2010; and Senior Director of R&D 2010-present), where he is responsible for the commercial launch of diabetes management related products and accessories, including blood glucose monitoring devices and data management software. Mr. Kiaie graduated in 1985 with a Bachelor of Science degree in Electrical Engineering and in 1986 with a Master of Science degree in Electrical Engineering, both from the University of California Santa Barbara. We believe that Mr. Kiaie’s extensive experience leading research and development efforts in the biotech industry qualifies him to serve as a director of our Company.
Laura Anthony – Director Nominee
Ms. Laura Anthony is a nominee for appointment as a director, and such appointment will be effective upon completion of this offering. Ms. Anthony is the founding partner of Anthony L.G., PLLC, a corporate, securities and business transactions law firm and has been practicing law since 1993. Ms. Anthony provides corporate counsel to small-cap and middle market private and public companies. For over twenty-five years, Ms. Anthony has served clients in the areas including but not limited to compliance with the Securities Act of 1933 offer sale and registration requirements, including private and public offerings; initial public offerings; follow-on offerings and PIPE transactions; compliance with the NASDAQ and NYSE American initial and continued listing requirements; compliance with the initial quotation and maintenance of standards for the OTCQB and OTCQX; working with foreign private issuers; Regulation A/A+ offerings; compliance with the registration and reporting requirements under the Securities Exchange Act of 1934; mergers and acquisitions; and general contract and business transactions. Ms. Anthony received a juris doctorate from Florida State University College of Law in 1993. We believe that Ms. Anthony’s extensive experience as corporate counsel to private and public companies qualifies her to serve as a director of our Company.
Board Leadership Structure and Risk Oversight
The Board oversees our business and considers the risks associated with our business strategy and decisions. The Board currently implements its risk oversight function as a whole. Each of the Board committees, when established, will also provide risk oversight in respect of its areas of concentration and reports material risks to the Board for further consideration.
Term of Office
Officers hold office until his or her successor is elected and qualified. Directors are appointed to serve for one year until the meeting of the Board following the annual meeting of stockholders and until their successors have been elected and qualified.
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Director Independence
We use the definition of “independence” of The Nasdaq Stock Exchange LLC (“Nasdaq”) listing rules to make this determination. Nasdaq listing rules provide that an “independent director” is one who the board “affirmatively determines” has no “material relationship” with the company “either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company. Nasdaq listing rules provide that a director cannot be considered independent if:
| ● | the director is, or has been within the last three (3) years, an employee of the Company or an immediate family member of director is, or has been within the last three (3) years, an executive officer of the Company; |
| ● | the director has received, or has an immediate family member who is an executive officer of the Company and has received, during any twelve-month period within the last three (3) years, more than $120,000 compensation directly from the Company (not including compensation received for director service, pension plan payments or deferred compensation for prior service not contingent on continued service); |
| ● | the director or an immediate family member is a current partner of the Company’s internal or external auditor; the director is a current employee of the auditor; an immediate family member is a current employee of the auditor and personally works on the Company’s audit; or the director or an immediate family member was within the last three (3) years a partner or employee of the auditor and personally worked on the Company’s audit within that time; |
| ● | the director or an immediate family member is, or has been within the last three (3) years, employed as an executive officer of another company where any of the Company’s present executive officers at the same time serves or served on that company’s compensation committee; or |
| ● | the director is a current employee, or an immediate family member is a current executive officer, of an organization that has made to or received from the Company payments for property or services in an amount which, in any of the last three fiscal (3) years, exceeds greater of 2% of such other company’s consolidated gross revenues or $1 million. Charitable contributions not considered “payments” for purposes of this prohibition but contributions meeting these thresholds must be disclosed on the Company’s website or in its annual proxy statement or its Annual Report on Form 10-K. |
Under such definitions, we consider Mr. Kiaie, Mr. Brady and Ms. Anthony to be “independent.” Nasdaq listing rules permits a phase-in period of up to one year for an issuer registering securities in an initial public offering to comply with its requirement that a majority of the board of directors be made up of independent directors. However, our common stock is not currently quoted or listed on any national exchange or interdealer quotation system with a requirement that a majority of our Board be independent and, therefore, the Company is not subject to any director independence requirements. Upon listing on The Nasdaq Capital Market, however, we will be subject to Nasdaq’s director independence requirements and we will be required to structure our board of directors accordingly.
Committees of the Board
Upon the consummation of this offering, the Company’s Board will establish three standing committees: Audit, Compensation, and Nominating and Corporate Governance. Each of the committees will operate pursuant to its charter. The committee charters will be reviewed annually by the Nominating and Corporate Governance Committee. If appropriate, and in consultation with the chairs of the other committees, the Nominating and Corporate Governance Committee may propose revisions to the charters. The responsibilities of each committee are described in more detail below.
Nasdaq listing rules permits a phase-in period for an issuer registering securities in an initial public offering to meet the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee independence requirements. Under the initial public offering phase-in period, only one member of each committee is required to satisfy the heightened independence requirements at the time our registration statement becomes effective, a majority of the members of each committee must satisfy the heightened independence requirements within 90 days following the effectiveness of our registration statement, and all members of each committee must satisfy the heightened independence requirements within one year from the effectiveness of our registration statement.
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Audit Committee
The Audit Committee, among other things, will be responsible for:
| ● | appointing; approving the compensation of; overseeing the work of; and assessing the independence, qualifications, and performance of the independent auditor; |
| ● | reviewing the internal audit function, including its independence, plans, and budget; |
| ● | approving, in advance, audit and any permissible non-audit services performed by our independent auditor; |
| ● | reviewing our internal controls with the independent auditor, the internal auditor, and management; |
| ● | reviewing the adequacy of our accounting and financial controls as reported by the independent auditor, the internal auditor, and management; |
| ● | overseeing our financial compliance system; and |
| ● | overseeing our major risk exposures regarding the Company’s accounting and financial reporting policies, the activities of our internal audit function, and information technology. |
The Board has affirmatively determined that each member of the Audit Committee meets the additional independence criteria applicable to audit committee members under SEC rules and Nasdaq listing rules. The Board will adopt a written charter setting forth the authority and responsibilities of the Audit Committee. The Board has affirmatively determined that each member of the Audit Committee is financially literate, and that Mr. Brady meets the qualifications of an Audit Committee financial expert.
The Audit Committee will consist of Mr. Brady, Ms. Laura Anthony, and Mr. Kiaie. Mr. Brady will chair the Audit Committee. We believe that, after consummation of this offering, the functioning of the Audit Committee will comply with the applicable requirements of the rules and regulations of the Nasdaq listing rules and the SEC.
Compensation Committee
The Compensation Committee will be responsible for:
| ● | reviewing and making recommendations to the Board with respect to the compensation of our officers and directors, including the CEO; |
| ● | overseeing and administering the Company’s executive compensation plans, including equity-based awards; |
| ● | negotiating and overseeing employment agreements with officers and directors; and |
| ● | overseeing how the Company’s compensation policies and practices may affect the Company’s risk management practices and/or risk-taking incentives. |
The Board will adopt a written charter setting forth the authority and responsibilities of the Compensation Committee.
The Compensation Committee will consist of Ms. Laura Anthony, Mr. Brady, and Mr. Kiaie. Mr. Kiaie will serve as chairman of the Compensation Committee. The Board has affirmatively determined that each member of the Compensation Committee meets the independence criteria applicable to compensation committee members under SEC rules and Nasdaq listing rules. The Company believes that, after the consummation of the offering, the composition of the Compensation Committee will meet the requirements for independence under, and the functioning of such Compensation Committee will comply with, any applicable requirements of the rules and regulations of Nasdaq listing rules and the SEC.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee, among other things, will be responsible for:
| ● | reviewing and assessing the development of the executive officers and considering and making recommendations to the Board regarding promotion and succession issues; |
| ● | evaluating and reporting to the Board on the performance and effectiveness of the directors, committees and the Board as a whole; |
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| ● | working with the Board to determine the appropriate and desirable mix of characteristics, skills, expertise and experience, including diversity considerations, for the full Board and each committee; |
| ● | annually presenting to the Board a list of individuals recommended to be nominated for election to the Board; |
| ● | reviewing, evaluating, and recommending changes to the Company’s Corporate Governance Principles and Committee Charters; |
| ● | recommending to the Board individuals to be elected to fill vacancies and newly created directorships; |
| ● | overseeing the Company’s compliance program, including the Code of Conduct; and |
| ● | overseeing and evaluating how the Company’s corporate governance and legal and regulatory compliance policies and practices, including leadership, structure, and succession planning, may affect the Company’s major risk exposures. |
The Board of Directors will adopt a written charter setting forth the authority and responsibilities of the Corporate Governance/Nominating Committee.
The Nominating and Corporate Governance Committee will consist of Ms. Laura Anthony, Mr. Brady, and Mr. Kiaie. Ms. Laura Anthony will serve as chairman. The Company’s Board of Directors has determined that each member of the Nominating and Corporate Governance Committee is independent within the meaning of the independent director guidelines of Nasdaq listing rules.
Indemnification
In accordance with the Delaware General Corporation Law and the Company’s Amended and Restated Certificate of Incorporation, the Company will indemnify, hold harmless and provide advancement of expenses, to the fullest extent permitted by applicable law, directors, officers, employees, and agents that are made a party or threatened to be made a party to legal proceedings by reason of the fact that such parties were working at the request of the Company. For more information see the section of this prospectus titled “Risk Factors.”
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is therefore unenforceable.
Involvement in Certain Legal Proceedings
To our knowledge, none of our current directors or executive officers has, during the past ten years:
| · | been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| · | had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he or she was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; |
| · | been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; |
| · | been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
| · | been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
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| · | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934, as amended (the Exchange Act)), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Except as set forth above and in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Other than as set forth below, we are not currently a party to any legal proceedings, the adverse outcome of which, individually or in the aggregate, we believe will have a material adverse effect on our business, financial condition or operating results.
The Company, Amro Albanna, our President and Chief Executive Officer, and Dr. Shahrokh Shabahang, our Chief Innovation Officer, have been named as cross-defendants in a counterclaim filed by Christopher Sechrist in an action entitled Shahrokh Shabahang v. Christopher Sechrist, San Bernardino County Superior Court Case No. CIVDS1831323. In a cross-complaint, Mr. Sechrist contends that he was a partner in a dental practice with Dr. Shabahang, and that disputes arose as between those partners. Neither the Company nor Mr. Albanna were partners in, or otherwise have an interest in, the dental practice. Notwithstanding, and seemingly based solely on the fact that Dr. Shabahang became the Chief Innovation Officer for the Company, Mr. Sechrist has brought claims against the Company and Mr. Albanna. Both the Company and Mr. Albanna believe that the Counterclaims filed by Mr. Sechrist have no factual or legal merit, and they intend to vigorously defend themselves in the action and to seek a dismissal of the case as against them as soon as possible.
Our CEO, Amro Albanna, is a party to litigation matters unrelated to the Company or any of its properties. Such litigations relate to Innovation Economy Corporation (IEC), a company in which Mr. Albanna served as the CEO and a Director from 2010 until 2017, and its wholly-owned subsidiaries (Innovation Economy Corporation d/b/a ieCrowd). The first litigation (ieCrowd v. Kim, et. al, Superior Court, Riverside County) was originally commenced by IEC and its subsidiary after Mr. Albanna was no longer affiliated with IEC, against certain third-party defendants based upon claims related to their misconduct and mismanagement. Such defendants subsequently brought a countersuit against IEC and its subsidiary, in which they named Mr. Albanna and others as defendants, alleging that they were misled to invest in IEC and its subsidiary based upon misrepresentations by, among others, Mr. Albanna. The cases have now been consolidated. Mr. Albanna believes that the counteraction commenced by the third parties against him is without merit and intends to defend himself. The second matter (Calabria v. ieCrowd) was commenced by Calabria Ventures more than 2 years after Mr. Albanna was no longer affiliated with IEC, related to uncollected rent. Mr. Albanna believes that the action commenced against him is without merit and intends to defend himself. IEC (either directly or through its Director and officer insurance policy) has covered all related legal costs to date.
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EXECUTIVE AND DIRECTOR COMPENSATION
The following table represents information regarding the total compensation for the named executive officers of the Company as of December 31, 2019, 2018 and 2017:
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | All
Other Compensation ($) | Total ($) | |||||||||||||||||||||
| Amro Albanna | 2019 | 252,000 | -- | -- | 1,426,059 | (1) | -- | 1,678,059 | (6) | |||||||||||||||||||
| Chief Executive Officer, | 2018 | 180,000 | -- | -- | -- | -- | 180,000 | (7) | ||||||||||||||||||||
| President, and Director | 2017 | 51,000 | -- | 800 | (2) | -- | -- | 51,800 | ||||||||||||||||||||
| Shahrokh Shabahang | 2019 | 204,000 | -- | -- | -- | -- | 204,000 | (8) | ||||||||||||||||||||
| Chief Innovation | 2018 | 180,000 | -- | -- | -- | -- | 180,000 | (9) | ||||||||||||||||||||
| Officer | 2017 | -- | -- | -- | -- | -- | -- | |||||||||||||||||||||
| David Briones | 2019 | -- | -- | -- | -- | 78,733 | (3) | 78,733 | ||||||||||||||||||||
| Interim Chief Financial | 2018 | -- | -- | -- | 182,420 | (4) | -- | 182,420 | ||||||||||||||||||||
| Officer | 2017 | -- | -- | -- | 36,484 | (5) | -- | 36,484 | ||||||||||||||||||||
| (1) | $1,426,059 represents the option expense for 800,000 vested options as of December 31, 2019. A total of 800,000 options were granted on April 17, 2019 which vested on grant, an exercise price of $2.00, and expiration date of October 5, 2027. |
| (2) | $800 represents 800,000 founder shares issued to Mr. Albanna. |
| (3) | $78,733 represents the warrant expense for 50,000 vested warrants as of December 31, 2019. A total of 50,000 warrants were granted on 10/1/2019 which vested on grant, an exercise price of $2.00, and expiration date of October 1, 2022. |
| (4) | $182,420 represents the option expense for 100,000 vested options as of December 31, 2018. This is the remaining vested amount for the 120,000 options granted on November 1, 2017. |
| (5) | $36,484 represents the option expense for 20,000 vested options as of December 31, 2017. A total of 120,000 options were granted on 11/1/2017 with a vesting period of 12 months, an exercise price of $2.00, expiration date of November 1, 2022, and 100,000 unvested options as of October 5, 2027. |
| (6) | As of December 31, 2019, a total of $252,000 of Mr. Albanna’s accrued salary remained unpaid. As of May 14, 2020, $252,500 of Mr. Albanna’s 2019 accrued salary remains unpaid. |
| (7) | As of December 31, 2018, a total of $145,000 of Mr. Albanna’s accrued salary remained unpaid. As of May 14, 2020, $17,500 of Mr. Albanna’s 2018 accrued salary remains unpaid. |
| (8) | As of December 31, 2019, a total of $204,000 of Mr. Shabahang’s accrued salary remained unpaid. As of May 14, 2020, $204,000 of Dr. Shabahang’s 2019 accrued salary remains unpaid. |
| (9) | As of December 31, 2018, a total of $175,000 of Mr. Shabahang’s accrued salary remained unpaid. As of May 14, 2020, $170,000 of Dr. Shabahang’s 2018 accrued salary remains unpaid. |
Director Compensation
To date, we have not compensated our directors for their service to the Company.
Employment Agreements
We do not currently have employment agreements with any of our officers or employees but intend to enter into employment agreements prior to the commencement of this offering.
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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Transactions with Related Persons
Except as described below and except for employment arrangements which are described under “executive compensation,” since January 1, 2018, there has not been, nor is there currently proposed, any transaction in which we are or were a participant, the amount involved exceeds the lesser of $120,000 or 1% of the average of the total assets at December 31, 2019 and 2018, and any of our directors, executive officers, holders of more than 5% of our common stock or any immediate family member of any of the foregoing had or will have a direct or indirect material interest.
During the years ended December 31, 2019 and 2018, Rowena Albanna, the wife of Amro Albanna, our Chief Executive Officer, provided the Company with operations consulting services. As of December 31, 2018, $112,000 was accrued as compensation. An additional $180,000 was expensed as compensation during the year ended December 31, 2019, and $17,000 was paid on the accrued balance. As of December 31, 2019, $275,000 remained accrued and outstanding.
On January 22, 2018, the Company issued an unsecured promissory note to Sekris for $40,000 that accrued interest of 4% annually. The note was due on the earlier of July 22, 2018 or in the event of default, as defined in the agreement. This note has been repaid as of December 31, 2019.
On February 12, 2018, the Company issued an unsecured promissory note to Sekris for $50,000 that accrued interest of 4% annually. The note was due on the earlier of August 12, 2018 or in the event of default, as defined in the agreement. This note has been repaid as of December 31, 2019.
On March 2, 2018, the Company issued an unsecured promissory note to Sekris for $10,000 that accrued interest of 4% annually. The note was due on the earlier of September 2, 2018 or in the event of default, as defined in the agreement. This note has been repaid as of December 31, 2019.
On March 8, 2018, we entered into an Assignment Agreement (the “Assignment Agreement”) with Sekris. See “Summary—Overview—License Agreement with Loma Linda University.” Dr. Shabahang, our Chief Innovative Officer, was the Chief Executive Officer of Sekris. Sekris was subsequently dissolved in 2019.
On March 8, 2018, we issued a warrant to purchase up to 1,000,000 shares of our common stock to Sekris. On March 2, 2018, we issued a 4% unsecured promissory note to Sekris in the principal amount of $10,000. Principal and interest was due on September 2, 2018 or immediately upon an event of default. On February 12, 2018, we issued a 4% unsecured promissory note to Sekris in the principal amount of $50,000. Principal and interest was due on August 12, 2018 or immediately upon an event of default. On January 22, 2018, we issued a 4% unsecured promissory note to Sekris in the principal amount of $40,000. Principal and interest was due on July 22, 2018 or immediately upon an event of default.
On June 18, 2018, the Company issued an unsecured promissory note to Sekris for $17,502 that accrued interest of 4% annually. The note was due on the earlier of December 18, 2018 or in the event of default, as defined in the agreement. This note has been repaid as of December 31, 2019.
On January 1, 2019, we entered into a consulting agreement with Rowena Albanna, the wife of Amro Albanna, our Chief Executive Officer, to perform operating consulting services. As part of this agreement, we pay Mrs. Albanna $15,000 per month for her services.
On March 21, 2019, we issued a promissory note to Dr. Shabahang, our Chief Innovative Officer. The note has a principal amount of $10,000, was due on September 21, 2019, and bears an interest rate of 4% per year. This note remains outstanding.
During the year ended December 31, 2019, we assumed an aggregate of $189,625 of liabilities from Sekris in exchange for the return of 189,625 shares of our common stock.
On January 20, 2020, we issued a promissory note to Brian Brady, a member of our board of directors. The note has a principal amount of $50,000, is due on the earlier of April 19, 2020 or within 10 days of the closing of this offering. This note carries an original issue discount of $25,000. The note was amended on April 23, 2020 to extend the maturity date to the earlier of June 30, 2020 or within 10 days of the closing of this offering.
Review, Approval and Ratification of Related Party Transactions
Given our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or ratification of transactions, such as those described above, with our executive officer(s), Director(s) and significant stockholders. We intend to establish formal policies and procedures in the future, once we have sufficient resources and have appointed additional Directors, so that such transactions will be subject to the review, approval or ratification of our Board of Directors, or an appropriate committee thereof. On a moving forward basis, our Directors will continue to approve any related party transaction.
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SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial ownership of our common stock as of the date of this prospectus by (i) each person (or group of affiliated persons) who is known by us to own more than five percent (5%) of the outstanding shares of our common stock, (ii) each director and executive officer, and (iii) all of our directors, executive officers and director nominees as a group. As of the date of this prospectus, there were 7,844,695 shares of our common stock issued and outstanding.
Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.
Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person currently owns or has the right to acquire within 60 days of the date of this prospectus. With respect to options and warrants, this would include options and warrants that are currently exercisable within 60 days. With respect to convertible securities, this would include securities that are currently convertible within 60 days.
Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such stockholders. Unless otherwise indicated, the address for each director and executive officer listed is: c/o Aditx Therapeutics, Inc., 11161 Anderson Street, Suite 105-10014, Loma Linda, CA 92354.
| Number of shares of Common Stock Beneficially Owned |
Percentage Before Completion of Offering |
Percentage After Completion of Offering |
||||||||||
| Directors and Officers: | ||||||||||||
| Amro Albanna (1) | 2,000,000 | 22.11 | % | 18.27 | % | |||||||
| Shahrokh Shabahang (2) | 1,803,624 | 22.88 | % | 18.44 | % | |||||||
| David Briones (3) | 170,000 | 2.12 | % | 1.74 | % | |||||||
| Brian Brady | 25,000 | * | % | * | % | |||||||
| All directors and named executive officers as a group (4 persons) | 3,988,624 | 43.22 | % | 35.86 | % | |||||||
| Greater than 5% Beneficial Owners: | ||||||||||||
| Charles Crocker (4) | 551,875 | 6.96 | % | 5.62 | % | |||||||
| Bailey Family Trust | 1,053,925 | 13.43 | % | 10.82 | % | |||||||
| Leif Eldevik | 400,000 | 5.10 | % | 4.10 | % | |||||||
| Estate of Alan Escher | 703,174 | 8.96 | % | 7.22 | % | |||||||
| * | less than 1% |
| (1) | Held beneficially by Albanna Family Trust, Amro Albanna, Trustee. Includes 1,200,000 options to purchase shares of the Company’s common stock. |
| (2) | Held beneficially by Shabahang-Hatami Family Trust, Shahrokh Shabahang, Trustee. Includes 37,500 warrants to purchase shares of the Company’s common stock. |
| (3) | Includes 50,000 warrants to purchase shares of the Company’s common stock and 120,000 options to purchase shares of the Company’s common stock. |
| (4) | Includes 80,000 shares of common stock of the Company currently vested and issuable upon the exercise of an outstanding warrant issued to Mr. Crocker in April 2018 as compensation for services to be rendered as an advisor to the Company (the “Crocker Warrant”). Excludes 40,000 shares of common stock issuable upon exercise of the Crocker Warrant that vest more than 60 days from the date of this prospectus. |
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General
The following description of the Company’s capital stock and provisions of its Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws (which will be effective upon the effectiveness of the registration statement of which this prospectus forms a part (referred to below as the “Amended and Restated Bylaws”)) are summaries and are qualified by reference to the full text of the Company’s Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws.
The Company is authorized to issue 30,000,000 shares of capital stock, par value $0.001 per share, of which 27,000,000 are shares of common stock and 3,000,000 are shares of “blank check” preferred stock.
As of May 14, 2020, the Company had outstanding 7,844,695 shares of common stock held by 102 shareholders of record.
Units Offered Hereby
We are offering 1,900,000 Units at a fixed price of $5.50 per Unit. Each Unit shall consist of (a) one share of our common stock, and (b) one warrant to purchase one share of our common stock, with an exercise price of $6.875 per share.
Common Stock
Voting
The holders of our common stock are entitled to one vote for each share held on all matters to be voted on by the Company’s stockholders. There shall be no cumulative voting.
Dividends
The holders of shares of our common stock are entitled to dividends when and as declared by the Board from funds legally available therefor if, as and when determined by the Board of Directors of the Company in their sole discretion, subject to provisions of law, and any provision of the Company’s Amended and Restated Certificate of Incorporation, as amended from time to time. There are no preemptive, conversion or redemption privileges, nor sinking fund provisions with respect to the common stock.
Liquidation
In the event of any voluntary or involuntary liquidation, dissolution or winding up of our affairs, the holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of or provision for all of our debts and other liabilities.
Fully Paid and Non-assessable
All outstanding shares of common stock are, and the common stock to be outstanding upon completion of this offering will be, duly authorized, validly issued, fully paid and non-assessable.
Warrants Offered Hereby
The warrants entitle the registered holder to purchase one share of our common stock at a price equal to $6.875 per share, subject to adjustment as discussed below, at any time commencing on the date that is six-months from the consummation of this offering and terminating at 5:00 p.m., New York City time, on the fifth (5th) anniversary of the date of issuance (the “Issuance Date”).
The warrants will be issued in registered form under a warrant agent agreement (the “Warrant Agent Agreement”) between us and our warrant agent, VStock Transfer, LLC (the “Warrant Agent”). The material provisions of the warrants are set forth herein and a copy of the Warrant Agent Agreement has been filed as an exhibit to the Registration Statement on Form S-1, of which this prospectus forms a part. The Company and the Warrant Agent may amend or supplement the Warrant Agent Agreement without the consent of any holder for the purpose of curing any ambiguity, or curing, correcting or supplementing any defective provision contained therein or adding or changing any other provisions with respect to matters or questions arising under the Warrant Agent Agreement as the parties thereto may deem necessary or desirable and that the parties determine, in good faith, shall not adversely affect the interest of the holders. All other amendments and supplements shall require the vote or written consent of holders of at least 50.1%
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The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances, including in the event of a stock dividend, extraordinary dividend on or recapitalization, reorganization, merger or consolidation.
The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the Warrant Agent, with the exercise form attached to the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified or official bank check payable to us, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of common stock and any voting rights until they exercise their warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.
No warrants will be exercisable unless at the time of the exercise a prospectus or prospectus relating to common stock issuable upon exercise of the warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of the Warrant Agent Agreement, we have agreed to use our best efforts to maintain a current prospectus or prospectus relating to common stock issuable upon exercise of the warrants until the expiration of the warrants. If we are unable to maintain the qualification or effectiveness of such registration statement until the expiration of the warrants, and therefore are unable to deliver registered shares of common stock, the warrants may become worthless. Such expiration would result in each holder paying the full Unit purchase price solely for the shares of common stock underlying the Units. Additionally, the market for the warrants may be limited if the prospectus or prospectus relating to the common stock issuable upon exercise of the warrants is not current or if the common stock is not qualified or exempt from qualification in the jurisdictions in which the holders of such warrants reside. In no event will the registered holders of a Warrant be entitled to receive a net-cash settlement, stock or other consideration in lieu of physical settlement in shares of our common stock.
No fractional shares of common stock will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round up to the nearest whole number the number of shares of common stock to be issued to the Warrant holder. If multiple warrants are exercised by the holder at the same time, we will aggregate the number of whole shares issuable upon exercise of all the warrants.
The price of the warrants has been arbitrarily established by us and the Underwriter after giving consideration to numerous factors, including but not limited to, the pricing of the Units in this offering. No particular weighting was given to any one aspect of those factors considered. We have not performed any method of valuation of the warrants.
Preferred Stock
We are authorized to issue up to 3,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our board of directors without further action by stockholders. The terms of any series of preferred stock may include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. No preferred stock is currently outstanding. The issuance of any preferred stock could materially adversely affect the rights of the holders of our common stock, and therefore, reduce the value of our common stock and the Notes. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third party and thereby preserve control by the present management.
Exclusive Forum
Our Amended and Restated Certificate of Incorporation provides that unless the Company consents in writing to the selection of an alternative forum, the State of Delaware is the sole and exclusive forum for: (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim against the Company, its directors, officers or employees arising pursuant to any provision of the DGCL or our Amended and Restated Certificate of Incorporation or the Amended and Restated Bylaws, or (iv) any action asserting a claim against the Company, its directors, officers, employees or agents governed by the internal affairs doctrine, except for, as to each of (i) through (iv) 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.
Additionally, our Amended and Restated Bylaws provide that unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation are deemed to have notice of and consented to this provision.
Transfer Agent
The transfer agent and registrar for our common stock is VStock Transfer, LLC.
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Changes in Authorized Number
The number of authorized shares of common stock may be increased or decreased subject to the Company’s legal commitments at any time and from time to time to issue them, by the affirmative vote of the holders of a majority of the stock of the Company entitled to vote.
Delaware Anti-Takeover Statute
We may become subject to Section 203 of the Delaware General Corporation Law, which prohibits persons deemed to be “interested stockholders” from engaging in a “business combination” with a publicly held Delaware corporation for three years following the date these persons become interested stockholders unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by the Board of Directors. A Delaware corporation may “opt out” of these provisions with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation or bylaws resulting from a stockholders’ amendment approved by at least a majority of the outstanding voting shares. We have not opted out of these provisions. As a result, mergers or other takeover or change in control attempts of us may be discouraged or prevented.
The Amended and Restated Bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors. At an annual meeting, stockholders may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our board of directors. Stockholders may also consider a proposal or nomination by a person who was a stockholder at the time of giving notice and at the time of the meeting, who is entitled to vote at the meeting and who has complied with the notice requirements of the Amended and Restated Bylaws in all respects. The Amended and Restated Bylaws do not give our board of directors the power to approve or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting of our stockholders. However, the Amended and Restated Bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.
The Amended and Restated Bylaws provide that a special meeting of our stockholders may be called only by our Chairman or by resolution adopted by a majority of our board of directors. Because our stockholders do not have the right to call a special meeting, a stockholder could not force stockholder consideration of a proposal over the opposition of our board of directors by calling a special meeting of stockholders prior to such time as a majority of our board of directors, the chairperson of our board of directors, the president or the chief executive officer believed the matter should be considered or until the next annual meeting provided that the requestor met the notice requirements. The restriction on the ability of stockholders to call a special meeting means that a proposal to replace our board of directors also could be delayed until the next annual meeting.
Equity Incentive Plan
2017 Equity Incentive Plan
Our 2017 Equity Incentive Plan (the “2017 Plan”), was adopted by our board of directors and approved by our stockholders in October 2017. Our 2017 Plan provides for the grant of incentive stock options (within the meaning of Section 422 of the Code), or ISOs to employees, and non-statutory stock options, or NSOs, restricted stock, restricted stock units and stock appreciation rights, to our employees, directors, consultants and advisors.
Authorized Shares. A total of 1,200,000 shares of our common stock have been reserved for issuance pursuant to the 2017 Plan. On December 21, 2018, our board of directors amended the 2017 Plan to increase the number of authorized shares of common stock issuable thereunder to 5,000,000 shares, subject to shareholder approval. On December 20, 2019 our shareholders approved the increase.
Plan Administration. Currently, our board administers our 2017 Plan. Subject to the provisions of our 2017 Plan, the administrator has the power to determine the terms of the awards, including the exercise price, the number of shares subject to each such award, the exercisability of the awards, and the form of consideration, if any, payable upon exercise. The administrator also has the authority to amend existing awards to reduce their exercise price, to allow participants the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator and to institute an exchange program by which outstanding awards may be surrendered in exchange for awards with a higher or lower exercise price.
Stock Options. The exercise price of options granted under our 2017 Plan must at least be equal to the fair market value of our common stock on the date of grant. The term of an incentive stock option may not exceed ten years, except that with respect to any participant who owns more than 10% of the voting power of all classes of our outstanding stock, the term must not exceed five years and the exercise price must equal at least 110% of the fair market value on the grant date. Subject to the provisions of our 2017 Plan, the administrator will determine the term of all other options.
After the termination of service of an employee, director or consultant, he or she may exercise his or her option or stock appreciation right for the period of time stated in his or her award agreement. Generally, if termination is due to death or disability, the option or stock appreciation right will remain exercisable for six months. In no event may an option be exercised later than the expiration of its term.
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Stock Appreciation Rights. Stock appreciation rights may be granted under our 2017 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant. Subject to the provisions of our 2017 Plan, the administrator determines the terms of stock appreciation rights, including when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of our common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant.
Restricted Stock. Restricted stock may be granted under our 2017 Plan. Restricted stock awards are grants of shares of our common stock that vest in accordance with terms and conditions established by the administrator. The administrator determines the number of shares of restricted stock granted and may impose whatever conditions to vesting it determines to be appropriate (for example, the administrator may set restrictions based on the achievement of specific performance goals or continued service to us). The administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture.
Restricted Stock Units. Restricted stock units may be granted under our 2017 Plan. Restricted stock units represent an amount equal to the fair market value of one share of our common stock. The administrator will determine the terms and conditions of restricted stock units, including the number of units granted, the vesting criteria (which may include accomplishing specified performance criteria or continued service to us), and the form and timing of payment. The administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed.
Certain Adjustments. In the event of certain changes in our capitalization, to prevent diminution or enlargement of the benefits or potential benefits available under the 2017 Plan, the administrator will adjust the number and class of shares that may be delivered under the 2017 Plan or the number, class and price of shares covered by each outstanding award, and the numerical share limits set forth in the 2017 Plan.
Merger or Change in Control. Our 2017 Plan provides that in the event of a merger or change in control, as defined in the 2017 Plan, each outstanding award will be treated as the administrator determines, including that the successor corporation or its parent or subsidiary will assume or substitute an equivalent award for each outstanding award. The administrator will not be required to treat all awards similarly. If there is no assumption or substitution of outstanding awards, the awards will fully vest, all restrictions will lapse and the awards will become fully exercisable.
Penny Stock Regulation.
The SEC has adopted regulations which generally define “penny stock” to be any equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share. Such securities are subject to rules that impose additional sales practice requirements on broker-dealers who sell them. For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchaser of such securities and have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, among other requirements, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. As our common stock immediately following this offering may be subject to such penny stock rules, purchasers in this offering may find it more difficult to sell their common stock shares in the secondary market.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock, and a liquid trading market for our common stock may not develop or be sustained after this offering. Future sales of substantial amounts of our common stock in the public market, or the anticipation of these sales, could materially and adversely affect market prices prevailing from time to time, and could impair our ability to raise capital through sales of equity or equity-related securities.
Only a limited number of shares of our common stock will be available for sale in the public market for a period of several months after completion of this offering due to contractual and legal restrictions on resale described below. Nevertheless, sales of a substantial number of shares of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could materially and adversely affect the prevailing market price of our common stock. Although we have been approved, subject to notice of issuance, to list our common stock on The Nasdaq Capital Market, we cannot assure you that there will be an active market for our common stock.
Of the shares to be outstanding immediately after the completion of this offering, we expect that the shares to be sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act; these restricted securities may be sold in the public market only if registered or pursuant to an exemption from registration, such as Rule 144 or Rule 701 under the Securities Act.
Rule 144
Affiliate Resales of Restricted Securities
Affiliates of ours must generally comply with Rule 144 if they wish to sell any shares of our common stock in the public market, whether or not those shares are “restricted securities.” “Restricted securities” are any securities acquired from us or one of our affiliates in a transaction not involving a public offering. All shares of our common stock issued prior to the closing of the offering made hereby, are considered to be restricted securities. The shares of our common stock sold in this offering are not considered to be restricted securities.
Non-Affiliate Resales of Restricted Securities
Any person or entity who is not an affiliate of ours and who has not been an affiliate of ours at any time during the three months preceding a sale is only required to comply with Rule 144 in connection with sales of restricted shares of our common stock. Subject to the lock-up agreements described below, those persons may sell shares of our common stock that they have beneficially owned for at least one year without any restrictions under Rule 144 immediately following the effective date of the Registration Statement on Form S-1 of which this prospectus is a part.
Further, beginning 90 days after the effective date of the Registration Statement on Form S-1 of which this prospectus is a part, a person who is not an affiliate of ours at the time such person sells shares of our common stock, and has not been an affiliate of ours at any time during the three months preceding such sale, and who has beneficially owned such shares of our common stock, as applicable, for at least six months but less than a year, is entitled to sell such shares so long as there is adequate current public information, as defined in Rule 144, available about us.
Resales of restricted shares of our common stock by non-affiliates are not subject to the manner of sale, volume limitation or notice filing provisions of Rule 144, described above.
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 ours 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 ours 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 to wait until 90 days after the date of this prospectus before selling such shares pursuant to Rule 701 and until expiration of the 180-day lock-up period described below.
Equity Incentive Awards
We intend to file a registration statement on Form S-8 under the Securities Act after the closing of this offering to register the shares of common stock that are issuable pursuant to our Plan. The registration statement is expected to be filed and become effective as soon as practicable after the completion of this offering. Accordingly, shares registered under the registration statement will be available for sale in the open market following its effective date, subject to Rule 144 volume limitations and the lock-up arrangement described above, if applicable.
Lock-Up Agreements
We, our executive officers and directors, and holders of at 5% or more of our common stock have agreed to enter into lock-up agreements in connection with this offering. See “Underwriting” for additional information.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK
The following is a summary of the material U.S. federal income tax consequences to non-U.S. holders (as defined below) of the ownership and disposition of our common stock but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, Treasury regulations promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S. federal income tax consequences different from those set forth below. No ruling on the U.S. federal, state, or local tax considerations relevant to our operations or to the purchase, ownership or disposition of our shares, has been requested from the IRS or other tax authority. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below.
This summary also does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, or under U.S. federal gift and estate tax laws, except to the limited extent set forth below. In addition, this discussion does not address tax considerations applicable to an investor’s particular circumstances or to investors that may be subject to special tax rules, including, without limitation:
| ● | banks, insurance companies or other financial institutions, regulated investment companies or real estate investment trusts; |
| ● | persons subject to the alternative minimum tax or Medicare contribution tax on net investment income; |
| ● | tax-exempt organizations or governmental organizations; |
| ● | controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid U.S. federal income tax; |
| ● | brokers or dealers in securities or currencies; |
| ● | traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; |
| ● | persons that own, or are deemed to own, more than five percent of our capital stock (except to the extent specifically set forth below); |
| ● | U.S. expatriates and certain former citizens or long-term residents of the United States; |
| ● | partnerships or entities classified as partnerships for U.S. federal income tax purposes or other pass-through entities (and investors therein); |
| ● | persons who hold our common stock as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction or integrated investment; |
| ● | persons who hold or receive our common stock pursuant to the exercise of any employee stock option or otherwise as compensation; |
| ● | persons who do not hold our common stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code; or |
| ● | persons deemed to sell our common stock under the constructive sale provisions of the Internal Revenue Code. |
You are urged to consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax consequences of the purchase, ownership and disposition of our common stock arising under the U.S. federal estate or gift tax rules or under the laws of any state, local, non-U.S., or other taxing jurisdiction or under any applicable tax treaty.
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Non-U.S. Holder Defined
For purposes of this discussion, you are a non-U.S. holder (other than a partnership) if you are any holder other than:
| ● | an individual citizen or resident of the United States (for U.S. federal income tax purposes); |
| ● | a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States, any state thereof, or the District of Columbia, or other entity treated as such for U.S. federal income tax purposes; |
| ● | an estate whose income is subject to U.S. federal income tax regardless of its source; or |
| ● | a trust (x) whose administration is subject to the primary supervision of a U.S. court and which has one or more “U.S. persons” (within the meaning of Section 7701(a)(30) of the Internal Revenue Code) who have the authority to control all substantial decisions of the trust or (y) which has made a valid election to be treated as a U.S. person. |
In addition, if a partnership or entity classified as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold our common stock, and partners in such partnerships, should consult their tax advisors.
Distributions
As described in “Dividend Policy,” we have never declared or paid cash dividends on our common stock and do not anticipate paying any dividends on our common stock in the foreseeable future. However, if we do make distributions on our common stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed both our current and our accumulated earnings and profits, they will constitute a return of capital and will first reduce your basis in our common stock, but not below zero, and then will be treated as gain from the sale of stock as described below under “—Gain on Disposition of Common Stock.”
Subject to the discussion below on effectively connected income, backup withholding and foreign accounts, any dividend paid to you generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable income tax treaty. In order to receive a reduced treaty rate, you must provide us with an IRS Form W-8BEN, IRS Form W-8BEN-E or other appropriate version of IRS Form W-8 certifying qualification for the reduced rate. A non-U.S. holder of shares of our common stock eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. If the non-U.S. holder holds the stock through a financial institution or other agent acting on the non-U.S. holder’s behalf, the non-U.S. holder will be required to provide appropriate documentation to the agent, which then will be required to provide certification to us or our paying agent, either directly or through other intermediaries.
Dividends received by you that are effectively connected with your conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, attributable to a permanent establishment maintained by you in the United States) are generally exempt from such withholding tax. In order to obtain this exemption, you must provide us with an IRS Form W-8ECI or other applicable IRS Form W-8 properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. In addition, if you are a corporate non-U.S. holder, dividends you receive that are effectively connected with your conduct of a U.S. trade or business may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty. You should consult your tax advisor regarding any applicable tax treaties that may provide for different rules.
Gain on Disposition of Common Stock
Subject to the discussion below regarding backup withholding and foreign accounts, you generally will not be required to pay U.S. federal income tax on any gain realized upon the sale or other disposition of our common stock unless:
| ● | the gain is effectively connected with your conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, the gain is attributable to a permanent establishment maintained by you in the United States); |
| ● | you are a non-resident alien individual who is present in the United States for a period or periods aggregating 183 days or more during the taxable year in which the sale or disposition occurs and certain other conditions are met; or |
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| ● | our common stock constitutes a United States real property interest by reason of our status as a “United States real property holding corporation,” or USRPHC, for U.S. federal income tax purposes at any time within the shorter of (i) the five-year period preceding your disposition of our common stock, or (ii) your holding period for our common stock. |
We believe that we are not currently and will not become a USRPHC for U.S. federal income tax purposes, and the remainder of this discussion so assumes. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as U.S. real property interests only if you actually or constructively hold more than five percent of such regularly traded common stock at any time during the shorter of the five-year period preceding your disposition of, or your holding period for, our common stock.
If you are a non-U.S. holder described in the first bullet above, you will be required to pay tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates, and a corporate non-U.S. holder described in the first bullet above also may be subject to the branch profits tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty. If you are an individual non-U.S. holder described in the second bullet above, you will be required to pay a flat 30% tax (or such lower rate specified by an applicable income tax treaty) on the gain derived from the sale, which gain may be offset by U.S. source capital losses for the year (provided you have timely filed U.S. federal income tax returns with respect to such losses). You should consult any applicable income tax or other treaties that may provide for different rules.
Federal Estate Tax
Our common stock beneficially owned by an individual who is not a citizen or resident of the United States (as defined for U.S. federal estate tax purposes) at the time of their death will generally be includable in the decedent’s gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. The test for whether an individual is a resident of the United States for U.S. federal estate tax purposes differs from the test used for U.S. federal income tax purposes. Some individuals, therefore, may be non-U.S. holders for U.S. federal income tax purposes, but not for U.S. federal estate tax purposes, and vice versa.
Backup Withholding and Information Reporting
Generally, we must report annually to the IRS the amount of dividends paid to you, your name and address and the amount of tax withheld, if any. A similar report will be sent to you. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in your country of residence.
Payments of dividends or of proceeds on the disposition of stock made to you may be subject to information reporting and backup withholding at a current rate of 28% unless you establish an exemption, for example, by properly certifying your non-U.S. status on an IRS Form W-8BEN, IRS Form W-8BEN-E or another appropriate version of IRS Form W-8.
Backup withholding is not an additional tax; rather, the U.S. federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.
Foreign Account Tax Compliance
The Foreign Account Tax Compliance Act, or FATCA, imposes withholding tax at a rate of 30% on dividends on and gross proceeds from the sale or other disposition of our common stock paid to “foreign financial institutions” (as specially defined under these rules), unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding the U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners) or otherwise establishes an exemption. FATCA also generally imposes a U.S. federal withholding tax of 30% on dividends on and gross proceeds from the sale or other disposition of our common stock paid to a “non-financial foreign entity” (as specially defined for purposes of these rules) unless such entity provides the withholding agent with a certification identifying certain substantial direct and indirect U.S. owners of the entity, certifies that there are none or otherwise establishes an exemption. The withholding provisions under FATCA generally apply to dividends on our common stock, and under current transition rules, apply with respect to the gross proceeds from the sale or other disposition of our common stock. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this paragraph. Non-U.S. holders should consult their tax advisors regarding the possible implications of this legislation on their investment in our common stock.
Each prospective investor should consult its tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences of purchasing, holding and disposing of our common stock, including the consequences of any proposed change in applicable laws.
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Dawson James Securities, Inc. is acting as lead book-running manager of the offering and as representatives of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has severally and not jointly agreed to purchase, and we have agreed to sell to that underwriter, the number of Units, consisting of shares of common stock and warrants set forth opposite the underwriter’s name.
| Underwriter | Number of Units | |
| Dawson James Securities, Inc. | ||
The underwriting agreement provides that the obligations of the underwriters to purchase the shares of common stock and warrants included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the shares of common stock and warrants (other than those covered by the over-allotment option described below) if they purchase any of the shares of common stock and warrants.
Shares of common stock and warrants sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares of common stock and warrants sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price not to exceed $ per share and warrant. If all the shares of common stock and warrants are not sold at the initial offering price, the underwriters may change the offering price and the other selling terms.
We have granted to the underwriter an option, exercisable no later than 45 calendar days after the closing of this offering, to purchase up to an additional shares of common stock and/or additional warrants to purchase up to shares of common stock, in any combination thereof, from us to cover over-allotments, if any. If the underwriter exercises all or any part of this option, it will purchase shares and/or warrants covered by the option at the public offering price per share and the public offering price per warrant, respectively, less the underwriting discount. If this option is exercised in full, the total offering price to the public will be $ and the total net proceeds, before expenses, to us will be $ . We will pay the expenses associated with the exercise of the over-allotment option.
Underwriting discounts and commissions
The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters’ over-allotment option.
| Paid by the Company | ||||||||
| No Exercise | Full Exercise | |||||||
| Per Unit | $ | $ | ||||||
| Total | $ | $ | ||||||
We have also agreed to reimburse the underwriter for its expenses in connection with this offering, up to $120,000, and to reimburse the underwriter for certain “blue sky” expenses in an amount of $25,000. We estimate the total expenses of this offering which will be payable by us, excluding the underwriting discount and the underwriter’s expenses payable by us, will be approximately $ .
Indemnification
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities.
Right of First Refusal
Provided this offering is completed, for a period of twelve months from the closing date of this offering, Dawson James Securities, Inc. has a right of first refusal to act as our exclusive placement agent or lead underwriter and sole book runner, as applicable, in the event we decide to pursue an offering of our equity, equity-linked or debt securities during such period.
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Underwriters’ Unit Purchase Option
We have also agreed to issue to the underwriters’ a unit purchase option to purchase a number of our securities equal to 6% of the securities and sold in this offering. The underwriters’ unit purchase option will have an exercise price equal to 125% of the public offering price of the combination of shares and warrants set forth on the cover of this prospectus (or $ per share and accompanying warrant) and may be exercised on a cashless basis. The underwriters’ unit purchase option is not redeemable by us. This prospectus also covers the sale of the underwriters’ unit purchase option and the shares of common stock and warrants (and shares of common stock underlying such warrants) issuable upon the exercise of the underwriters’ unit purchase option. The underwriters’ unit purchase option and the underlying securities 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 underwriters’ unit purchase option nor any securities issued upon exercise of the underwriters’ unit purchase option 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 underwriters’ unit purchase option is being issued, except the transfer of any security: (i) by operation of law or by reason of reorganization of our company; (ii) 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; (iii) if the aggregate amount of our securities held by either an underwriter or a related person do not exceed 1% of the securities being offered; (iv) 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 (v) 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.
Lock-up Agreements
We, our executive officers and directors, and holders of at 5% or more of our common stock have agreed to enter into lock-up agreements in connection with this offering. Under the lock-up agreements, subject to certain exceptions, we and each of these persons may not, without the prior written approval of the Underwriter, offer, sell, contract to sell, pledge, or otherwise dispose of, directly or indirectly, or hedge our common stock or securities convertible into or exchangeable or exercisable for our common stock. These restrictions remain in effect and will generally terminate on the six-month anniversary after the closing date.
In connection with this offering, we agreed that we will not: (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our capital stock or any securities convertible into or exercisable or exchangeable for shares of our capital stock; (ii) file or cause to be filed any registration statement with the SEC relating to the offering of any shares of our capital stock or any securities convertible into or exercisable or exchangeable for shares of our capital stock; or (iii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our capital stock, whether any such transaction described in clause (i), (ii) or (iii) above is to be settled by delivery of shares of our capital stock or such other securities, in cash or otherwise, in each case without the prior consent of the Underwriter for a period of six months after the date of the Underwriting Agreement, other than (A) the securities sold in this offering, or (B) the issuance by us of shares of our common stock upon the exercise of a stock option or warrant or the conversion of a security outstanding on the date of this prospectus, hereafter issued pursuant to our currently existing or hereafter adopted equity compensation plans or employment or consulting agreements or arrangements of which the Underwriter has been advised in writing or which have been filed with the SEC.
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Offering Price Determination
Prior to this offering, there has been no public market for our common stock. The initial public offering price was negotiated between the representatives and us. In determining the initial public offering price of our common stock, the representative considered:
| ● | the history and prospects for the industry in which we compete; |
| ● | our financial information; |
| ● | the ability of our management and our business potential and earning prospects; |
| ● | the prevailing securities markets at the time of this offering; and |
| ● | the recent market prices of, and the demand for, publicly traded shares of generally comparable companies. |
Stabilization, Short Positions and Penalty Bids
The representatives may engage in stabilizing transactions, short sales and purchases to cover positions created by short sales, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, 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. |
| ● | A short position involves a sale by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares and/or purchasing shares in the open market. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through their option to purchase additional shares. 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. |
| ● | Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. |
| ● | Penalty bids permit the representatives 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 or preventing or retarding a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on The Nasdaq Capital Market or otherwise and, if commenced, may be discontinued at any time.
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Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.
Electronic Distribution
A prospectus in electronic format may be made available on the Internet sites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representatives on the same basis as other allocations.
Other than the prospectus in electronic format, the information on any underwriter’s or selling group member’s web site and any information contained in any other web site maintained by an underwriter or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.
Listing on The Nasdaq Capital Market
Prior to this offering, there has been no public market for our common stock. We have applied to list our common stock on The Nasdaq Capital Market, and upon approval, we expect to list our common stock under the symbol “ADTX.” If our common stock is not approved for listing on The Nasdaq Capital Market, we will not consummate this offering.
We do not intend to apply for any listing of the warrants The Nasdaq Capital Market or any other securities exchange or nationally recognized trading system, and we do not expect a market to develop for the warrants.
Other Relationships
The underwriters and certain of their affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriters and certain of their affiliates have, from time to time, performed, and may in the future perform, various commercial and investment banking and financial advisory services for the issuer and its affiliates, for which they received or may in the future receive customary fees and expenses.
In the ordinary course of their various business activities, the underwriters and certain of their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of the issuer or its affiliates. If the underwriters or their affiliates have a lending relationship with us, they routinely hedge their credit exposure to us consistent with their customary risk management policies. The underwriters and their affiliates may hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities or the securities of our affiliates, including potentially the shares of common stock offered hereby. Any such credit default swaps or short positions could adversely affect future trading prices of the shares of common stock offered hereby. The underwriters and certain of their affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
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Selling Restrictions
This prospectus does not constitute an offer to sell to, or a solicitation of an offer to buy from, anyone in any country or jurisdiction (i) in which such an offer or solicitation is not authorized, (ii) in which any person making such offer or solicitation is not qualified to do so or (iii) in which any such offer or solicitation would otherwise be unlawful. No action has been taken that would, or is intended to, permit a public offer of the shares of common stock or possession or distribution of this prospectus or any other offering or publicity material relating to the shares of common stock in any country or jurisdiction (other than the United States) where any such action for that purpose is required. Accordingly, each underwriter has undertaken that it will not, directly or indirectly, offer or sell any shares of common stock or have in its possession, distribute or publish any prospectus, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in compliance with any applicable laws and regulations and all offers and sales of shares of common stock by it will be made on the same terms.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the prospectus Directive (each, a “Relevant Member State”) an offer to the public of any common stock which are the subject of the offering contemplated herein may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any common stock may be made at any time under the following exemptions under the prospectus Directive, if they have been implemented in that Relevant Member State:
| ● | to legal entities which are qualified investors as defined under the prospectus Directive; |
| ● | by the underwriters to fewer than 100, or, if the Relevant Member State has implemented the relevant provisions of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the prospectus Directive), as permitted under the prospectus Directive, subject to obtaining the prior consent of the representatives of the underwriters for any such offer; or |
| ● | in any other circumstances falling within Article 3(2) of the prospectus Directive, provided that no such offer of common stock shall result in a requirement for us or any underwriter to publish a prospectus pursuant to Article 3 of the prospectus Directive or supplement a prospectus pursuant to Article 16 of the prospectus Directive. |
Each person in a Relevant Member State who receives any communication in respect of, or who acquires any common stock under, the offers contemplated here in this prospectus will be deemed to have represented, warranted and agreed to and with each underwriter and us that:
| ● | it is a qualified investor as defined under the prospectus Directive; and |
| ● | in the case of any common stock acquired by it as a financial intermediary, as that term is used in Article 3(2) of the prospectus Directive, (i) the common stock acquired by it in the offering have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors, as that term is defined in the prospectus Directive, or in the circumstances in which the prior consent of the representatives of the underwriters has been given to the offer or resale or (ii) where common stock have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of such common stock to it is not treated under the prospectus Directive as having been made to such persons. |
For the purposes of this representation and the provision above, the expression an “offer of common stock to the public” in relation to any common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any common stock to be offered so as to enable an investor to decide to purchase or subscribe for the common stock, as the same may be varied in that Relevant Member State by any measure implementing the prospectus Directive in that Relevant Member State, the expression “prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.
United Kingdom
This prospectus has only been communicated or caused to have been communicated and will only be communicated or caused to be communicated as an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act of 2000 (the “FSMA”)) as received in connection with the issue or sale of the common stock in circumstances in which Section 21(1) of the FSMA does not apply to us. All applicable provisions of the FSMA will be complied with in respect to anything done in relation to the common stock in, from or otherwise involving the United Kingdom.
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Notice to Residents of Canada
The securities 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 securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
The validity of the issuance of the Units, and the common stock and warrants underlying the Units, offered by us in this will be passed upon for us by Sheppard, Mullin, Richter & Hampton LLP, New York, New York. Certain matters are being passed on for the underwriters by Schiff Hardin LLP, Washington, District of Columbia.
dbbmckennon, an independent registered public accounting firm, has audited our financial statements as of and for the years ended December 31, 2019 and 2018, as set forth in their report which includes an unqualified opinion on the financial statements and an explanatory paragraph about the existence of substantial doubt concerning the Company’s ability to continue as a going concern. Such financial statements are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a Registration Statement on Form S-1 under the Securities Act with respect to the common stock offered by this prospectus. This prospectus, which is part of the registration statement, omits certain information, exhibits, schedules and undertakings set forth in the registration statement. For further information pertaining to us and our common stock, reference is made to the registration statement and the exhibits and schedules to the registration statement. Statements contained in this prospectus as to the contents or provisions of any documents referred to in this prospectus are not necessarily complete, and in each instance where a copy of the document has been filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matters involved.
You may read and copy all or any portion of the registration statement without charge at the public reference room of the Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549. Copies of the registration statement may be obtained from the Securities and Exchange Commission at prescribed rates from the public reference room of the Securities and Exchange Commission at such address. You may obtain information regarding the operation of the public reference room by calling 1-800-SEC-0330. In addition, registration statements and certain other filings made with the Securities and Exchange Commission electronically are publicly available through the Securities and Exchange Commission’s website at http://www.sec.gov. The registration statement, including all exhibits and amendments to the registration statement, has been filed electronically with the Securities and Exchange Commission.
Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended, and, accordingly, will be required to file annual reports containing financial statements audited by an independent public accounting firm, quarterly reports containing unaudited financial data, current reports, proxy statements and other information with the Securities and Exchange Commission. You will be able to inspect and copy such periodic reports, proxy statements and other information at the Securities and Exchange Commission’s public reference room, and the website of the Securities and Exchange Commission referred to above.
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Aditx Therapeutics, Inc.
INDEX TO FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Aditx Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Aditx Therapeutics, Inc. (the “Company”) as of December 31, 2019 and 2018, the related statements of operations, stockholders’ deficit, and cash flows, for the years ended December 31, 2019 and 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 of the financial statements, the Company has incurred losses since Inception and requires additional financing. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with respect to these matters are discussed in Note 2. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ dbbmckennon
We have served as the Company’s auditor since 2018.
Newport Beach, California
February 19, 2020
F-2
BALANCE SHEETS
| March 31, | December 31, | |||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| (unaudited) | ||||||||||||
| ASSETS | ||||||||||||
| CURRENT ASSETS | ||||||||||||
| Cash | $ | 46,577 | $ | 4,090 | $ | 115,709 | ||||||
| TOTAL CURRENT ASSETS | 46,577 | 4,090 | 115,709 | |||||||||
| Deferred offering costs | 161,038 | 119,442 | — | |||||||||
| TOTAL ASSETS | $ | 207,615 | $ | 123,532 | $ | 115,709 | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||
| CURRENT LIABILITIES | ||||||||||||
| Accounts payable and accrued expenses | $ | 1,974,858 | $ | 1,847,458 | $ | 1,056,226 | ||||||
| Accrued compensation to related parties | 1,091,629 | 962,651 | 432,615 | |||||||||
| Notes payable - related party | 10,000 | 10,000 | 42,502 | |||||||||
| Notes payable | 655,211 | 155,600 | 121,100 | |||||||||
| TOTAL CURRENT LIABILITIES | 3,731,698 | 2,975,709 | 1,652,443 | |||||||||
| TOTAL LIABILITIES | 3,731,698 | 2,975,709 | 1,652,443 | |||||||||
| COMMITMENTS AND CONTINGENCIES | — | — | — | |||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||||||
| Preferred stock, $0.001 par value, 3,000,000 shares authorized, 0 shares issued and outstanding | — | — | — | |||||||||
| Common stock, $0.001 par value, 27,000,000 shares authorized, 8,041,300, 7,831,800 and 7,527,850 shares issued and 7,839,695, 7,642,175 and 7,527,850 shares outstanding | 8,041 | 7,832 | 7,528 | |||||||||
| Treasury stock, 201,605, 189,625 and 0 shares | (201,605 | ) | (189,625 | ) | — | |||||||
| Additional paid-in capital | 9,588,795 | 9,059,567 | 4,357,961 | |||||||||
| Accumulated deficit | (12,919,314 | ) | (11,729,951 | ) | (5,902,223 | ) | ||||||
| TOTAL STOCKHOLDERS’ DEFICIT | (3,524,083 | ) | (2,852,177 | ) | (1,536,734 | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 207,615 | $ | 123,532 | $ | 115,709 | ||||||
See accompanying notes to the financial statements.
F-3
STATEMENTS OF OPERATIONS
| March 31, | December 31, | |||||||||||||||
| 2020 | 2019 | 2019 | 2018 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| REVENUE | — | — | — | — | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative expenses, includes $529,437, $723,608, $4,221,733 and $3,417,526 in stock-based compensation | 856,427 | 1,199,783 | 5,694,806 | 5,044,634 | ||||||||||||
| Research and development, includes $0, $0, $10,000 and $100,000 in stock-based compensation | 200,371 | 44,868 | 175,441 | 525,000 | ||||||||||||
| Sales and marketing, includes $0, $0, $0 and $6,000 in stock-based compensation | — | 38 | 551 | 39,837 | ||||||||||||
| Total Operating Expenses | 1,056,798 | 1,244,689 | 5,870,798 | 5,609,471 | ||||||||||||
| NET LOSS FROM OPERATIONS | (1,056,798 | ) | (1,244,689 | ) | (5,870,798 | ) | (5,609,471 | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest expense | (454 | ) | (579 | ) | (1,930 | ) | (3,009 | ) | ||||||||
| Gain on forgiveness of debt | 32,500 | 45,000 | 45,000 | — | ||||||||||||
| Amortization of debt discount | (164,611 | ) | — | — | (76,757 | ) | ||||||||||
| Total Other Income (Expense) | (132,565 | ) | 44,421 | 43,070 | (79,766 | ) | ||||||||||
| Net loss before provision for income taxes | (1,189,363 | ) | (1,200,268 | ) | (5,827,728 | ) | (5,689,237 | ) | ||||||||
| Provision for income taxes | — | — | — | — | ||||||||||||
| NET LOSS | (1,189,363 | ) | (1,200,268 | ) | (5,827,728 | ) | (5,689,237 | ) | ||||||||
| Net loss per share - basic and diluted | (0.15 | ) | (0.16 | ) | (0.76 | ) | (0.78 | ) | ||||||||
| Weighted average number of shares outstanding during the period - basic and diluted | 7,812,903 | 7,598,333 | 7,661,943 | 7,261,637 | ||||||||||||
See accompanying notes to the financial statements.
F-4
STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 AND THE THREE MONTHS ENDED
MARCH 31, 2020
| Additional | Total | |||||||||||||||||||||||
| Common | Treasury | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||
| Shares | Par | Shares | Capital | Deficit | Deficit | |||||||||||||||||||
| Balance December 31, 2017 | 7,100,000 | $ | 7,100 | $ | - | $ | 145,986 | $ | (212,986 | ) | $ | (59,900 | ) | |||||||||||
| Issuance of shares for cash, net of issuance costs | 349,850 | 350 | - | 655,870 | - | 656,220 | ||||||||||||||||||
| Issuance of shares for services and licenses | 78,000 | 78 | - | 155,922 | - | 156,000 | ||||||||||||||||||
| Stock option and warrant compensation | - | - | - | 3,367,526 | - | 3,367,526 | ||||||||||||||||||
| Warrants issued with notes | - | - | - | 32,657 | - | 32,657 | ||||||||||||||||||
| Net loss | - | - | - | - | (5,689,237 | ) | (5,689,237 | ) | ||||||||||||||||
| Balance December 31, 2018 | 7,527,850 | $ | 7,528 | $ | - | $ | 4,357,961 | $ | (5,902,223 | ) | $ | (1,536,734 | ) | |||||||||||
| Issuance of shares for cash, net of issuance costs | 262,950 | 263 | - | 469,914 | - | 470,177 | ||||||||||||||||||
| Issuance of shares for services and licenses | 41,000 | 41 | - | 81,959 | - | 82,000 | ||||||||||||||||||
| Stock option and warrant compensation | - | - | - | 3,616,422 | - | 3,616,422 | ||||||||||||||||||
| Modification of options | - | - | - | 533,311 | - | 533,311 | ||||||||||||||||||
| Treasury stock | (189,625 | ) | - | (189,625 | ) | - | - | (189,625 | ) | |||||||||||||||
| Net loss | - | - | - | - | (5,827,728 | ) | (5,827,728 | ) | ||||||||||||||||
| Balance December 31, 2019 | 7,642,175 | $ | 7,832 | $ | (189,625 | ) | $ | 9,059,567 | $ | (11,729,951 | ) | $ | (2,852,177 | ) | ||||||||||
| Issuance of shares for services and licenses | 209,500 | 209 | - | 418,791 | - | 419,000 | ||||||||||||||||||
| Stock option and warrant compensation | - | - | - | 110,437 | - | 110,437 | ||||||||||||||||||
| Treasury stock | (11,980 | ) | - | (11,980 | ) | - | - | (11,980 | ) | |||||||||||||||
| Net loss | - | - | - | - | (1,189,363 | ) | (1,189,363 | ) | ||||||||||||||||
| Balance March 31, 2020 (unaudited) | 7,839,695 | $ | 8,041 | $ | (201,605 | ) | $ | 9,588,795 | $ | (12,919,314 | ) | $ | (3,524,083 | ) | ||||||||||
See accompanying notes to the financial statements.
F-5
STATEMENTS OF CASH FLOWS
| For the three months ended | For the three months ended | For the Year Ended | For the Year Ended | |||||||||||||
| March 31, 2020 | March 31, 2019 | December 31, 2019 | December 31, 2018 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | (unaudited) | (unaudited) | ||||||||||||||
| Net loss | $ | (1,189,363 | ) | $ | (1,200,268 | ) | $ | (5,827,728 | ) | $ | (5,689,237 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||||||||||
| Stock-based compensation | 529,437 | 723,608 | 3,698,422 | 3,523,526 | ||||||||||||
| Amortization of offering costs | - | - | - | 273,750 | ||||||||||||
| Amortization of debt discount | 164,611 | - | - | 76,757 | ||||||||||||
| Modification of options | - | - | 533,311 | - | ||||||||||||
| Changes in operating assets and liabilities | ||||||||||||||||
| Accounts payable and accrued expenses | 115,420 | 240,663 | 601,607 | 1,047,660 | ||||||||||||
| Accrued compensation to related parties | 128,978 | - | 530,036 | 381,281 | ||||||||||||
| Net Cash Used in Operating Activities | (250,917 | ) | (235,997 | ) | (464,352 | ) | (386,263 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
| Proceeds from note payable - related party | - | 10,000 | 10,000 | 117,502 | ||||||||||||
| Proceeds from note payable | 335,000 | - | 50,000 | 182,000 | ||||||||||||
| Repayments of note payable - related party | - | (42,502 | ) | (42,502 | ) | (75,000 | ) | |||||||||
| Repayments of note payable | - | (5,000 | ) | (15,500 | ) | (105,000 | ) | |||||||||
| Common stock issued for cash, net of issuance costs | - | 198,654 | 470,177 | 631,220 | ||||||||||||
| Deferred offering costs | (41,596 | ) | - | (119,442 | ) | (273,750 | ) | |||||||||
| Net Cash Provided by Financing Activities | 293,404 | 161,152 | 352,733 | 476,972 | ||||||||||||
| NET INCREASE (DECREASE) IN CASH | 42,487 | (74,845 | ) | (111,619 | ) | 90,709 | ||||||||||
| CASH AT BEGINNING OF YEAR | 4,090 | 115,709 | 115,709 | 25,000 | ||||||||||||
| CASH AT END OF YEAR | $ | 46,577 | $ | 40,864 | $ | 4,090 | $ | 115,709 | ||||||||
| Supplemental cash flow information: | ||||||||||||||||
| Cash paid for income taxes | $ | - | $ | - | $ | - | $ | - | ||||||||
| Cash paid for interest expense | $ | - | $ | - | $ | - | $ | - | ||||||||
| NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||||||
| Liabilities assumed for common stock | $ | 11,980 | $ | - | $ | 189,625 | $ | - | ||||||||
| Fair value of warrants issued with notes payable | $ | - | $ | - | $ | - | $ | 32,657 | ||||||||
| Common stock issued for deposit on private placement | $ | - | $ | - | $ | - | $ | 25,000 | ||||||||
| Original issuance discount on notes payable | $ | 300,000 | $ | - | $ | - | $ | - | ||||||||
See accompanying notes to the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
Company Background
Aditx Therapeutics, Inc. (“Aditx” or the “Company”) was incorporated on September 28, 2017, under the laws of the State of Delaware. The Company is a pre-clinical stage, life sciences company with a mission of prolonging life and enhancing its quality by improving the health of the immune system.
Risks and Uncertainties
The Company has a limited operating history and has not generated revenue from intended operations. The Company’s business and operations are sensitive to general business and economic conditions in the U.S. and worldwide along with local, state, and federal governmental policy decisions. A host of factors beyond the Company’s control could cause fluctuations in these conditions. Adverse conditions may include: changes in biotechnology regulatory environment, technological advances that render our technologies obsolete, availability of resources for clinical trials, acceptance of technologies into the medical community, and competition from larger, more well-funded companies. These adverse conditions could affect the Company’s financial condition and the results of its operations.
On January 30, 2020 the World Health Organization declared the COVID-19 coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The COVID-19 coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last and what the financial impact will be to the Company, it is reasonably possible that capital raise efforts and additional development of our technologies may be negatively affected.
NOTE 2 – GOING CONCERN ANALYSIS
Going Concern Analysis
The Company was incorporated on September 28, 2017 and has not generated revenues to date. For the year ended December 31, 2019, the Company had a net loss of $5,827,728 and will require significant additional capital in order to operate in the normal course of business and fund clinical studies. The Company will be conducting medical research and development, and the time at which the Company will begin generating revenue is unknown. As a result of these conditions, there is substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the matters discussed herein. While we believe in the viability of our strategy to generate sufficient revenue, control costs and raise additional funds when necessary, there can be no assurances to that effect. The Company’s ability to continue as a going concern is dependent upon the ability to complete clinical studies and implement the business plan, generate sufficient revenues and to control operating expenses.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These audited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
The unaudited interim financial statements and related notes have been prepared in accordance with U.S. GAAP for interim financial information, within the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The unaudited interim financial statements have been prepared on a basis consistent with the audited financial statements and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the results for the interim periods presented and of the financial condition as of the date of the interim balance sheet. The financial data and the other information disclosed in these notes to the interim financial statements related to the three-month periods are unaudited. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These unaudited interim financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2019 and related notes thereto.
F-7
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Significant estimates underlying the financial statements include the fair value of stock options and warrants.
Fair Value Measurements and Fair Value of Financial Instruments
The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements. ASC Topic 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with ASC Topic 820.
Due to the short-term nature of all financial assets and liabilities, their carrying value approximates their fair value as of the balance sheet dates.
Concentrations of Credit Risk
The Company maintains its cash accounts at financial institutions which are insured by the Federal Deposit Insurance Corporation. At times, the Company may have deposits in excess of federally insured limits.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. As of December 31, 2019 and 2018, the Company did not have any cash equivalents.
Offering Costs
The Company accounts for offering costs in accordance with ASC 340, Other Assets and Deferred Costs. Prior to the completion of an offering, offering costs were capitalized as deferred offering costs on the balance sheet. The deferred offering costs are netted against the proceeds of the offering in stockholders’ deficit or the related debt, as applicable. Costs related to unsuccessful offerings are expensed.
Debt Issued with Warrants
Debt issued with warrants is accounted for under the guidelines established by ASC 470-20, Accounting for Debt with Conversion or Other Options. We record the relative fair value of warrants related to the issuance of convertible debt as a debt discount or premium. The discount or premium is subsequently amortized to interest expense over the expected term of the convertible debt.
Stock-Based Compensation
The Company accounts for stock-based compensation costs under the provisions of ASC 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock based compensation expense recognized includes the compensation cost for all stock-based payments granted to employees, officers, and directors based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC. 718 is also applied to awards modified, repurchased, or cancelled during the periods reported. Stock-based compensation is recognized as expense over the employee’s requisite vesting period and over the nonemployee’s period of providing goods or services.
F-8
Patents
The Company incurs fees from patent licenses. During the years ended December 31, 2019 and 2018, the Company had a licensing fee for the patents of $18,396 and $525,000, respectively. During the three months ended March 31, 2020 and 2019, the Company had a licensing fee for the patents of $126,045 and $0, respectively.
Revenue Recognition
The adoption of ASC 606, Revenue From Contracts With Customers, represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company’s services and will provide financial statement readers with enhanced disclosures. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. To achieve this core principle, the Company applies the following five steps: Identify the contract with a customer; Identify the performance obligations in the contract; Determine the transaction price; Allocate the transaction price to performance obligations in the contract; Recognize revenue when or as the Company satisfies a performance obligation. The Company has not recognized any revenue to date.
Research and Development
We incur research and development costs during the process of researching and developing our technologies and future offerings. Our research and development costs mainly consist of licensing costs. We expense these costs as incurred unless such costs qualify for capitalization under applicable guidance.
Advertising
The Company expenses the cost of advertising and promotions as incurred. Advertising expense was $551 and $39,837 for the years ended December 31, 2019 and 2018, respectively.
Basic and Diluted Net Loss per Common Share
Basic loss per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding for each period. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding plus the dilutive effect of shares issuable through the common stock equivalents. The weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. As of March 31, 2020, 2,220,000 stock options and 2,764,951 warrants were excluded from dilutive earnings per share as their effects were anti-dilutive. As of March 31, 2019, 805,000 stock options and 2,122,846 warrants were excluded from dilutive earnings per share as their effects were anti-dilutive. As of December 31, 2019, 2,205,000 stock options and 2,764,956 warrants were excluded from dilutive earnings per share as their effects were anti-dilutive. As of December 31, 2018, 1,005,000 stock options and 1,974,351 warrants were excluded from dilutive earnings per share as their effects were anti-dilutive.
Recent Accounting Pronouncements
In February 2016, FASB issued Accounting Standards Update (“ASU”) 2016-02: Leases (Topic 842). The new guidance generally requires an entity to recognize on its balance sheet operating and financing lease liabilities and corresponding right-of-use assets. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The new standard requires a modified retrospective transition for existing leases to each prior reporting period presented. The Company has elected to utilize the extended adoption period available to the Company as an emerging growth company and has not currently adopted this standard. This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its financial position, results of operations and cash flows once adopted.
The FASB issues ASUs to amend the authoritative literature in ASC. There have been several ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or (iv) are not expected to have a significant impact our financial statements.
F-9
NOTE 4 – RELATED PARTY TRANSACTIONS
The Company’s Chief Executive Officer (“CEO”) has provided certain periods of service without payment. Accordingly, the Company has accrued $15,000 in compensation per month for services rendered during the year ended December 31, 2018. This amount was increased to $21,000 per month for the year ended December 31, 2019. As of March 31, 2020 and December 31, 2019, the CEO is owed $342,500 and $309,500, respectively, related to compensation.
The Company’s Chief Innovation Officer (“CIO”) has provided certain periods of service without payment. Accordingly, the Company has accrued $15,000 in compensation per month for services rendered during the year ended December 31, 2018. This amount was increased to $17,000 per month for the year ended December 31, 2019. As of March 31, 2020 and December 31, 2019, the CIO is owed $428,000 and $377,000, respectively, related to compensation.
During the three months ended March 31, 2020 and 2019, a related party has provided the Company with operations consulting services. As part of this agreement, the Company will pay the consultant $15,000 per month. As of December 31, 2019, $275,000 was accrued as compensation. An additional $45,000 was expensed as compensation during the three months ended March 31, 2020. As of March 31, 2020, $320,000 remained accrued and outstanding.
On January 22, 2018, the Company issued an unsecured promissory note to a related party for $40,000 that accrued interest of 4% annually. The note was due on the earlier of July 22, 2018 or in the event of default, as defined in the agreement. This note has been repaid as of March 31, 2020
On February 12, 2018, the Company issued an unsecured promissory note to a related party for $50,000 that accrued interest of 4% annually. The note was due on the earlier of August 12, 2018 or in the event of default, as defined in the agreement. This note has been repaid as of March 31, 2020.
On March 2, 2018, the Company issued an unsecured promissory note to a related party for $10,000 that accrued interest of 4% annually. The note was due on the earlier of September 2, 2018 or in the event of default, as defined in the agreement. This note has been repaid as of March 31, 2020.
On March 8, 2018, we entered into an Assignment Agreement (the “Assignment Agreement”) with Sekris Biomedical, Inc. (“Sekris”). Sekris is a related party due to Dr. Shabahang, our CTO, being the CEO of Sekris. Sekris was a party to a License Agreement with Loma Linda University (“LLU”), entered into and made effective on May 25, 2011, and amended on June 24, 2011, July 16, 2012 and December 27, 2012 (the “Original Agreement,” and together with the Assignment Agreement, the “Sekris Agreements”). Pursuant to the Assignment Agreement, Sekris transferred and assigned all of its rights and obligations in and to and liabilities under the Original Agreement, of whatever kind or nature, to us. In exchange, on March 8, 2018, we issued a warrant to Sekris to purchase up to 1,000,000 shares of our Common Stock (the “Sekris Warrant”). The warrant is immediately exercisable and the exercise price is $2.00 per share. The expiration date of the warrant is March 8, 2023. On March 15, 2018, we entered into a Patent & Technology License Agreement directly with LLU (the “New License Agreement”), which amends and restates the Sekris Agreements. Per this agreement, the Company agrees to pay license fees of $25,000 annually starting March 31, 2020, milestone fees totaling up to $1,725,000, and a past patent fee of $200,000 which is to be paid in quarterly installments between September 2018 and March 2019. The Company also issued 50,000 shares of its common stock as part of this agreement. These shares of common stock were valued at $2.00 per share based on the most recent sales price of the Company’s common stock during the period. The Company will also pay royalties of 1.5% of their net product sales and net service sales covered by a valid claim and 0.75% of their net product sales and net service sales not covered by a valid claim.
On June 18, 2018, the Company issued an unsecured promissory note with a related party for $17,502 that accrued interest of 4% annually. The note was due on the earlier of December 18, 2018 or in the event of default, as defined in the agreement. This note has been repaid as of March 31, 2020.
On January 1, 2019, the Company entered into a consulting agreement with a related party to perform operating consulting services. As part of this agreement, the Company will pay the consultant $15,000 per month.
On March 21, 2019, the Company entered into a note with a related party. The note has a principal of $10,000, a maturity date of September 21, 2019, and an interest rate of 4% per year. There is $10,000 outstanding on this note as of March 31, 2020. This note is currently in default.
During the year ended December 31, 2019, the Company assumed $189,625 of liabilities from a related party in exchange for the return of 189,625 shares of the Company’s common stock.
During the three months ended March 31, 2020, the Company assumed $11,980 of liabilities from a related party in exchange for the return of 11,980 shares of the Company’s common stock.
F-10
NOTE 5 – STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company has authorized the issuance of 3,000,000 shares of common stock, par value $0.001 per share.
Common Stock
The Company has authorized the issuance of 27,000,000 shares of common stock, par value $0.001 per share.
In November 2017, the Company commenced a private placement for the sale of 1,000,000 shares of common stock for gross proceeds of $2,000,000. The terms of the private placement were such that a minimum of $250,000 was to be raised before funds could be drawn on, and that the technology licensing agreement (Note 4) must be executed. During the first quarter of 2018, the Company received $237,500 in cash, and with $25,000 received prior to December 31, 2017, the aggregate raised was $262,500 for which the Company issued 131,250 shares of common stock under the private placement at $2.00 per share. The Company also agreed to issue one warrant to purchase a share of common stock for each share purchased in the private placement. The warrant is exercisable at $2.00 per share and has a term of three years.
In October 2018, the Company commenced a private placement for the sale of 1,000,000 shares of common stock for gross proceeds of $2,000,000. During the year ended December 31, 2018, the Company received $437,200 in cash for which the Company issued 218,600 shares of common stock under the private placement at $2.00 per share. The Company also paid total issuance costs of $43,480, for net proceeds of $393,720. During the year ended December 31, 2019, the Company received $525,900 in cash for which the Company issued 262,950 shares of common stock under the private placement at $2.00 per share. The Company also paid total issuance costs of $55,723, for net proceeds of $470,177. The Company also agreed to issue one warrant to purchase a share of common stock for each share purchased in the private placement. The warrants are exercisable at $3.00 per share and have a term of three years.
During the year ended December 31, 2018, the Company issued 78,000 shares of common stock for services and recognized expense of $156,000 in stock compensation and license fees. These shares were valued based on the price which common shares were being sold in the above private placements.
During the year ended December 31, 2019, the Company issued 41,000 shares of common stock for services and recognized expense of $82,000 in stock compensation and license fees. During year ended December 31, 2018, the Company issued 78,000 shares of common stock for services and recognized expense of $156,000 in stock compensation and licenses fees. These shares were valued based on the price which common shares were being sold in the above private placements.
During the three months ended March 31, 2020, the Company issued 209,500 shares of common stock for services and recognized expense of $419,000 in stock compensation and license fees. During three months ended March 31, 2019, the Company issued 26,000 shares of common stock for services and recognized expense of $52,000 in stock compensation and issued 120,500 shares of common stock for cash and received $198,654 in cash, net of offering costs. Shares issued for compensation were valued based on the price which common shares were being sold in the above private placements.
Stock-Based Compensation
In October 2017, our Board of Directors adopted the Aditx Therapeutics, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan provides for the grant of equity awards to employees, and consultants. Up to 1,200,000 shares of our common stock may be issued pursuant to awards granted under the 2017 Plan. The 2017 Plan is administered by our Board of Directors, and expires ten years after adoption, unless terminated earlier by the Board. On December 21, 2018, our board of directors amended the 2017 Plan to increase the number of authorized shares of common stock issuable thereunder to 5,000,000 shares, subject to shareholder approval.
F-11
During the year ended December 31, 2019, the Company granted 1,400,000 stock options with exercise prices of $2.00 per share vesting on issuance, of which 1,100,000 was to related parties. The total grant date fair value was determined to be $2,495,556. During the year ended December 31, 2018, the Company granted 825,000 stock options with exercise prices of $2.00 per share vesting on issuance or vesting yearly. The total grant date fair value was determined to be $1,507,232. During the three months ended March 31, 2020, the Company granted 15,000 stock options with exercise prices of $2.00 per share vesting on issuance, of which 15,000 was to related parties. The total grant date fair value was determined to be $28,642. During the three months ended March 31, 2019, the Company granted 300,000 stock options with exercise prices of $2.00 per share vesting on issuance. The total grant date fair value was determined to be $534,725. For all periods presented, the fair value of each stock option granted was estimated using the Black-Scholes assumption ranges and or factors as follows:
| Exercise price | $ | 2.00-5.50 | ||
| Expected dividend yield | 0 | % | ||
| Risk free interest rate | 0.39% - 2.65 | % | ||
| Expected life in years | 5 | |||
| Expected volatility | 141-151 | % |
The risk-free interest rate assumption for options granted is based upon observed interest rates on the United States government securities appropriate for the expected term of stock options.
The expected term of stock options is calculated using either the simplified method for employee options which takes into consideration the contractual life and vesting terms of the options, unless the options are expected to vest in which case the contractual term of the options.
The Company determined the expected volatility assumption for options granted using the historical volatility of comparable public companies’ common stock. The Company will continue to monitor peer companies and other relevant factors used to measure expected volatility for future stock option grants, until such time that the Company’s common stock has enough market history to use historical volatility.
The dividend yield assumption for options granted is based on the Company’s history and expectation of dividend payouts. The Company has never declared or paid any cash dividends on its common stock, and the Company does not anticipate paying any cash dividends in the foreseeable future.
Management estimated the fair value of common stock by looking at a market approach which takes into consideration past sales of stock to third parties and Company developments to date.
The Company recognizes stock option forfeitures as they occur as there is insufficient historical data to accurately determine future forfeitures rates.
The following is an analysis of the stock option grant activity under the Plan:
Weighted Average | Weighted Average | |||||||||||
| Number | Exercise Price | Remaining Life | ||||||||||
| Stock Options | ||||||||||||
| Outstanding December 31, 2017 | 240,000 | $ | 2.00 | 4.82 | ||||||||
| Granted | 825,000 | 2.00 | 5.00 | |||||||||
| Expired or forfeited | (60,000 | ) | 2.00 | - | ||||||||
| Outstanding December 31, 2018 | 1,005,000 | $ | 2.00 | 4.11 | ||||||||
| Granted | 1,400,000 | 2.00 | 7.77 | |||||||||
| Expired or forfeited | (200,000 | ) | 2.00 | - | ||||||||
| Outstanding December 31, 2019 | 2,205,000 | $ | 2.00 | 7.77 | ||||||||
| Granted | 15,000 | 5.50 | 8.63 | |||||||||
| Expired or forfeited | - | - | - | |||||||||
| Outstanding March 31, 2020 (unaudited) | 2,220,000 | $ | 2.02 | 7.50 | ||||||||
F-12
| Nonvested Options | Shares | Weighted- Average Exercise Price | ||||||
| Nonvested at December 31, 2017 | 195,000 | $ | 2.00 | |||||
| Granted | 825,000 | 2.00 | ||||||
| Vested | (760,000 | ) | 2.00 | |||||
| Forfeited | (60,000 | ) | 2.00 | |||||
| Nonvested at December 31, 2018 | 200,000 | $ | 2.00 | |||||
| Granted | 1,400,000 | 2.00 | ||||||
| Vested | (1,400,000 | ) | 2.00 | |||||
| Forfeited | (200,000 | ) | 2.00 | |||||
| Nonvested at December 31, 2019 | - | $ | - | |||||
| Granted | 15,000 | 5.50 | ||||||
| Vested | (15,000 | ) | 5.50 | |||||
| Forfeited | - | - | ||||||
| Nonvested at March 31, 2020 (unaudited) | - | $ | - | |||||
There were 805,000 options exercisable at December 31, 2018 with a weighted average exercise price of $2.00 and a weighted average life remaining of 4.09 years. There are 2,205,000 options exercisable at December 31, 2019 with a weighted average exercise price of $2.00 and a weighted average life remaining of 7.77 years. There are 2,220,000 options exercisable at March 31, 2020 with a weighted average exercise price of $2.02 and a weighted average life remaining of 7.50 years.
The Company recognized compensation expense related to options issued and vesting of $2,513,826 during the year ended December 31, 2019, which is included in general and administrative expenses in the accompanying statements of operations. The remaining value to be expensed is $0 with a weighted average vesting life of 0 years as of December 31, 2019. The Company recognized compensation expense related to options issued and vesting of $1,369,824 during the period ended December 31, 2018, which is included in general and administrative expenses in the accompanying statements of operations.
The Company recognized compensation expense related to options issued and vesting of $27,799 during the three months ended March 31, 2020, which is included in general and administrative expenses in the accompanying statements of operations. The remaining value to be expensed is $0 with a weighted average vesting life of 0 years as of March 31, 2020. The Company recognized compensation expense related to options issued and vesting of $552,995 during the period ended March 31, 2019, which is included in general and administrative expenses in the accompanying statements of operations.
On December 18, 2019, the Company extended the expiration date for 2,205,000 options to purchase shares of the Company’s common stock issued to ten individuals. These options have had their expiration date extended to October 5, 2027. Related to this option modification, the Company valued the affected options immediately before and after the modification using inputs to the Black-Scholes model similar to those described above, adjusting for the expected life modified. Accordingly, compensation expense of $533,311 was recorded in general and administrative expense for the incremental value of the options upon modification.
Warrants
A summary of warrant issuances are as follows:
| Number | Weighted Average Exercise Price | Weighted Average Remaining Life | ||||||||||
| Warrants | ||||||||||||
| Outstanding December 31, 2017 | - | $ | - | - | ||||||||
| Granted | 1,974,351 | 2.16 | 4.53 | |||||||||
| Outstanding December 31, 2018 | 1,974,351 | $ | 2.16 | 3.89 | ||||||||
| Granted | 828,760 | 2.41 | 3.09 | |||||||||
| Forfeited | (38,155 | ) | 3.00 | - | ||||||||
| Outstanding December 31, 2019 | 2,764,956 | 2.22 | 2.84 | |||||||||
| Granted | - | - | - | |||||||||
| Forfeited | - | - | - | |||||||||
| Outstanding March 31, 2020 (unaudited) | 2,764,956 | $ | 2.59 | 2.54 | ||||||||
F-13
| Nonvested Warrants | Shares | Weighted- Average Exercise Price | ||||||
| Nonvested at December 31, 2017 | - | $ | - | |||||
| Granted | 1,974,351 | 2.16 | ||||||
| Vested | (1,374,351 | ) | 2.23 | |||||
| Forfeited | - | - | ||||||
| Nonvested at December 31, 2018 | 600,000 | $ | 2.00 | |||||
| Granted | 828,670 | 2.41 | ||||||
| Vested | (1,028,670 | ) | 2.33 | |||||
| Forfeited | - | - | ||||||
| Nonvested at December 31, 2019 | 400,000 | 2.00 | ||||||
| Granted | - | - | ||||||
| Vested | - | - | ||||||
| Forfeited | - | - | ||||||
| Nonvested at March 31, 2020 (unaudited) | 400,000 | $ | 2.00 | |||||
There are 1,374,351 warrants exercisable at December 31, 2018 with a weighted average exercise price of $2.23 and a weighted average life remaining of 3.77 years. There are 2,364,956 warrants exercisable at December 31, 2019 with a weighted average exercise price of $2.26 and a weighted average life remaining of 2.84 years. There are 2,364,951 warrants exercisable at March 31, 2020 with a weighted average exercise price of $2.26 and a weighted average life remaining of 2.48 years.
The warrants are valued using similar inputs as noted in the stock options section above, with the exception of the expected life which is the contractual life.
The Company recognized compensation expense related to warrants issued and vesting of $1,102,596 and $2,030,359 during the years ended December 31, 2019 and 2018, which is included in general and administrative in the accompanying statements of operations. The remaining value to be expensed is $561,213 with a weighted average vesting term of 1.47 years as of December 31, 2019.
The Company recognized compensation expense related to warrants issued and vesting of $82,638 and $118,613 during the three months ended March 31, 2020 and 2019, which is included in general and administrative in the accompanying statements of operations. The remaining value to be expensed is $478,575 with a weighted average vesting term of 1.22 years as of March 31, 2020.
On March 8, 2018, we entered into an Assignment Agreement with Sekris. This agreement called for the issuance of a warrant to Sekris to purchase up to 1,000,000 shares of our common stock (see Note 4).
In April 2018, the Company granted 420,000 warrants to purchase shares of common stock to two individuals for services. The warrants vest annually over three years.
During 2018, the Company issued 24,501 warrants to purchase shares of common stock in connection to three loans (see Note 7).
On December 1, 2018, the Company issued 180,000 warrants to purchase shares of common stock to a consultant. The warrants vest annually over three years.
During the year ended December 31, 2019, the Company issued 487,000 warrants to consultants for services.
On September 25, 2019, the Company issued a warrant to purchase 38,155 shares of its common stock to a placement agent as part of their agreement with the placement agent. Subsequently in 2019, the Company cancelled these warrants and reissued 40,655 warrants to purchase shares of the Company’s common stock. These newly issued warrants have an exercise price of $3.00 and expire on the third anniversary of the grant date.
The Company values warrants using inputs that are similar to those used in valuing the Company’s options.
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NOTE 6 – AGREEMENTS
Effective March 1, 2018, the Company entered into a consulting agreement with a company for project management services for $13,000 per month plus any additional fees. The term of this agreement commenced on March 1, 2018 and remained in effect, as provided in the agreement, until May 31, 2018. The Company entered into a new agreement with the consultant on November 16, 2018 with the same terms.
On March 14, 2018, the Company entered into an agreement with a company to provide financial advisory and placement agent services. On March 14, 2018, an initial retainer fee of $55,000 was due for the Non-Accountable Expense Allowance with an additional $10,000 due upon filing of an offering statement as defined by the agreement. Based on the amended terms, the placement agent is entitled to a cash fee equal to seven percent (7%) of the aggregate gross proceeds received by the Company from the sale of the Units at a qualified offering per the agreement and a non-accountable expense allowance equal to one percent (1%) of the aggregate gross proceeds received by the Company from the sale of the Units at each Closing of the Offering. The placement agent will also receive warrants to purchase a number of shares, equal to an aggregate of ten percent (10%) of the Shares underlying the Units sold in the Offering, for an exercise price of $7.50. These warrants have not been earned as of the date of these financial statements. The agreement may be terminated after six months by either party.
On August 23, 2018, the Company entered into a consulting agreement with a company for investor relations for $7,500 per month. This agreement also issued 20,000 shares of the Company’s common stock to the consultant at the signing of the agreement. The service period for this agreement was from August 23, 2018 to February 22, 2019.
On October 23, 2018, the Company entered into an agreement with a placement agent. As part of this agreement the Company will pay the placement agent 10% of the purchase price of the securities sold by the placement agent. The Company will also pay a 3% fee based on the offering proceeds as non-accountable expense. The Company will issue to the consultant warrants to purchase the Company’s common stock at a rate of 10% of the shares sold at the offering. These warrants will have the same terms as the investor’s warrants. See Note 5.
On December 1, 2018, the Company entered into an independent director agreement. As part of this agreement the Company issued 5,000 shares of its common stock to the director and issued an additional 10,000 shares of its common stock on June 30, 2019.
On December 1, 2018, the Company entered into a consulting agreement. As part of this agreement the Company agreed to pay the consultant $3,000 per month and a 3% success fee for all payments received by the Company from qualified agreements. The Company has also issued 180,000 warrants to purchase shares of common stock to the consultant. These warrants have an exercise price of $2.00, an expiration date of December 1, 2022, and vest 60,000 options per year starting on December 1, 2019.
On January 1, 2019, the Company entered into a consulting agreement with a company for business advisory services. As part of this agreement, the Company agreed to pay a monthly fee of $3,500. The Company also issued 6,000 shares of its common stock and a warrant to purchase 12,000 shares of its common stock with an exercise price of $2.00 and an expiration date of January 1, 2022.
On January 1, 2019, the Company entered into a consulting agreement with a company for business advisory services. As part of this agreement, the Company agreed to pay the consultant $14,700 per month. This agreement replaces the prior agreement with this consultant dated November 16, 2018. On July 1, 2019, the Company entered into another agreement with this consultant to extend the term of the agreement to December 31, 2019.
On February 1, 2019, the Company entered into a consulting agreement with a company for investor relations for $7,500 per month. This agreement replaces the prior agreement with this consultant dated August 23, 2018.
On February 1, 2019, the Company entered into a consulting agreement. As part of this agreement, the Company agreed to pay the consultant $3,000 per month and issued the consultant 5,000 warrants to purchase shares of the Company’s common stock.
On February 1, 2019, the Company entered into a consulting agreement. As part of this agreement, the Company paid the consultant $6,500 per month which increased to $10,000 per month in July 2019. The Company also issued 20,000 shares of its common stock at a par value of $0.001 per share within business 10 days of the agreement being executed.
On March 11, 2019, the Company entered into a six-month lease for office space at $3,900 per month.
On April 15, 2019, the Company entered into an option agreement to license a patent. The term of this option was until October 15, 2019. The Company paid a fee of $5,000 on the signing of the agreement. The Company also issued 5,000 shares of its common stock valued at $2.00 per share to the patent holder.
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On October 1, 2019, the Company entered into an agreement for accounting services. As part of this agreement the Company issued 50,000 warrants to purchase share of the Company’s common stock to the consultant. The agreement expired on December 31, 2019.
On October 1, 2019, the Company entered into an agreement for consulting services. As part of this agreement the Company has issued 20,000 warrants to purchase share of the Company’s common stock to the consultant. The agreement expired on December 31, 2019.
On December 27, 2019, the Company entered into a consulting agreement for advisory services. As part of this agreement the Company agreed to pay a monthly retainer of $2,000. The Company will also issue 20,000 shares of its common stock within ten business days of January 1, 2020. Additionally, the Company will issue 30,000 shares of its commons stock on within ten business days of July 1, 2020 and 30,000 shares of its common stock within ten business days of December 31, 2020.
On December 27, 2019, the Company entered into a consulting agreement for advisory services. As part of this agreement the Company paid a one-time retainer of $15,000. If the Company is successful in listing on a national exchange the Company will be obligated to pay a success fee to the consultant. This success fee will consist of $7,500 or an equivalent amount in the Company’s common stock.
On January 9, 2020, the Company entered into a consulting agreement for advisory services. As part of this agreement the Company will pay a monthly retainer of $4,000. The Company was obligated to issue 20,000 shares of its common stock within ten business days of January 1, 2020. Additionally, the Company will issue 30,000 shares of its commons stock on within ten business days of June 18, 2020 and 30,000 shares of its common stock within ten business days of December 17, 2020.
On January 10, 2020, the Company entered into a consulting agreement for advisory services. As part of this agreement the Company will issue 110,000 shares of its common stock within ten business days of January 10, 2020. Additionally, the Company will issue 110,000 shares of its common stock within ten business days of getting listed if the Company is successfully listed on Nasdaq Stock Market LLC or New York Stock Exchange prior to March 31, 2020.
On January 22, 2020, the Company entered into a consulting agreement for investor relations and capital market advisory services. The term of this agreement is for twelve months ending on December 21, 2020. As part of this agreement the Company will pay $12,000 per month. The Company will also issue the consultant 40,000 shares of the Company’s common stock due upon completion of the Company’s IPO.
On February 3, 2020, the Company entered into a patent licensing agreement. As part of this agreement the Company will pay a fee of $25,000 to the patent holder within 60 days of the signing of the agreement. The Company will also issue 37,500 shares of the Company’s common stock to the patent holder. The Company will pay an annual licensing fee on the anniversary of the agreement in the amount of $40,000 for 2021 through 2024 and $60,000 in starting in 2025 until the license expires. The Company will also pay milestone fees of $50,000 on the first commercial sales of a licensed product and $25,000 at the beginning of any clinical study for regulatory clearance of an in vitro diagnostic product developed and a potential licensed product. The Company will be responsible for paying royalty fees on the Company’s net sales. These royalty fees are set at a rate of 4% when net sales are below or equal to $5 million annually or 6% when net sales are above $5 million annually.
On January 21, 2020, the Company amended an agreement dated June 28, 2019 to assume a liability of $90,712. This amendment changes the deadline for the payment of the debt from December 31, 2019 to April 1, 2020.
On February 23, 2020, the Company entered into a consulting agreement for business development services. As part of this agreement the company will issue 10,000 shares of its common stock withing ten days of the signing of the agreement. The company will also issue an additional 6,000 shares of its common stock upon the completion of its IPO. After the IPO the Company will also pay a monthly fee of $8,000 to the consultant. The Company will also pay a success fee equal to 4% of transaction proceeds in connection with qualified transactions.
On March 30, 2020, the Company entered into an employment agreement for a permanent, full-time CFO that will be effective upon the closing of the Company’s IPO. As part of the employment agreement the Company will pay the employee $225,000 per year. The Company will also issue stock options to purchase shares of the Company’s common stock to the employee. There is an initial grant of 15,000 options at the signing of the agreement and a subsequent grant of 330,000 options upon the completion of the IPO, subject to the approval of the Board. The initial grant has an exercise price of $5.50 and expires on October 5, 2027. The initial grant vests immediately and the subsequent grant vests 1/3 on the first anniversary of the agreement and the remaining 2/3 vest quarterly over the next two years.
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NOTE 7 – NOTES PAYABLE
On April 12, 2018, the Company entered into an unsecured promissory note for $35,000 that accrues interest of 4% annually. The note was due on the earlier of November 12, 2018 or in the event of default, as defined in the agreement. This note is currently in default.
On July 10, 2018, the Company entered into a bridge loan with a principal of $15,600 and an on-issuance discount of $3,600. The Company also issued 2,000 warrants to this individual. The Company calculated the relative fair value of the warrants using a Black-Scholes pricing model with similar inputs as noted in Note 5, resulting in an additional discount of $2,669. The total discount of $6,269 was fully amortized as of March 31, 2020. The note was due on the earlier of October 8, 2018 or in the event of default, as defined in the agreement. This note is currently in default.
On July 18, 2018, the Company entered into a bridge loan with a principal of $130,000 and an on-issuance discount of $30,000. The Company also issued 16,667 warrants to this individual. The Company calculated the relative fair value of the warrants using a Black-Scholes pricing model with similar inputs as noted in Note 5, resulting in an additional discount of $22,206. The total discount of $52,206 was fully amortized as of December 31, 2019. The note was due on the earlier of October 16, 2018 or in the event of default, as defined in the agreement. This note is currently in default.
On November 1, 2019, the Company entered into a bridge loan with a principal of $50,000. This loan does not accrue any interest. The note is due on the earlier of April 28, 2020 or in the event of default, as defined in the agreement. The note can convert into the same class of securities as those sold in the public offering with a conversion price of $2.00 per share.
On January 10, 2020, the Company entered into a bridge loan with a principal amount of $75,000. This Note carries an original issue discount of $40,000. This loan does not accrue any interest. The note is due on the earlier of July 8, 2020 or in the event of default, as defined in the agreement. The note can convert into the same class of securities as those sold in the public offering with a conversion price of $2.00 per share.
During the first quarter of 2020, the Company entered into six bridge loans with a total principal amount of $635,000. These Notes carry a total original issue discount of $300,000. The notes are due on the earlier of April 19, 2020 or ten days after the close of the Company’s IPO. These notes were subsequently modified to extend the maturity date. See Note 9.
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NOTE 8 – INCOME TAX
The Tax Cuts and Jobs Act
At December 31, 2019, the Company has available for U.S. federal income tax purposes a net operating loss (“NOL”) carry-forwards of approximately $3,736,000 that may be used to offset future taxable income. These NOLs begin to expire in 2038. If not used, these NOLs may be subject to limitation under Internal Revenue Code Section 382 should there be a greater than 50% ownership change as determined under the regulations. The Company plans on undertaking a detailed analysis of any historical and/or current Section 382 ownership changes that may limit the utilization of the net operating loss carryovers. No tax benefit has been reported with respect to these net operating loss carry-forwards in the accompanying financial statements since the Company believes that the realization of its net deferred tax asset of approximately $473,000 was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are fully offset by a valuation allowance of $473,000.
For the year ended December 31, 2019, the Company has a current tax provision of $0 and deferred tax benefit of approximately $473,000 with a corresponding valuation allowance of approximately $473,000. For the period ended December 31, 2018, the Company has a current tax provision of $0 and deferred tax benefit of $641,000 with a corresponding valuation allowance of $641,000.
Components of deferred tax assets are as follows:
| December 31, 2019 | December 31, 2018 | |||||||
| Net deferred tax assets – Non-current: | ||||||||
| Expected income tax benefit from NOL carry-forwards | $ | 473,264 | $ | 659,490 | ||||
| Less valuation allowance | (473,264 | ) | (659,490 | ) | ||||
| Deferred tax assets, net of valuation allowance | $ | - | $ | - | ||||
A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows:
| For the year ended December 31, 2019 | For the year ended December 31, 2018 | |||||||
| Federal and state statutory income tax rate | 29.84 | % | 29.84 | % | ||||
| Permanent difference | 72.79 | % | 62.93 | % | ||||
| Change in valuation allowance on net operating loss carry-forwards | (102.63 | )% | (92.77 | )% | ||||
| Effective income tax rate | 0.0 | % | 0.0 | % | ||||
Permanent differences are primarily related to equity-based compensation and other non-deductible expenses.
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NOTE 9 – SUBSEQUENT EVENTS
On April 13, 2020, the Company issued warrants to a consultant. The Company issued 10,000 warrants to purchase the Company’s common stock. These warrants had an exercise price of $5.50, vest immediately, and expire on April 13, 2023.
On April 10, 2020, the Company terminated than agreement with a consultant for an agreement dated January 1, 2019. This termination will retroactively terminate the agreement as of May 31, 2019. As part of this termination agreement the Company agrees that its final outstanding balance due to the consultant is $10,000.
On April 10, 2020, the Company terminated than agreement with a consultant for an agreement dated December 1, 2020. As part of this termination agreement the Company agrees that its final outstanding balance due to the consultant is $18,000. The Company also agrees that the 130,000 non-vested warrants to purchase share of the Company’s common stock will be forfeited by the consultant. This will leave the consultant with 50,000 warrants vested.
On April 21, 2020, the Company entered into a consulting agreement. As part of this agreement the Company will issue 5,000 shares of its common stock to the consultant within 10 business days of the signing of this agreement. The company will also pay a monthly fee of $2,000 once the IPO has been closed. Three months after the close of the IPO the company will issue 6,000 share of its common stock each quarter to the consultant.
From April 23 to April 25, 2020, the Company amended 6 note agreements to extend the due dates of the notes to the earlier of June 30, 2020 of 10 days after the close of the IPO. These notes had original maturity dates ranging from April 19, 2020 to May 26, 2020 prior to their extension. These notes have a combined principal totaling $600,000.
On April 30, 2020, the Company entered into an employment agreement for a Vice President of Preclinical Research and Development that will be effective upon the closing of the Company’s IPO. As part of the employment agreement, the Company will pay the employee $200,000 per year. The Company will also issue 180,000 stock options to purchase shares of the Company’s common stock upon the completion of the IPO, subject to the approval of the Board. The initial grant will have an exercise price of equal to that of the IPO and expires on October 5, 2027. The grant vest 1/3 on the first anniversary of the start date of the employee and the remaining 2/3 vest quarterly over the following two years starting on the end of the 15th month following the start date.
F-19
1,900,000 Units consisting of:
Common Stock
Warrants
Aditx Therapeutics, Inc.
PROSPECTUS
Sole Book-Running Manager
DAWSON JAMES SECURITIES, INC.
Co-Manager
Network 1 Financial Securities, Inc.
Until , 2020 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.
, 2020
PART II—INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the registrant in connection with the sale of the securities being registered. All the amounts shown are estimates except the SEC registration fee and the FINRA filing fee.
| Amount to be paid |
||||
| SEC registration fee | $ | 3,308 | ||
| FINRA filing fee | $ | 2,000 | ||
| Nasdaq Capital Market initial listing fee | $ | 55,000 | ||
| Accounting fees and expenses | $ | 32,000 | ||
| Legal fees and expenses | $ | 250,000 | ||
| Printing and engraving expenses | $ | 10,000 | ||
| Miscellaneous | $ | 2,692 | ||
| Total | $ | 355,000 | ||
Item 14. Indemnification of Directors and Officers
Section 102 of the General Corporation Law of the State of Delaware (the “DGCL”) permits a corporation to eliminate the personal liability of directors of a corporation to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director, except where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Our amended and restated certificate of incorporation provides that no director of the Company shall be personally liable to it or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability, except to the extent that the DGCL prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty.
Section 145 of the DGCL provides that a corporation has the power to indemnify a director, officer, employee, or agent of the corporation, or a person serving at the request of the corporation for another corporation, partnership, joint venture, trust or other enterprise in related capacities against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with an action, suit or proceeding to which he was or is a party or is threatened to be made a party to any threatened, ending or completed action, suit or proceeding by reason of such position, if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, in any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, except that, in the case of actions brought by or in the right of the corporation, no indemnification shall be made with respect to 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 other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
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Upon consummation of this offering, our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws will provide indemnification for our directors and officers to the fullest extent permitted by the DGCL. We will indemnify each person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of us) by reason of the fact that he or she is or was, or has agreed to become, a director or officer, or is or was serving, or has agreed to serve, at our request as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (all such persons being referred to as an “Indemnitee”), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding and any appeal therefrom, if such Indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, and, with respect to any criminal action or proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful. Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws will provide that we will indemnify any Indemnitee who was or is a party to an action or suit by or in the right of us to procure a judgment in our favor by reason of the fact that the Indemnitee is or was, or has agreed to become, a director or officer, or is or was serving, or has agreed to serve, at our request as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys’ fees) and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding, and any appeal therefrom, if the Indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, except that no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to us, unless a court determines that, despite such adjudication but in view of all of the circumstances, he or she is entitled to indemnification of such expenses. Notwithstanding the foregoing, to the extent that any Indemnitee has been successful, on the merits or otherwise, he or she will be indemnified by us against all expenses (including attorneys’ fees) actually and reasonably incurred in connection therewith. Expenses must be advanced to an Indemnitee under certain circumstances.
Prior to the consummation of this offering, we intend to enter into separate indemnification agreements with each of our directors and executive officers. Each indemnification agreement will provide, among other things, for indemnification to the fullest extent permitted by law and our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws against any and all expenses, judgments, fines, penalties and amounts paid in settlement of any claim. The indemnification agreements will provide for the advancement or payment of all expenses to the indemnitee and for the reimbursement to us if it is found that such indemnitee is not entitled to such indemnification under applicable law and our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws.
We maintain a general liability insurance policy that covers certain liabilities of directors and officers of our corporation arising out of claims based on acts or omissions in their capacities as directors or officers.
In any underwriting agreement we enter into in connection with the sale of common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us within the meaning of the Securities Act against certain liabilities.
Item 15. Recent Sales of Unregistered Securities
2017
During 2017, we issued the securities below that were not registered under the Securities Act. All of the securities discussed herein were issued in reliance on Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
On October 10, 2017, the Company issued 7,100,000 shares of its common stock, including: (a) 3,500,000 shares to Sekris Biomedical, Inc. (“Sekris”), (b) 1,000,000 shares to Dr. Shahrokh Shabahang, our co-founder and Chief Innovation Officer (c) 1,000,000 shares to Dr. Leonard Bailey, the former Chairman of our board of directors and (d) 800,000 shares to Amro Albanna, our co-founder and Chief Executive Officer.
On March 8, 2018, we issued the Sekris Warrant to Sekris. The exercise price of the Sekris Warrant is subject to adjustment in the event of stock splits, stock dividends or similar events. Beginning in January 2018, we issued an aggregate principal amount of $100,000 of unsecured promissory notes to Sekris, which accrue interest at 4% and are due and payable six months from their respective issuance dates or immediately upon an event of default.
On March 15, 2018, we issued 50,000 shares of our common stock to LLU in consideration for the LLU License Agreement.
On March 17, 2018 and March 23, 2018, we entered into private placement transactions with accredited investors pursuant to which we sold 125,000 shares and 6,250 shares of common stock, respectively, and warrants to purchase, in the aggregate, 131,250 shares of common stock for aggregate gross proceeds of $262,500 (warrants to purchase 125,000 shares of common stock were issued on March 17, 2018, and warrants to purchase 6,250 shares of common stock were issued on March 23, 2018). All such warrants have an exercise price of $2.00 and expire three years from their respective date of issuance (the “Private Placement Warrants”).
On June 8, 2018, we issued 3,000 shares of our common stock to a consultant of the Company in compensation for videography services to be rendered to the Company.
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On October 10, 2017, we granted stock options to Rod Turner, an advisor, to purchase 60,000 shares of common stock at an exercise price of $2.00 per share, with a five-year expiration date. Mr. Turner’s service was terminated in January 2018, and only 20,000 shares of common stock underlying such option vested. Such options were issued under our 2017 Equity Incentive Plan (our “2017 Plan”). On November 1, 2017, we granted stock options to Gordon Winston, an advisor, and David Briones, our interim chief financial officer, to purchase an aggregate of 180,000 shares of common stock at an exercise price of $2.00 per share. Mr. Winston’s service was terminated on June 30, 2018 and such termination resulted in the forfeiture of 20,000 of his stock options. Such options vest monthly over the term of one year and have a five-year expiration date. Such options were issued under our 2017 Plan. On February 9, 2018, we granted stock options to Rowena Albanna, a contractor, to purchase 100,000 shares of common stock at an exercise price of $2.00 per share. Such options were fully vested and immediately exercisable as of the grant date. On March 6, 2018, we granted stock options to David Alleva, an advisor, to purchase 300,000 shares of common stock at an exercise price of $2.00 per share. Such options vest one-third on each of September 30, 2018, September 30, 2019 and September 30, 2020 and have a five-year expiration date. Additionally, on March 6, 2018, we granted stock options to Amro Albanna, our CEO and Adrian Luchian, an advisor, to purchase an aggregate of 400,000 and 25,000 respectively shares of common stock at an exercise price of $2.00 per share. Such options were fully vested and immediately exercisable as of the grant date and have a five-year expiration date. All such options were issued under our 2017 Plan.
2018
During 2018, we issued the securities below that were not registered under the Securities Act. All of the securities discussed herein were issued in reliance on Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
In April 2018, we issued warrants to purchase up to 420,000 shares of common stock to two (2) consultants of the Company.
In July 2018, we entered into private placement transactions with accredited investors pursuant to which we sold (i) promissory notes which have principal amounts, in the aggregate of $145,600, and (ii) warrants to purchase, in the aggregate, 18,667 shares of common stock (the “July Private Placement Warrants”) for aggregate gross proceeds to the Company of $112,000. All such warrants have an exercise price of $6.00 per share and expire three (3) years from their respective date of issuance.
On August 23, 2018, we issued 20,000 shares of our common stock to a consultant in compensation for services to be rendered to the Company.
On August 29, 2018, we entered into a private placement transaction with an accredited investor pursuant to which we sold (i) a promissory note which has principal amounts, in the aggregate of $45,500, and (ii) a warrant to purchase 5,834 shares of our common stock (the “August Private Placement Warrants”) for aggregate gross proceeds to the Company of $35,000. The warrant has an exercise price of $6.00 per share and expires three (3) years from its date of issuance.
In November 2018, we entered into private placement transactions with accredited investors pursuant to which we sold 54,900 shares of common stock and warrants to purchase, in the aggregate, 54,900 shares of common stock for aggregate gross proceeds of $109,800. All such warrants have an exercise price of $3.00 and expire three years from their respective date of issuance.
In December 2018, we entered into private placement transactions with accredited investors pursuant to which we sold 163,700 shares of common stock and warrants to purchase, in the aggregate, 163,700 shares of common stock for aggregate gross proceeds of $327,400. All such warrants have an exercise price of $3.00 and expire three years from their respective date of issuance.
On December 1, 2018, we issued 5,000 shares of common stock to a director of the Company.
2019
During 2019, we issued the securities below that were not registered under the Securities Act. All of the securities discussed herein were issued in reliance on Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
During 2019, we have issued a total of 525,155 warrants to purchase common stock to 13 consultants of the Company.
In January 2019, we entered into private placement transactions with accredited investors pursuant to which we sold 40,000 shares of common stock and warrants to purchase, in the aggregate, 40,000 shares of common stock for aggregate gross proceeds of $80,000.
In February 2019, we issued 1,400,000 option to purchase shares of common stock to three related parties. These options are fully vested on issuance.
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In February 2019, we entered into private placement transactions with accredited investors pursuant to which we sold 26,500 shares of common stock and warrants to purchase, in the aggregate, 26,500 shares of common stock for aggregate gross proceeds of $53,000. All such warrants have an exercise price of $3.00 and expire three years from their respective date of issuance.
On February 1, 2019, we issued 20,000 shares of common stock to a consultant of the Company.
In March 2019, we entered into private placement transactions with accredited investors pursuant to which we sold 45,000 shares of common stock and warrants to purchase, in the aggregate, 45,000 shares of common stock for aggregate gross proceeds of $90,000. All such warrants have an exercise price of $3.00 and expire three years from their respective date of issuance.
In April 2019, we entered into private placement transactions with accredited investors pursuant to which we sold 9,000 shares of common stock and warrants to purchase, in the aggregate, 9,000 shares of common stock for aggregate gross proceeds of $18,000. All such warrants have an exercise price of $3.00 and expire three years from their respective date of issuance.
On April 24, 2019, we issued 5,000 shares of common stock to a consultant of the Company.
On May 6, 2019, we entered into a private placement transaction with an accredited investor pursuant to which we sold 12,500 shares of common stock and warrants to purchase, in the aggregate, 12,500 shares of common stock for aggregate gross proceeds of $25,000. All such warrants have an exercise price of $3.00 and expire three years from their respective date of issuance.
On June 28, 2019, we entered into a private placement transaction with an accredited investor pursuant to which we sold 10,000 shares of common stock and warrants to purchase, in the aggregate, 10,000 shares of common stock for aggregate gross proceeds of $20,000. All such warrants have an exercise price of $3.00 and expire three years from their respective date of issuance.
On June 30 2019, we issued 10,000 shares of common stock to a director of the Company for services rendered to the Company.
In July 2019, we entered into private placement transactions with accredited investors pursuant to which we sold 15,000 shares of common stock and warrants to purchase, in the aggregate, 15,000 shares of common stock for aggregate gross proceeds of $30,000. All such warrants have an exercise price of $3.00 and expire three years from their respective date of issuance.
On August 2, 2019, we entered into a private placement transaction with an accredited investor pursuant to which we sold 4,950 shares of common stock and warrants to purchase, in the aggregate, 4,950 shares of common stock for aggregate gross proceeds of $9,900. All such warrants have an exercise price of $3.00 and expire three years from their respective date of issuance.
On September 19, 2019, we entered into a private placement transaction with an accredited investor pursuant to which we sold 50,000 shares of common stock and warrants to purchase, in the aggregate, 50,000 shares of common stock for aggregate gross proceeds of $100,000. All such warrants have an exercise price of $3.00 and expire three years from their respective date of issuance.
On October 1, 2019, we entered into an agreement for consulting services. As part of this agreement we have issued 20,000 warrants to purchase share of the Company’s common stock to the consultant.
During October and November 2019, we received $100,000 in cash for shares of common stock pursuant to a private placement at $2.00 per share, selling a total of 50,000 shares. The Company also agreed to issue one warrant to purchase a share of common stock for each share purchased in the private placement. The warrant is exercisable at $3.00 per share and has a term of three years.
On November 1, 2019, we issued a convertible promissory note with a principle amount of $50,000. This note does not accrue any interest. The note was due on the earlier of April 28, 2020 or in the event of default, as defined in the agreement. The note is convertible into the same class of securities as those sold in a qualified public offering with a conversion price of $2.00 per share.
On December 18, 2019, we issued 10,000 warrants to purchase shares of our common stock. These warrants have a grant date of December 18, 2019, an expiration date of October 5, 2027, and an exercise price of $2.00.
On December 27, 2019, we entered into an agreement for consulting services. As part of this agreement we issued 20,000 shares of our common stock to the consultant.
On April 30, 2020, the Company entered into an employment agreement for a Vice President of Preclinical Research and Development that will be effective upon the closing of the Company’s IPO. The Company will issue 180,000 stock options to purchase shares of the Company’s common stock upon the completion of the IPO, subject to the approval of the Board. The initial grant will have an exercise price of equal to that of the IPO and expires on October 5, 2027. The grant vest 1/3 on the first anniversary of the start date of the employee and the remaining 2/3 vest quarterly over the following two years starting on the end of the 15th month following the start date.
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2020
On January 9, 2020, we entered into an agreement for consulting services. As part of this agreement we issued 20,000 shares of our common stock to the consultant.
On January 5, 2020, we approved the cancelled 38,155 warrants to purchase shares of the Company’s common stock that had been issued to a consultant and reissued 40,655 warrants to purchase shares of the Company’s common stock. These newly issued warrants have a grant date of January 6, 2020, and exercise price of $3.00 and expire on the third anniversary of the grant date.
On January 10, 2020, we entered into a consulting agreement for advisory services. As part of this agreement we issued 110,000 shares of our common stock to the consultant.
On January 10, 2020, we issued a convertible promissory note with a principle amount of $75,000. This note does not accrue any interest. The note is due on the earlier of July 8, 2020 or in the event of default, as defined in the agreement. The note can convert into the same class of securities as those sold in the public offering with a conversion price of $2.00 per share. As of the date of this filing only $35,000 of the $75,000 principle has been received. The remaining $40,000 will be received upon the Company being approved for listing on the Nasdaq Stock Market LLC or the New York Stock Exchange.
On January 22, 2020, the Company issued 2,000 shares if its common stock to a consultant for services provided to the Company.
On January 22, 2020, the Company entered into a consulting agreement for investor relations and capital market advisory services. The term of this agreement is for twelve months ending on December 21, 2020. As part of this agreement the Company will pay $12,000 per month. The Company will also issue the consultant 40,000 shares of the Company’s common stock due upon completion of the Company’s initial public offering.
On January 20, 2020, the Company entered into a bridge loan with a principle amount of $50,000. This note carries an original issue discount of $25,000. The note is due on the earlier of April 19, 2020 or ten (10) days after the close of the Company’s initial public offering. On April 23, 2020, the Company amended this note agreement to extend the due date to the earlier of June 30, 2020 or 10 days after the close of the IPO.
On January 30, 2020, the Company entered into a bridge loan with a principle amount of $80,000. This note carries an original issue discount of $40,000. The note is due on the earlier of April 29, 2020 or ten (10) days after the close of the Company’s initial public offering. On April 24, 2020, the Company amended this note agreement to extend the due date to the earlier of June 30, 2020 or 10 days after the close of the IPO.
On February 3, 2020, the Company entered into a patent licensing agreement. As part of this agreement the Company issued 37,500 shares of the Company’s common stock to the patent holder.
On February 23, 2020, the Company entered into a consulting agreement for business development services. As part of this agreement the company issued 10,000 shares of its common stock within ten days of the signing of the agreement. The company will also issue an additional 6,000 shares of its common stock upon the completion of its initial public offering.
On March 30, 2020, the Company entered into an employment agreement for a permanent, full-time chief financial officer that will be effective upon closing of the Company’s initial public offering. The Company issued stock options to purchase shares of the Company’s common stock to the employee, including an initial grant of 15,000 options at the signing of the agreement. The Company will also issue 330,000 options upon the completion on the Company’s initial public offering. The initial grant has an exercise price of $5.50 and expires on October 5, 2027. The initial grant vests immediately and the subsequent grant vests 1/3 on the first anniversary of the agreement and the remaining 2/3 vest quarterly over the next two years.
On April 13, 2020, the Company issued warrants to a consultant. The Company issued 10,000 warrants to purchase the Company’s common stock. These warrants have an exercise price of $5.50, vest immediately, and expire on April 13, 2023.
On April 10, 2020, the Company terminated an agreement with a consultant, dated December 1, 2020. The consultant and the Company agreed that the consultant will forfeit 130,000 non-vested warrants to purchase share of the Company’s common.
On April 21, 2020, the Company entered into a consulting agreement. As part of this agreement the Company issued 5,000 shares of its common stock to the consultant within ten (10) business days of the signing of the agreement.
II-5
Item 16. Exhibits and Financial Statement Schedules
EXHIBIT INDEX
| * | To be filed by amendment. |
| + | Previously filed. |
Financial Statement Schedules
Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, or the Securities Act, 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 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement. |
II-6
| (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 which remain unsold at the termination of the offering. |
| (4) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: |
| (i) | Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and |
| (ii) | Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date. |
| (5) | 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. |
| (6) | 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 underwriter to permit prompt delivery to each purchaser. |
| (7) | For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (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. |
| (8) | For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
| (9) | 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 of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. |
II-7
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Loma Linda, State of California, on the 14th day of May, 2020.
| Aditx Therapeutics, Inc. | ||
| By: | /s/ Amro Albanna | |
| Name: Amro Albanna | ||
| Title: Chief Executive Officer | ||
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated below.
| Signature | Title | Date | ||
| /s/ Amro Albanna | Chief Executive Officer, President, and Director | May 14, 2020 | ||
| Amro Albanna | (Principal Executive Officer) | |||
| * | Interim Chief Financial Officer | May 14, 2020 | ||
| David Briones | (Principal Financial and Accounting Officer) | |||
| * | Chief Innovation Officer and Director | May 14, 2020 | ||
| Shahrokh Shabahang | ||||
| * | Director | May 14, 2020 | ||
| Brian Brady |
| * By: | /s/ Amro Albanna | |
| Amro Albanna, Attorney-in-fact |
II-8
Exhibit 3.1
Delaware
The First State
I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF “ADITX THERAPEUTICS, INC.”, FILED IN THIS OFFICE ON THE SEVENTH DAY OF FEBRUARY, A.D. 2018, AT 3:17 O’CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY RECORDER OF DEEDS.
|
6560519 8100 SR# 20180809413 |
 |
Authentication: 202136139 Date: 02-12-18 |
You may verify this certificate online at corp.delaware.gov/authver.shtml
|
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ADITX THERAPEUTICS, INC. A DELAWARE CORPORATION |
State of Delaware Secretary of State Division of Corporations Delivered 03:17 PM 02/07/2018 FILED 03:17 PM 02/07/2018 SR 20180809413 - File Number 6560519 |
ADiTx Therapeutics, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”) does hereby certify:
1. The original Certificate of Incorporation was filed with the Secretary of State on September 28, 2017.
2. The following Amended and Restated Certificate of Incorporation was duly proposed by the Corporation’s Board of Directors (the “Board”) and duly adopted pursuant to the applicable provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware.
3. The following Amended and Restated Certificate of Incorporation was duly adopted by the holders of a majority of shares entitled to vote thereon pursuant to the applicable provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware.
ARTICLE 1
Company Name
The name of the corporation is ADiTx Therapeutics, Inc. (the “Corporation”).
ARTICLE 2
Registered Office and Agent
The address of its registered office in the State of Delaware is 2140 South Dupont Highway, Camden, DE 19934, County of Kent; and the name of its registered agent at such address is Paracorp Incorporated.
ARTICLE 3
Purpose
The purpose of the Corporation is to conduct any lawful business, to promote any lawful purpose, and to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “DGCL”).
ARTICLE 4
Capital Stock
4.1 Authorized Capital Stock. The total number of shares of all classes of capital stock which the Corporation is authorized to issue is 30,000,000 shares, consisting of 27,000,000 shares of common stock, par value $0.001 per share (the “Common Stock”), and 3,000,000 shares of preferred stock, par value $0.001 per share (the “Preferred Stock”).
4.2 Preferred Stock. The Preferred Stock may be issued from time to time in one or more series. The Board is hereby expressly authorized to provide for the issuance of shares of the Preferred Stock in one or more series and to establish from time to time the number of shares to be included in each such series and to fix the voting rights, if any, designations, powers, preferences and relative, participating, optional and other special rights, if any, of each such series and any qualifications, limitations and restrictions thereof, as shall be stated in the resolution or resolutions adopted by the Board providing for the issuance of such series and included in a certificate of designation (a “Preferred Stock Designation”) filed pursuant to the DGCL, and the Board is hereby expressly vested with the authority to the full extent provided by law, now or hereafter, to adopt any such resolution or resolutions.
4.3 Common Stock.
(a) Except as otherwise required by law or this Amended and Restated Certificate (including any Preferred Stock Designation), at any annual or special meeting of the stockholders of the Corporation, the holders of the Common Stock shall have the exclusive right to vote for the election of directors and on all other matters properly submitted to a vote of the stockholders. Notwithstanding the foregoing, except as otherwise required by law or this Amended and Restated Certificate (including a Preferred Stock Designation), the holders of the Common Stock shall not be entitled to vote on any amendment to this Amended and Restated Certificate (including any amendment to any Preferred Stock Designation) that relates solely to the terms of one or more outstanding series of the Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Amended and Restated Certificate (including any Preferred Stock Designation).
(b) Subject to the rights, if any, of the holders of any outstanding series of the Preferred Stock, the holders of the Common Stock shall be entitled to receive such dividends and other distributions (payable in cash, property or capital stock of the Corporation) when, as and if declared thereon by the Board from time to time out of any assets or funds of the Corporation legally available therefor, and shall share equally on a per share basis in such dividends and distributions.
(c) Subject to the rights, if any, of the holders of any outstanding series of the Preferred Stock, in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation, the holders of the Common Stock shall be entitled to receive all the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of the Common Stock held by them.
4.4 Rights and Options. The Corporation has the authority to create and issue rights, warrants and options entitling the holders thereof to purchase shares of any class or series of the Corporation’s capital stock or other securities of the Corporation, and such rights, warrants and options shall be evidenced by instrument(s) approved by the Board. The Board is empowered to set the exercise price, duration, times for exercise and other terms and conditions of such rights, warrants or options; provided, however, that the consideration to be received for any shares of capital stock subject thereto may not be less than the par value thereof.
ARTICLE 5
Directors
5.1 Board Powers. The business and affairs of the Corporation shall be managed by, or under the direction of, the Board. In addition to the powers and authority expressly conferred upon the Board by statute, this Amended and Restated Certificate or the Bylaws (“Bylaws”) of the Corporation, the Board is hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the DGCL and this Amended and Restated Certificate.
5.2 Number, Election and Term.
(a) Subject to the rights of any holder of any series of Preferred Stock to elect directors, the number of directors which shall constitute the whole Board shall be the number from time to time fixed by resolution of the Board (which number shall not be less than one (1) nor more than nine (9) and which shall be, upon initial filing of this Amended and Restated Certificate, three (3)).
(b) Subject to Section 5.5 hereof, a director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor has been elected and qualified, subject, however, to such director’s earlier death, resignation, retirement, disqualification or removal. No decrease of the number of directors by resolution of the Board shall have the effect of shortening the term of any incumbent director.
(c) Unless and except to the extent that the Bylaws shall so require, the election of directors need not be by written ballot. There shall he no cumulative voting. Directors shall be elected by plurality vote.
5.3 Newly Created Directorships and Vacancies. Subject to Section 5.5 hereof, newly created directorships resulting from an increase in the number of directors and any vacancies on the Board resulting from death, resignation, retirement, disqualification, removal or other cause may be filled solely by a majority vote of the remaining directors then in office, even if less than a quorum, or by a sole remaining director (and not by stockholders), and any director so chosen shall hold office for the remainder of the full term of the class of directors to which the new directorship was added or in which the vacancy occurred and until his or her successor has been elected and qualified, subject, however, to such director’s earlier death, resignation, retirement, disqualification or removal.
5.4 Removal. Any director may be designated for removal and removed from office at any time by the affirmative vote of a majority of the votes cast by stockholders having the right to vote on the election of directors at a meeting duly held for such purpose.
5.5 Preferred Stock-Directors. Notwithstanding any other provision of this Article 5, and except as otherwise required by law, whenever the holders of one or more series of the Preferred Stock shall have the right, voting separately by class or series, to elect one or more directors, the term of office, the filling of vacancies, the removal from office and other features of such directorships shall be governed by the terms of such series of the Preferred Stock as set forth in this Amended and Restated Certificate (including any Preferred Stock Designation) and such directors shall not be included in any of the classes created pursuant to this Article 5 unless expressly provided by such terms.
ARTICLE 6
Bylaws
Any provision of the Bylaws may be amended, altered, changed or repealed only by the affirmative vote of a majority of the entire Board or by the holders of at least a majority of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote thereon, voting together as a single class.
ARTICLE 7
Limited Liability; Indemnification
7.1 Limitation of Liability. A director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the same exists or may hereafter be amended. Any amendment, modification or repeal of the foregoing sentence shall not adversely affect any right or protection of a director of the Corporation hereunder in respect of any act or omission occurring prior to the time of such amendment, modification or repeal.
7.2 Indemnification and Advancement of Expenses.
(a) To the fullest extent permitted by applicable law, as the same exists or may hereafter be amended, the Corporation shall indemnify and hold harmless each person who is or was made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”) by reason of the fact that he or she is or was a director 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, other enterprise or nonprofit entity, including service with respect to an employee benefit plan (an “indemnitee”), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent, or in any other capacity while serving as a director, officer, employee or agent, against all liability and loss suffered and expenses (including, without limitation, attorneys’ fees, judgments, fines, ERISA excise taxes and by such indemnitee in connection with such penalties and amounts paid in settlement) reasonably incurred proceeding. The Corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys’ fees) incurred by an indemnitee in defending or otherwise participating in any proceeding in advance of its final disposition; provided, however, that, to the extent required by applicable law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking, by or on behalf of the indemnitee, to repay all amounts so advanced if it shall ultimately be determined that the indemnitee is not entitled to be indemnified under this Section 7.2 or otherwise. The rights to indemnification and advancement of expenses conferred by this Section 7.2 shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators. Notwithstanding the foregoing provisions of this Section 7.2(a), except for proceedings to enforce rights to indemnification and advancement of expenses, the Corporation shall indemnify and advance expenses to an indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board.
(b) The rights to indemnification and advancement of expenses conferred on any indemnitee by this Section 7.2 shall not be exclusive of any other rights that any indemnitee may have or hereafter acquire under law, this Amended and Restated Certificate, the Bylaws, an agreement, vote of stockholders or disinterested directors, or otherwise.
(c) Any repeal or amendment of this Section 7.2 by the stockholders of the Corporation or by changes in law, or the adoption of any other provision of this Amended and Restated Certificate inconsistent with this Section 7.2, shall, unless otherwise required by law, be prospective only (except to the extent such amendment or change in law permits the Corporation to provide broader indemnification rights on a retroactive basis than permitted prior thereto), and shall not in any way diminish or adversely affect any right or protection existing at the time of such repeal or amendment or adoption of such inconsistent provision in respect of any proceeding (regardless of when such proceeding is first threatened, commenced or completed} arising out of, or related to, any act or omission occurring prior to such repeal or amendment or adoption of such inconsistent provision.
(d) This Section 7.2 shall not limit the right of the Corporation, to the extent and in the manner authorized or permitted by law, to indemnify and to advance expenses to persons other than indemnitees.
ARTICLE 8
Amendments to Amended and Restated Certificate of Incorporation
The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate (including any Preferred Stock Designation), in the manner now or hereafter prescribed by this Amended and Restated Certificate and the DGCL; and, except as set forth In Article 7, all rights, preferences and privileges herein conferred upon stockholders, directors or any other persons by and pursuant to this Amended and Restated Certificate in its present form or as hereafter amended are granted subject to the right reserved in this Article 8; provided, however, that any provision of this Amended and Restated Certificate may be amended, altered, changed or repealed only by the affirmative vote of a majority of the entire Board and by the holders of at least a majority of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote thereon, voting together as a single class.
ARTICLE 9
Exclusive Jurisdiction
9.1 Exclusive Forum. Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation, its directors, officers or employees arising pursuant to any provision of the DGCL or this Amended and Restated Certificate or the Corporation’s Bylaws, or (iv) any action asserting a claim against the Corporation, its directors, officers, employees or agents governed by the internal affairs doctrine, except for, as to each of(i) through (iv) 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.
9.2 Personal Jurisdiction. If any action the subject matter of which is within the scope of Section 9.1 immediately above is filed in a court other than a court located within the State of Delaware (a “Foreign Action”) in the name of any stockholder, such stockholder shall be deemed to have consented to (i) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce Section 9.1 immediately above (an “FSC Enforcement Action”) and (ii) having service of process made upon such stockholder in any such FSC Enforcement Action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder.
9.3 Enforceability. If any provision or provisions of this Article 9 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 9 (including, without limitation, each portion of any sentence of this Article 9 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. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article 9.
IN WITNESS WHEREOF, we have hereunto set our hands this 24th day of January 2018, hereby declaring and certifying that the facts stated hereinabove are true.
| /s/ Amro Albanna | |
| Amro Albanna, | |
| President and Chief Executive Officer |
Exhibit 3.2
BYLAWS
OF
ADITX THERAPEUTICS, INC.
Effective: October 4, 2017
ARTICLE 1
OFFICES
Section 1.1 Registered Office. ADiTx Therapeutics, Inc., a Delaware corporation (the “Corporation”), shall have and maintain in the State of Delaware a registered office, which may, but need not be, the same as its place of business.
Section 1.2 Additional Offices. The Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors of the Corporation (the “Board”) may from time to time determine.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
Section 2.1 Time and Place. A meeting of the stockholders of the Corporation who have the right to vote at any meeting of such stockholders for any purpose (the “Stockholders”) shall be held at such time and place, within or without the State of Delaware, as the Board may fix from time to time and as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. The Board, in its sole discretion, may determine that such meetings be held wholly or partially by means of remote communication. For any meeting of stockholders to be held by remote communication, the Corporation shall (i) implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by remote communication is a stockholder or proxy holder, (ii) implement reasonable measures to provide such stockholders and proxy holders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxy holder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation.
Section 2.2 Annual Meetings. The annual meeting of Stockholders shall be held at such date and time, either within or without the State of Delaware, as shall be designated by the Board by resolution and stated in the notice of the meeting. At such annual meeting, the Stockholders shall elect a Board and transact such other business as may be properly brought before the meeting.
Section 2.3 Notice of Annual Meetings. Written notice of the annual meeting, stating the place, if any, date and time thereof, the means of remote communication, if any, by which each Stockholder and proxyholder may be deemed to be present and vote at such meeting, shall be given to each Stockholder entitled to vote at such meeting not less than ten (10) days (unless a longer period is required by law) nor more than sixty (60) days prior to the meeting.
Section 2.4 Special Meetings. Special meetings of the Stockholders, for any proper purpose or purposes, unless otherwise prescribed by law or by the Certificate of Incorporation of the Corporation (as the same may be amended or restated from time to time, the “Charter”), may be called by the Chairman of the Board, if any, or the Chief Executive Officer and shall be called by the Chief Executive Officer or the Secretary at the request in writing of a majority of the members of the Board, or at the request in writing of Stockholders entitled to cast at least a majority of the votes that all Stockholders are entitled to cast at the particular meeting (either by written instrument signed by a majority, by resolution adopted by a vote of the majority or by a ballot submitted by electronic transmission, provided that any such electronic transmission shall set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder or proxy holder). Such request by the members of the Board or the Stockholders shall state the purpose or purposes of the proposed meeting and shall be delivered to the Chief Executive Officer or Secretary of the Corporation.
Section 2.5 Notice of Special Meetings. Written notice of a special meeting, stating the place, if any, date and time thereof, the means of remote communication, if any, by which each Stockholder and proxyholder may be deemed to be present in person and vote at such meeting and the purpose or purposes for which the meeting is called, shall be given to each Stockholder entitled to vote at such meeting not less than ten (10) days (unless a longer period is required by law) nor more than sixty (60) days prior to the meeting.
Section 2.6 Quorum; Adjournments. The holders of a majority of the voting power of the shares of capital stock of the Corporation issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the Stockholders, except as otherwise provided by law or by the Charter. If, however, a quorum shall not be present or represented at any meeting of the Stockholders, any officer entitled to preside at or act as secretary of a meeting of stockholders or the holders of a majority of the voting power of the shares of capital stock of the Corporation issued and outstanding and entitled to vote, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice if the time and place thereof are announced at the meeting at which the adjournment is taken, until a quorum shall be present or represented. At any such adjourned meeting, at which a quorum shall be present in person or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote.
Section 2.7 Voting.
(a) At any meeting of Stockholders, every Stockholder having the right to vote shall be entitled to vote in person or by proxy, provided that the instrument authorizing such proxy to act shall have been executed in writing (which shall include faxing, telegraphing or cabling) or by electronic transmission by such stockholder or by such stockholder’s duly authorized attorney and no such proxy shall be voted or acted upon after three (3) years from its date of authorization, unless the proxy provides for a longer period. Except as otherwise provided in the Charter with respect to any class of capital stock of the Corporation which holds different voting rights, each Stockholder of record shall be entitled to one vote for each share of capital stock registered in such Stockholder’s name on the books of the Corporation.
(b) All elections of directors shall be determined by a plurality vote and there shall be no cumulative voting, and, except as otherwise provided by law or by the Charter, all other matters shall be determined by the vote of the holders of a majority of the voting power of the shares present in person or represented by proxy and voting at the meeting on such other matters.
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Section 2.8 Action by Consent.
(a) Any action required or permitted by law or by the Charter to be taken at any annual or special meeting of the Stockholders, may be taken without a meeting, without prior notice and without a vote, if written consent, setting forth the action so taken, shall be signed by the holders of outstanding voting stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present or represented by proxy and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those Stockholders who have not consented in writing.
(b) Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing, provided that any such reproduction shall set forth or be submitted with information from which it can be determined that such reproduction was authorized by the holder of stock entitled to vote.
Section 2.9 Organization. At each meeting of Stockholders, the Chairman, if one shall have been elected, or in his or her absence his or her designee, or if a Chairman shall not have been elected, such person designated by the vote of the majority of the Stockholders present at such meeting, shall act as chairman of the meeting. The Secretary of the Corporation (or in his or her absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting) shall act as secretary of the meeting and keep the minutes thereof. The order of business at all meetings of Stockholders shall be as determined by the chairman of the meeting.
Section 2.10 Inspectors of Election. The Board, in advance of any meeting of the Stockholders, may appoint one or more inspectors to act at the meeting or any adjournment thereof. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability.
ARTICLE 3
DIRECTORS
Section 3.1 Number and Term. The Board shall consist of one or more members, and the number of the directors of the Corporation shall be determined solely in the discretion of the Board. The directors shall be elected at the annual meeting of the Stockholders, except as provided in Section 3.2, and each director elected shall hold office until such director’s successor is duly elected and shall qualify, or until his or her earlier death, resignation or removal. Directors need not be Stockholders.
Section 3.2 Chairman. The Board may designate a director to serve as Chairman of the Board, who shall preside at all meetings of the Board. The Chairman of the Board (who may also be designated as Executive Chairman with the approval of the Board) shall serve for such term and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. The Chairman of the Board shall have a casting vote in the event of a deadlock on any resolution of the Board.
Section 3.3 Vacancies and New Directorships. If any vacancies occur in the Board, or if any new directorships are created by the Board, such vacancies may be filled by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Each director so chosen shall hold office until the next annual meeting of Stockholders and until their successor is duly elected and shall qualify, or until his or her earlier death, resignation or removal. If there are no directors in office, any officer or Stockholder may call a special meeting of Stockholders in accordance with the provisions of the Charter or these bylaws (the “Bylaws”), at which meeting such vacancies shall be filled.
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Section 3.4 Powers. Except as otherwise provided in the Charter, the business and affairs of the Corporation shall be managed by its Board, which may exercise all powers of the Corporation and perform all lawful acts and things that are not by law, the Charter or these Bylaws directed or required to be exercised or performed by the Stockholders.
Section 3.5 Removal; Resignation.
(a) Except as otherwise provided by law or by the Charter, any director, directors or the entire Board may be removed, with or without cause, at any time by the affirmative vote of the holders of a majority of the voting power of the shares then entitled to vote at an election of directors.
(b) Any director may resign at any time by giving written notice to the Board. Unless otherwise specified in such written notice, a resignation shall take effect upon delivery thereof to the Board.
Section 3.6 Time and Place of Meetings. The Board may hold meetings, both regular and special, either within or without the State of Delaware, or by remote communication, and at such time as may be determined from time to time by the Board.
Section 3.7 Regular Meeting. A regular meeting of the Board shall be held each year, without notice, at the place of, as soon as practicable after each annual meeting of Stockholders, on the same day and at the same place where such annual meeting of Stockholders shall be held. Other regular meetings of the Board shall be held during each year, at such time and place as the Board may from time to time provide by resolution, either within or without the State of Delaware, or by remote communication, on such date and at such time as shall be specified in a notice thereof given or in a waiver of notice thereof signed by any director who chooses to waive the requirement of notice.
Section 3.8 Special Meetings. Special meetings of the Board may be called by the Chairman of the Board, by the Chief Executive Officer, by the Secretary, or upon the written request of not less than two (2) directors of the Corporation then in office. Notice of the place, date and time of each such special meeting shall be given to each director by providing written notice to each director not less than two (2) business days before the meeting, and such notice may be given by giving notice in person or by telephone, e-mail transmission or facsimile transmission. A written waiver of any such notice, signed by the director entitled hereto, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except when the director attends the 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. Notice of special meetings of the Board need not state the purpose thereof, except as otherwise expressly provided by law, by the Charter or by these Bylaws. Any and all business may be transacted at a special meeting, unless otherwise indicated in the notice thereof or provided by law, by the Charter or by these Bylaws.
Section 3.9 Quorum; Adjournments. At all regular and special meetings of the Board, at least a majority of the total number of directors (including any directors whose presence is required pursuant to any contract binding upon the Corporation) then in office shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board, except as may be otherwise specifically provided by law or by the Charter. When a meeting is adjourned to another time or place, if any (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which directors may be deemed to be present in person and vote at such meeting are announced at the meeting at which the adjournment is taken. If a quorum is not present at any meeting of the Board, any director present may require the adjournment the meeting without notice other than announcement at the meeting, until a quorum shall be present. At the adjourned meeting, the Board may transact any business which might have been transacted at the original meeting.
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Section 3.10 Action by Consent. Unless otherwise restricted by the Charter, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting, if a written consent thereto is signed by all of the members of the Board or committee, as the case may be. Evidence of any consent to action may be provided in writing, including electronically via email or facsimile.
Section 3.11 Meetings by Conference Telephone or Similar Communications. The Board may participate in a meeting by means of conference telephone, remote communication or similar communications equipment by means of which all persons participating in the meeting can hear, speak, and/or communicate with each other, and participation in such meeting shall constitute presence in person by such director.
Section 3.12 Committees of the Board. The Board may, by resolution passed by a majority of the Board, designate one or more additional special or standing committees, each such additional committee to consist of one or more of the directors of the Corporation as appointed by the Board. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Each such committee shall have and may exercise such of the powers of the Board in the management of the business and affairs of the Corporation as may be provided in such resolution, except as delegated by the Board to another standing or special committee or as may be prohibited by law. A majority of a committee shall constitute a quorum for the transaction of any committee business. Each committee shall keep regular minutes of its meetings and report the same to the Board when required.
Section 3.13 Compensation. Unless otherwise restricted by the Charter or these Bylaws, the Board shall have authority to fix the compensation of directors, including fees and reimbursement of expenses.
ARTICLE 4
NOTICES
Section 4.1 Form; Delivery. Whenever, under the provisions of law, the Charter or these Bylaws, notice is required to be given to any director or Stockholder, it shall not be construed to mean personal notice unless otherwise specifically provided by the Charter or these Bylaws, but such notice may be given in writing, by mail, or by overnight carrier, or by electronic transmission (including via e-mail or facsimile transmission) addressed to such director or Stockholder, at such person’s address as it appears on the records of the Corporation. Such notices shall be deemed to be given when received.
Section 4.2 Waiver. Whenever any notice is required to be given under the provisions of law, the Charter or these Bylaws, a written waiver thereof, or a waiver by electronic transmission thereof, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed to be equivalent to such notice. In addition, any Stockholder who attends a meeting of Stockholders in person, or is represented at such meeting by proxy, without protesting at the commencement of the meeting the lack of notice thereof to such Stockholder, or any director who attends a meeting of the Board without protesting, at the commencement of the meeting, such lack of notice, shall be conclusively deemed to have waived notice of such meeting.
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ARTICLE 5
OFFICERS
Section 5.1 Designations. The officers of the Corporation shall be a Chief Executive Officer, a President, a Secretary, and a Chief Financial Officer and/or Treasurer. These officers shall be chosen by the Board and shall exercise such powers and perform such duties as are customarily incident to their respective offices, or as shall from time to time be determined by the Board. Any number of offices may be held by the same person, unless the Charter or these Bylaws otherwise provide.
Section 5.2 Subordinate Officers. The Chief Executive Officer may appoint at any time, and from time to time, such other subordinate officers or agents as he or she deems necessary or desirable. Such subordinate officers shall be subordinate to and serve at the pleasure of the Chief Executive Officer. Subordinate officers shall preform such duties and carry such titles as the Chief Executive Officer may from time to time determine and specify.
Section 5.3 Term of Office; Removal; Resignation. The Board, at its annual meeting, shall choose a Chief Executive Officer, a President, a Secretary and a Chief Financial Officer and/or Treasurer. Each of these officers of the Corporation shall hold office until his or her successor is chosen, or until his or her earlier death, resignation or removal. Any officer elected or appointed by the Board may be removed, with or without cause, at any time by the affirmative vote of a majority of the directors then in office. Any vacancy occurring in the office of the Chief Executive Officer, President, Secretary, or Chief Financial Officer and/or Treasurer of the Corporation shall be filled for the unexpired portion of the term by Board appointment. Any of the above listed officers may resign at any time by giving written notice to the Board. Unless otherwise specified in such written notice, such resignation shall take effect upon delivery thereof to the Board. Subordinate officers serve at the pleasure of and for the term designated by the Chief Executive Officer.
Section 5.4 Compensation. The compensation of all officers of the Corporation shall be fixed by the Board. The Board may delegate the power to fix the compensation of all other officers of the Corporation to the Chief Executive Officer of the Corporation.
ARTICLE 6
STOCK CERTIFICATES
Section 6.1 Certificates. Except as provided for below, every holder of stock in the Corporation shall be entitled to have a certificate in the name of the Corporation, signed by an officer of the Corporation, certifying the number and class of shares owned by such Stockholder. Any or all of the signatures on the certificate may be a facsimile. The Board may approve the issuance of uncertificated shares of some or all of the shares of any or all of its classes or series of capital stock. The Board shall have the power to appoint one or more transfer agents and/or registrars for the transfer or registration of certificates of stock of any class, and may require stock certificates to be countersigned or registered by one or more of such transfer agents and/or registrars.
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Section 6.2 Transfer. Upon surrender to the Corporation or any transfer agent of the Corporation of a certificate for shares by the holder thereof or by his or her attorney lawfully constituted, duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation or its transfer agent to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. The Board shall have the power and authority to make such rules and regulations as it may deem necessary or proper concerning the issue, transfer and registration of certificates for shares of stock of the Corporation.
Section 6.3 Lost, Stolen or Destroyed Certificates. The Board may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation which is claimed to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in a manner as it shall require or to give the Corporation a bond in such sum, or other security in such form, as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate claimed to have been lost, stolen or destroyed.
ARTICLE 7
LIABILITY AND INDEMNIFICATION
Section 7.1 Indemnification. The Corporation shall provide indemnification to its officers, directors and other persons as provided for in the Charter.
Section 7.2 Modification. No amendment or repeal of any provision of this Article 7 shall alter, to the detriment of such director or officer, the right of such person to the advancement of expenses or indemnification related to a claim based on an act or failure to act which took place prior to such amendment, repeal or termination.
ARTICLE 8
GENERAL PROVISIONS
Section 8.1 Dividends. Subject to the provisions of the Charter, dividends upon the outstanding capital stock of the Corporation may be declared by the Board at any meeting of the Board, pursuant to law, and may be paid in cash, in property, or in shares of the Corporation’s capital stock.
Section 8.2 Reserves. The Board shall have full power, subject to the provisions of law and the Charter, to determine whether any, and, if so, what part, of the funds legally available for payment of dividends shall be declared as dividends and paid to the Stockholders. The Board, in its sole discretion, may fix a sum which may be set aside or reserved over and above the paid-in capital of the Corporation for working capital or a reserve for any proper purpose, and may, from time to time, increase, diminish or vary such fund or funds.
Section 8.3 Fiscal Year. Except as otherwise determined by the Board of Directors from time to time, the fiscal year of the Corporation shall end on the last day of December of each year.
Section 8.4 Seal. The Board shall have the power to select a corporate seal. No corporate seal shall be required, however, for the Corporation to conduct business.
Section 8.5. Contracts, etc. The Board may authorize any officer, officers, agent or agents to enter into and/or execute any and all agreements, deeds, bonds, mortgages, contracts and other obligations or instruments in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.
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Section 8.6. Checks, etc. All checks, demands, drafts or other orders for the payment of money, and notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers or such agent or agents of the Corporation, and in such manner, as shall be determined by the Board.
Section 8.7. Bank Accounts and Drafts. The Board, the Chief Executive Officer, the primary financial officer or any person designated by said primary financial officer, whether or not an employee of the Corporation, may authorize such bank accounts to be opened or maintained in the name and on behalf of the Corporation as he or she may deem necessary or appropriate, payments from such bank accounts to be made upon and according to the check of the Corporation in accordance with the written instructions of said primary financial officer, or other person so designated by such primary financial officer.
Section 8.8. Voting of Securities Owned by Corporation. All stock and other securities of any other corporation owned or held by the Corporation for itself, or for other parties in any capacity, and all proxies with respect thereto shall be executed by the person authorized to do so by resolution of the Board or, in the absence of such authorization, by the Chairman of the Board or the Chief Executive Officer.
Section 8.9. Books. The books of the Corporation may be kept within or without the State of Delaware (subject to applicable law) at such place or places as may be designated from time to time by the Board.
Section 8.10. Ratification. Any transaction, questioned in any lawsuit on the ground of lack of authority, defective or irregular execution, adverse interest of director, officer or stockholder, non-disclosure, miscomputation or the application of improper principles or practices of accounting, may be ratified before or after judgment, by the Board or by the Stockholders, and if so ratified shall have the same force and effect as if the questioned transaction had been originally duly authorized. Such ratification shall be binding upon the Corporation and the Stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned transaction.
Section 8.11 Counterparts. The Corporation, through its authorized representatives, the Board and the Stockholders, shall have the power to execute all instruments, including without limitation, consents of the Board, consents of the Stockholders, and agreements of the Corporation, in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. A facsimile, telecopy or other reproduction of such instrument may be executed by one or more parties thereto, and an executed copy of such instrument may be delivered by one or more parties thereto by facsimile or similar instantaneous electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes as of the date first written in such instrument.
ARTICLE 9
AMENDMENTS
Section 9.1 By the Board. These Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the affirmative vote of a majority of the directors present at any regular or special meeting of the Board at which a quorum is present, provided, however the Board may not repeal or amend any bylaw that the stockholders have expressly provided may not be amended or repealed by the Board.
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ARTICLE 10
STOCKHOLDER SUIT
Section 10.1 Lawsuit for Expenses. The Corporation shall be entitled to bring a lawsuit against any Stockholder that shall sue the Corporation for reimbursement of the litigation expenses of the Corporation in the event that such Stockholder is not successful in proving a substantial portion of the material claims filed against the Corporation. In the event that the Corporation and the Stockholder shall settle the litigation, the Stockholder shall not be responsible for the litigation expenses of the Corporation.
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CERTIFICATE OF THE SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected Secretary of ADiTx Therapeutics, Inc., a Delaware corporation (the “Corporation”); and
2. That the foregoing Bylaws, comprising nine (9) pages, constitute the Bylaws of the Corporation as duly approved and adopted by the Board of Directors of the Corporation at a meeting held on October 4, 2017.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of the Corporation this 4th day of October, 2017.
| /s/ Shahrokh Shabahang | |
| Shahrokh Shabahang, Secretary |
Exhibit 3.3
AMENDED AND RESTATED
BYLAWS
of
ADITX THERAPEUTICS, INC.
ARTICLE I
OFFICES
1.1 REGISTERED OFFICE; CONFLICT WITH LAW OR CERTIFICATE OF INCORPORATION
The registered office of Aditx Therapeutics, Inc. (the “Corporation”) shall be fixed in the Corporation’s certificate of incorporation, as the same may be amended and/or restated from time to time (the “Certificate”). These Amended and Restated Bylaws (these “Bylaws”) are adopted subject to the General Corporation Law of the State of Delaware (the “DGCL”) and the Certificate of Incorporation. Whenever these Bylaws may conflict with the DGCL or the Certificate of Incorporation, such conflict shall be resolved in favor of the DGCL or the Certificate of Incorporation, as applicable.
1.2 OTHER OFFICES.
The Corporation’s board of directors (the “Board”) may at any time establish other offices at any place or places where the Corporation is qualified to do business.
ARTICLE II - MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS.
Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board. The Board may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the DGCL. In the absence of any such designation or determination, stockholders’ meetings shall be held at the Corporation’s principal executive office.
2.2 ANNUAL MEETING.
The Board shall designate the date and time of the annual meeting. At the annual meeting, directors shall be elected and other proper business properly brought before the meeting in accordance with Section 2.4 may be transacted.
2.3 SPECIAL MEETING.
A special meeting of the stockholders may be called at any time by (i) the Chairman of the Board or (ii) the Board pursuant to a resolution adopted by a majority of the entire Board, but such special meetings may not be called by any other person or persons.
No business may be transacted at such special meeting other than the business specified in such notice to stockholders. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board may be held.
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2.4 ADVANCE NOTICE PROCEDURES FOR BUSINESS BROUGHT BEFORE A MEETING.
(i) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in a notice of meeting given by or at the direction of the Board, (b) if not specified in a notice of meeting, otherwise brought before the meeting by or at the direction of the Board or the chairperson of the Board, or (c) otherwise properly brought before the meeting by a stockholder present in person who (A)(1) was a beneficial owner of shares of the Corporation both at the time of giving the notice provided for in this Section 2.4 and at the time of the meeting, (2) is entitled to vote at the meeting and (3) has complied with this Section 2.4 in all applicable respects, or (B) properly made such proposal in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (as so amended and inclusive of such rules and regulations, the “Exchange Act”). The foregoing clause (c) shall be the exclusive means for a stockholder to propose business to be brought before an annual meeting of the stockholders. The only matters that may be brought before a special meeting are the matters specified in the notice of meeting given by or at the direction of the person calling the meeting pursuant to Section 2.3 of these Bylaws, and stockholders shall not be permitted to propose business to be brought before a special meeting of the stockholders. For purposes of this Section 2.4, “present in person” shall mean that the stockholder proposing that the business be brought before the annual meeting of the Corporation, or, if the proposing stockholder is not an individual, a qualified representative of such proposing stockholder, appear at such annual meeting. A “qualified representative” of such proposing stockholder shall be, if such proposing stockholder is (x) a general or limited partnership, any general partner or person who functions as a general partner of the general or limited partnership or who controls the general or limited partnership, (y) a corporation or a limited liability company, any officer or person who functions as an officer of the corporation or limited liability company or any officer, director, general partner or person who functions as an officer, director or general partner of any entity ultimately in control of the corporation or limited liability company or (z) a trust, any trustee of such trust. Stockholders seeking to nominate persons for election to the Board must comply with Section 2.5 of these Bylaws, and this Section 2.4 shall not be applicable to nominations except as expressly provided in Section 2.5 of these Bylaws.
(ii) Without qualification, for business to be properly brought before an annual meeting by a stockholder, the stockholder must (a) provide Timely Notice (as defined below) thereof in writing and in proper form to the Secretary of the Corporation and (b) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.4. To be timely, a stockholder’s notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the one-year anniversary of the preceding year’s annual meeting; provided, however, that if the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered, or mailed and received, not later than the ninetieth (90th) day prior to such annual meeting or, if later, the tenth (10th) day following the day on which public disclosure of the date of such annual meeting was first made (such notice within such time periods, “Timely Notice”). In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of Timely Notice as described above.
(iii) To be in proper form for purposes of this Section 2.4, a stockholder’s notice to the Secretary shall set forth:
(a) As to each Proposing Person (as defined below), (A) the name and address of such Proposing Person (including, if applicable, the name and address that appear on the Corporation’s books and records); and (B) the class or series and number of shares of the Corporation that are, directly or indirectly, owned of record or beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by such Proposing Person, except that such Proposing Person shall in all events be deemed to beneficially own any shares of any class or series of the Corporation as to which such Proposing Person has a right to acquire beneficial ownership at any time in the future (the disclosures to be made pursuant to the foregoing clauses (A) and (B) are referred to as “Stockholder Information”);
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(b) As to each Proposing Person, (A) the full notional amount of any securities that, directly or indirectly, underlie any “derivative security” (as such term is defined in Rule 16a-1(c) under the Exchange Act) that constitutes a “call equivalent position” (as such term is defined in Rule 16a-1(b) under the Exchange Act) (“Synthetic Equity Position”) and that is, directly or indirectly, held or maintained by such Proposing Person with respect to any shares of any class or series of shares of the Corporation; provided that, for the purposes of the definition of “Synthetic Equity Position,” the term “derivative security” shall also include any security or instrument that would not otherwise constitute a “derivative security” as a result of any feature that would make any conversion, exercise or similar right or privilege of such security or instrument becoming determinable only at some future date or upon the happening of a future occurrence, in which case the determination of the amount of securities into which such security or instrument would be convertible or exercisable shall be made assuming that such security or instrument is immediately convertible or exercisable at the time of such determination; and, provided, further, that any Proposing Person satisfying the requirements of Rule l3d-1(b)(1) under the Exchange Act (other than a Proposing Person that so satisfies Rule l3d-1(b)(1) under the Exchange Act solely by reason of Rule l3d-1(b)(1) (ii)(E)) shall not be deemed to hold or maintain the notional amount of any securities that underlie a Synthetic Equity Position held by such Proposing Person as a hedge with respect to a bona fide derivatives trade or position of such Proposing Person arising in the ordinary course of such Proposing Person’s business as a derivatives dealer, (B) any rights to dividends on the shares of any class or series of shares of the Corporation owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation, (C)(x) if such Proposing Person is (i) a general or limited partnership, syndicate or other group, the identity of each general partner and each person who functions as a general partner of the general or limited partnership, each member of the syndicate or group and each person controlling the general partner or member, (ii) a corporation or a limited liability company, the identity of each officer and each person who functions as an officer of the corporation or limited liability company, each person controlling the corporation or limited liability company and each officer, director, general partner and person who functions as an officer, director or general partner of any entity ultimately in control of the corporation or limited liability company or (iii) a trust, any trustee of such trust (each such person or persons set forth in the preceding clauses (i), (ii) and (iii), a “Responsible Person”), any fiduciary duties owed by such Responsible Person to the equity holders or other beneficiaries of such Proposing Person and any material interests or relationships of such Responsible Person that are not shared generally by other record or beneficial holders of the shares of any class or series of the Corporation and that reasonably could have influenced the decision of such Proposing Person to propose such business to be brought before the meeting, and (y) if such Proposing Person is a natural person, any material interests or relationships of such natural person that are not shared generally by other record or beneficial holders of the shares of any class or series of the Corporation and that reasonably could have influenced the decision of such Proposing Person to propose such business to be brought before the meeting, (D) any material shares or any Synthetic Equity Position in any principal competitor of the Corporation in any principal industry of the Corporation held by such Proposing Persons, (E) a summary of any material discussions regarding the business proposed to be brought before the meeting (x) between or among any of the Proposing Persons or (y) between or among any Proposing Person and any other record or beneficial holder of the shares of any class or series of the Corporation (including their names), (F) any material pending or threatened legal proceeding in which such Proposing Person is a party or material participant involving the Corporation or any of its officers or directors, or any affiliate of the Corporation, (G) any other material relationship between such Proposing Person, on the one hand, and the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation, on the other hand, (H) any direct or indirect material interest in any material contract or agreement of such Proposing Person with the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement) and (I) any other information relating to such Proposing Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such Proposing Person in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act (the disclosures to be made pursuant to the foregoing clauses (A) through (I) are referred to as “Disclosable Interests”); provided, however, that Disclosable Interests shall not include any such disclosures with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by these Bylaws on behalf of a beneficial owner; and
(c) As to each item of business that the stockholder proposes to bring before the annual meeting, (A) a brief description of the business desired to be brought before the annual meeting, the reasons for conducting such business at the annual meeting and any material interest in such business of each Proposing Person, (B) 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), (C) a reasonably detailed description of all agreements, arrangements and understandings between or among any of the Proposing Persons or between or among any Proposing Person and any other person or entity (including their names) in connection with the proposal of such business by such stockholder and (D) any other information relating to such item of business that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act; provided, however, that the disclosures required by this Section 2.4(iii) shall not include any disclosures with respect to any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by these Bylaws on behalf of a beneficial owner.
(iv) For purposes of this Section 2.4, the term “Proposing Person” shall mean (a) the stockholder providing the notice of business proposed to be brought before an annual meeting, (b) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the business proposed to be brought before the annual meeting is made and(c) any participant (as defined in paragraphs (a)(ii)-(vi) of Instruction 3 to Item 4 of Schedule 14A) with such stockholder in such solicitation or associate (within the meaning of Rule 12b-2 under the Exchange Act for the purposes of these Bylaws) of such stockholder or beneficial owner.
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(v) A Proposing Person shall update and supplement its notice to the Corporation of its intent to propose business at an annual meeting, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.4 shall be true and correct as of the record date for notice of the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for notice of the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof).
(vi) Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting that is not properly brought before the meeting in accordance with this Section 2.4. The presiding officer of the meeting shall, if the facts warrant, determine that the business was not properly brought before the meeting in accordance with this Section 2.4, and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
(vii) This Section 2.4 is expressly intended to apply to any business proposed to be brought before an annual meeting of stockholders, other than any proposal made in accordance with Rule 14a-8 under the Exchange Act and included in the Corporation’s proxy statement. In addition to the requirements of this Section 2.4 with respect to any business proposed to be brought before an annual meeting, each Proposing Person shall comply with all applicable requirements of the Exchange Act with respect to any such business. Nothing in this Section 2.4 shall be deemed to affect the rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to
Rule l4a-8 under the Exchange Act.
(viii) For purposes of these Bylaws, “public disclosure” shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
2.5 ADVANCE NOTICE PROCEDURES FOR NOMINATIONS OF DIRECTORS.
(i) Nominations of any person for election to the Board at an annual meeting or at a special meeting (but only if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling such special meeting) may be made at such meeting only (a) by or at the direction of the Board, including by any committee or persons authorized to do so by the Board or these Bylaws, or (b) by a stockholder present in person (A) who was a beneficial owner of shares of the Corporation both at the time of giving the notice provided for in this Section 2.5 and at the time of the meeting, (B) is entitled to vote at the meeting and (C) has complied with this Section 2.5 as to such notice and nomination. The foregoing clause (b) shall be the exclusive means for a stockholder to make any nomination of a person or persons for election to the Board at an annual meeting or special meeting. For purposes of this Section 2.5, “present in person” shall mean that the stockholder proposing that the business be brought before the meeting of the Corporation, or, if the proposing stockholder is not an individual, a qualified representative of such stockholder, appear at such meeting. A “qualified representative” of such proposing stockholder shall be, if such proposing stockholder is (x) a general or limited partnership, any general partner or person who functions as a general partner of the general or limited partnership or who controls the general or limited partnership, (y) a corporation or a limited liability company, any officer or person who functions as an officer of the corporation or limited liability company or any officer, director, general partner or person who functions as an officer, director or general partner of any entity ultimately in control of the corporation or limited liability company or (z) a trust, any trustee of such trust.
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(ii) Without qualification, for a stockholder to make any nomination of a person or persons for election to the Board at an annual meeting, the stockholder must (a) provide Timely Notice (as defined in Section 2.4(ii) of these Bylaws) thereof in writing and in proper form to the Secretary of the Corporation, (b) provide the information with respect to such stockholder and its proposed nominee as required by this Section 2.5, and (c) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.5. Without qualification, if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling such special meeting, then for a stockholder to make any nomination of a person or persons for election to the Board at a special meeting, the stockholder must (a) provide timely notice thereof in writing and in proper form to the Secretary of the Corporation at the principal executive offices of the Corporation, (b) provide the information with respect to such stockholder and its proposed nominee as required by this Section 2.5, and (c) provide any updates or supplements to such notice at the times and in the forms required by this Section 2.5. To be timely, a stockholder’s notice for nominations to be made at a special meeting must be delivered to, or mailed and received at, the principal executive offices of the Corporation not earlier than the one hundred twentieth (120th) day prior to such special meeting and not later than the ninetieth (90th) day prior to such special meeting or, if later, the tenth (10th) day following the day on which public disclosure (as defined in Section 2.4(ix) of these Bylaws) of the date of such special meeting was first made. In no event shall any adjournment or postponement of an annual meeting or special meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above.
(iii) To be in proper form for purposes of this Section 2.5, a stockholder’s notice to the Secretary shall set forth:
(a) As to each Nominating Person (as defined below), the Stockholder Information (as defined in Section 2.4(iii)(a) of these Bylaws) except that for purposes of this Section 2.5, the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(iii)(a);
(b) As to each Nominating Person, any Disclosable Interests (as defined in Section 2.4(iii)(b), except that for purposes of this Section 2.5 the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 2.4(iii)(b) and the disclosure with respect to the business to be brought before the meeting in Section 2.4(iii)(b) shall be made with respect to the election of directors at the meeting);
(c) As to each person whom a Nominating Person proposes to nominate for election as a director, (A) all information with respect to such proposed nominee that would be required to be set forth in a stockholder’s notice pursuant to this Section 2.5 if such proposed nominee were a Nominating Person, (B) all information relating to such proposed nominee that is required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14(a) under the Exchange Act (including such proposed nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected), (C) a description of any direct or indirect material interest in any material contract or agreement between or among any Nominating Person, on the one hand, and each proposed nominee or his or her respective associates or any other participants in such solicitation, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 under Regulation S-K if such Nominating Person were the “registrant” for purposes of such rule and the proposed nominee were a director or executive officer of such registrant (the disclosures to be made pursuant to the foregoing clauses (A) through (C) are referred to as “Nominee Information”), and (D) a completed and signed questionnaire, representation and agreement as provided in Section 2.5(vi); and
(d) The Corporation may require any proposed nominee to furnish such other information (A) as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation in accordance with the Corporation’s Corporate Governance Guidelines or (B) that could be material to a reasonable stockholder’s understanding of the independence or lack of independence of such proposed nominee.
(iv) For purposes of this Section 2.5, the term “Nominating Person” shall mean (a) the stockholder providing the notice of the nomination proposed to be made at the meeting, (b) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the nomination proposed to be made at the meeting is made and (c) any associate of such stockholder or beneficial owner or any other participant in such solicitation.
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(v) A stockholder providing notice of any nomination proposed to be made at a meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.5 shall be true and correct as of the record date for notice of the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for notice of the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as often (10) business days prior to the meeting or any adjournment or postponement thereof).
(vi) To be eligible to be a nominee for election as a director of the Corporation at an annual or special meeting, the proposed nominee must be nominated in the manner prescribed in Section 2.5 and must deliver (in accordance with the time period prescribed for delivery in a notice to such proposed nominee given by or on behalf of the Board), to the Secretary at the principal executive offices of the Corporation, (a) a completed written questionnaire (in a form provided by the Corporation) with respect to the background, qualifications, stock ownership and independence of such proposed nominee and (b) a written representation and agreement (in form provided by the Corporation) that such proposed nominee (A) is not and, if elected as a director during his or her term of office, will not become a party to (1) any agreement, arrangement or understanding with, and has not given and will not give any commitment or assurance to, any person or entity as to how such proposed nominee, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) or (2) any Voting Commitment that could limit or interfere with such proposed nominee’s ability to comply, if elected as a director of the Corporation, with such proposed nominee’s fiduciary duties under applicable law, (B) is not, and will not become a party to, any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation or reimbursement for service as a director and (C) if elected as a director of the Corporation, will comply with all applicable corporate governance, conflict of interest, confidentiality, stock ownership and trading and other policies and guidelines of the Corporation applicable to directors and in effect during such person’s term in office as a director (and, if requested by any proposed nominee, the Secretary of the Corporation shall provide to such proposed nominee all such policies and guidelines then in effect).
(vii) In addition to the requirements of this Section 2.5 with respect to any nomination proposed to be made at a meeting, each Proposing Person shall comply with all applicable requirements of the Exchange Act with respect to any such nominations.
(viii) No proposed nominee shall be eligible for nomination as a director of the Corporation unless such proposed nominee and the Nominating Person seeking to place such proposed nominee’s name in nomination have complied with this Section 2.5, as applicable. The presiding officer at the meeting shall, if the facts warrant, determine that a nomination was not properly made in accordance with this Section 2.5, and if he or she should so determine, he or she shall so declare such determination to the meeting, the defective nomination shall be disregarded and any ballots cast for the proposed nominee in question (but in the case of any form of ballot listing other qualified nominees, only the ballots case for the nominee in question) shall be void and of no force or effect.
2.6 NOTICE OF STOCKHOLDERS’ MEETINGS.
Unless otherwise provided by law, the Certificate or these Bylaws, the notice of any meeting of stockholders shall be sent or otherwise given in accordance with either Section 2.7 or Section 8.1 of these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.
2.7 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Notice of any meeting of stockholders shall be deemed given:
(i) if mailed, when deposited in the U.S. mail, postage prepaid, directed to the stockholder at his or her address as it appears on the Corporation’s records; or
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(ii) if electronically transmitted as provided in Section 8.1 of these Bylaws.
An affidavit of the secretary or an assistant secretary of the Corporation or of the transfer agent or any other agent of the Corporation that the notice has been given by mail or by a form of electronic transmission, as applicable, shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
2.8 QUORUM.
Unless otherwise provided by law, the Certificate or these Bylaws, the holders of a majority in voting power of the stock issued and outstanding and entitled to vote, present in person, or by remote communication, if applicable, or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. If, however, a quorum is not present or represented at any meeting of the stockholders, then either (i) the chairperson of the meeting or (ii) a majority in voting power of the stockholders entitled to vote at the meeting, present in person, or by remote communication, if applicable, or represented by proxy, shall have power to adjourn the meeting from time to time in the manner provided in Section 2.9 of these Bylaws until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.
2.9 ADJOURNED MEETING; NOTICE.
When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
2.10 CONDUCT OF BUSINESS.
The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business.
2.11 VOTING.
The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.13 of these Bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL.
Except as may be otherwise provided in the Certificate or these Bylaws, each stockholder shall be entitled to one (1) vote for each share of capital stock held by such stockholder.
At all duly called or convened meetings of stockholders, at which a quorum is present, for the election of directors, a plurality of the votes cast shall be sufficient to elect a director. Except as otherwise provided by the Certificate, 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, all other elections and questions presented to the stockholders at a duly called or convened meeting, at which a quorum is present, shall be decided by the majority of the votes cast affirmatively or negatively (excluding abstentions and broker non-votes) and shall be valid and binding upon the Corporation.
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2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
(i) Unless otherwise provided in the Certificate, any action required or permitted to be taken at any meeting of stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation’s principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of the stockholders are recorded, to the attention of the Secretary of the Corporation. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered in the manner required by this Section 2.12 to the Corporation, written consents signed by a sufficient number of holders to take action are delivered to the Corporation by delivery to the Corporation’s principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of the stockholders are recorded, to the attention of the Secretary of the Corporation. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Corporation as provided above in this Section 2.12.
(ii) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, 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 date shall not be less than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary of the Corporation, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation’s principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of the stockholders are recorded, to the attention of the Secretary of the Corporation. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action.
(iii) In the event of the delivery, in the manner provided by this Section 2.12, to the Corporation of the requisite written consent or consents to take corporate action and/or any related revocation or revocations, the Corporation shall engage independent inspectors of elections for the purpose of performing promptly a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the Corporation that the consents delivered to the Corporation in accordance with this Section 2.12 represent at least a minimum number of votes that would be necessary to take the corporate action. Nothing contained in this Section 2.12(iii) shall in any way be construed to suggest or imply that the board of directors or any stockholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after such certification by the independent inspectors, or to take any other action (including, without limitation, the commencement, prosecution, or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).
2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.
In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or 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 may fix, in advance, a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other such action.
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If the Board does not so fix a record date:
(i) 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.
(ii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.
2.14 PROXIES.
Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL. A proxy may be in the form of a telegram, cablegram or other means of electronic transmission which sets forth or is submitted with information from which it can be determined that the telegram, cablegram or other means of electronic transmission was authorized by the stockholder.
2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE.
The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The Corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least 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 the meeting, or (ii) during ordinary business hours, at the Corporation’s principal executive office. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.
2.16 INSPECTORS OF ELECTION.
Before any meeting of stockholders, the Board shall appoint an inspector or inspectors of election to act at the meeting or its adjournment and make a written report thereof. The number of inspectors shall be either one (1) or three (3). If any person appointed as inspector fails to appear or fails or refuses to act, then the chairperson of the meeting may, and upon the request of any stockholder or a stockholder’s proxy shall, appoint a person to fill that vacancy.
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Such inspectors shall:
(i) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies;
(ii) receive votes or ballots;
(iii) hear and determine all challenges and questions in any way arising in connection with the right to vote;
(iv) count and tabulate all votes;
(v) determine when the polls shall close;
(vi) determine the result; and
(vii) do any other acts that may be proper to conduct the election or vote with fairness to all stockholders.
The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.
ARTICLE III - DIRECTORS
3.1 POWERS.
Subject to the provisions of the DGCL and any limitations in the Certificate or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board.
3.2 NUMBER OF DIRECTORS.
The authorized number of directors shall be determined from time to time by resolution of the Board, provided the Board shall consist of at least one (1) member. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.
Except as provided in Section 3.4 of these Bylaws, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. Directors need not be stockholders unless so required by the Certificate or these Bylaws. The Certificate or these Bylaws may prescribe other qualifications for directors.
3.4 RESIGNATION AND VACANCIES.
Any director may resign at any time upon notice given in writing or by electronic transmission to the Corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.
Unless otherwise provided in the Certificate or these Bylaws, vacancies and newly created directorships resulting from any increase in the authorized number of directors shall, unless the Board determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified. A vacancy in the Board shall be deemed to exist under these Bylaws in the case of the death, removal or resignation of any director.
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3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
The Board may hold meetings, both regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the Certificate or these Bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting pursuant to this bylaw shall constitute presence in person at the meeting.
3.6 REGULAR MEETINGS.
Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board.
3.7 SPECIAL MEETINGS; NOTICE.
Special meetings of the Board for any purpose or purposes may be called at any time by the Board, the chief executive officer, the president, the secretary or a majority of the authorized number of directors. Notice of the time and place of special meetings shall be:
(i) delivered personally by hand, by courier or by telephone;
(ii) sent by United States first-class mail, postage prepaid;
(iii) sent by facsimile; or
(iv) sent by electronic mail,
directed to each director at that director’s address, telephone number, facsimile number or electronic mail address, as the case may be, as shown on the Corporation’s records.
If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile or (iii) sent by electronic mail, it shall be delivered or sent at least twenty-four (24) hours before the time of the holding of the meeting. If the notice is sent by U.S. mail, it shall be deposited in the U.S. mail at least four (4) days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the Corporation’s principal executive office) nor the purpose of the meeting.
3.8 QUORUM.
At all meetings of the Board, a majority of the authorized number of directors shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board, except as may be otherwise specifically provided by statute, the Certificate or these Bylaws. If a quorum is not present at any meeting of the Board, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
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3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Unless otherwise restricted by the Certificate or these Bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
3.10 FEES AND COMPENSATION OF DIRECTORS.
Unless otherwise restricted by the Certificate or these Bylaws, the Board shall have the authority to fix the compensation of directors.
3.11 REMOVAL OF DIRECTORS.
Except as otherwise provided by the DGCL, the Board of Directors or any individual director may be removed from office only for cause at a meeting of stockholders called for that purpose, by the affirmative vote of the holders of at least sixty six and two thirds percent (66-2/3%) of the voting power of all the then outstanding shares of voting stock of the Corporation entitled to vote at an election of directors, voting together as a single class.
No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.
ARTICLE IV - COMMITTEES
4.1 COMMITTEES OF DIRECTORS.
The Board may designate one (1) or more committees, each committee to consist of one (1) or more of the directors of the Corporation. The Board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board or in these Bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the Corporation.
4.2 COMMITTEE MINUTES.
Each committee shall keep regular minutes of its meetings and report the same to the Board when required.
4.3 MEETINGS AND ACTION OF COMMITTEES.
Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:
(i) Section 3.5 (place of meetings and meetings by telephone);
(ii) Section 3.6 (regular meetings);
(iii) Section 3.7 (special meetings and notice);
(iv) Section 3.8 (quorum);
(v) Section 7.12 (waiver of notice); and
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(vi) Section 3.9 (action without a meeting),
with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the Board and its members. However:
(i) the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;
(ii) special meetings of committees may also be called by resolution of the Board; and
(iii) notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws.
ARTICLE V - OFFICERS
5.1 OFFICERS.
The officers of the Corporation shall be a president and a secretary. The Corporation may also have, at the discretion of the Board, a chairperson of the Board, a vice chairperson of the Board, a chief executive officer, a chief financial officer or treasurer, one (1) or more vice presidents, one (1) or more assistant vice presidents, one (1) or more assistant treasurers, one (1) or more assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of these Bylaws. Any number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS.
The Board shall appoint the officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws, subject to the rights, if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS.
The Board may appoint, or empower the chief executive officer or, in the absence of a chief executive officer, the president, to appoint, such other officers and agents as the business of the Corporation may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board at any regular or special meeting of the Board or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party.
5.5 VACANCIES IN OFFICES.
Any vacancy occurring in any office of the Corporation shall be filled by the Board or as provided in Section 5.2.
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5.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
The chairperson of the Board, the president, any vice president, the treasurer, the secretary or assistant secretary of the Corporation, or any other person authorized by the Board or the president or a vice president, is authorized to vote, represent and exercise on behalf of the Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of the Corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.
5.7 AUTHORITY AND DUTIES OF OFFICERS.
All officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the Board or the stockholders and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board.
ARTICLE VI - RECORDS AND REPORTS
6.1 MAINTENANCE AND INSPECTION OF RECORDS.
The Corporation shall, either at its principal executive office or at such place or places as designated by the Board, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books and other records.
Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation’s stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent so to act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in Delaware or at its principal executive office.
6.2 INSPECTION BY DIRECTORS.
Any director shall have the right to examine the Corporation’s stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the Corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.
ARTICLE VII - GENERAL MATTERS
7.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.
The Board, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
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7.2 STOCK CERTIFICATES; PARTLY PAID SHARES.
The shares of the Corporation shall be represented by certificates or shall be uncertificated. Certificates for the shares of stock, if any, shall be in such form as is consistent with the Certificate and applicable law. Every holder of stock represented by a certificate shall be entitled to have a certificate signed by, or in the name of the Corporation by the chairperson or vice-chairperson of the Board, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
7.3 SPECIAL DESIGNATION ON CERTIFICATES.
If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
7.4 LOST CERTIFICATES.
Except as provided in this Section 7.4, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and cancelled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
7.5 CONSTRUCTION; DEFINITIONS.
Unless the context requires otherwise, the general provisions, rules of construction and definitions in the DGCL shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.
7.6 DIVIDENDS.
The Board, subject to any restrictions contained in either (i) the DGCL or (ii) the Certificate, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property or in shares of the Corporation’s capital stock.
The Board may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies.
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7.7 FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the Board and may be changed by the Board.
7.8 SEAL.
The Corporation may adopt a corporate seal, which shall be adopted and which may be altered by the Board. The Corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
7.9 TRANSFER OF STOCK.
Shares of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. Shares of stock of the Corporation shall be transferred on the books of the Corporation only by the holder of record thereof or by such holder’s attorney duly authorized in writing, upon surrender to the Corporation of the certificate or certificates representing such shares endorsed by the appropriate person or persons (or by delivery of duly executed instructions with respect to uncertificated shares), with such evidence of the authenticity of such endorsement or execution, transfer, authorization and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer stamps. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing the names of the persons from and to whom it was transferred.
7.10 STOCK TRANSFER AGREEMENTS.
The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
7.11 REGISTERED STOCKHOLDERS.
The Corporation:
(i) 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;
(ii) shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares; and
(iii) 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.
7.12 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of the DGCL, the Certificate or these Bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate or these Bylaws.
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ARTICLE VIII - NOTICE BY ELECTRONIC TRANSMISSION
8.1 NOTICE BY ELECTRONIC TRANSMISSION.
Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the Certificate or these Bylaws, any notice to stockholders given by the Corporation under any provision of the DGCL, the Certificate or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any such consent shall be deemed revoked if:
(i) the Corporation is unable to deliver by electronic transmission two (2) consecutive notices given by the Corporation in accordance with such consent; and
(ii) such inability becomes known to the secretary or an assistant secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice.
However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.
Any notice given pursuant to the preceding paragraph shall be deemed given:
(i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;
(ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;
(iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and
(iv) if by any other form of electronic transmission, when directed to the stockholder.
An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the Corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
8.2 DEFINITION OF ELECTRONIC TRANSMISSION.
An “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.
ARTICLE IX - INDEMNIFICATION
9.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Corporation shall indemnify and hold harmless, to the fullest extent permitted by the DGCL as it presently exists or may hereafter be amended, any director or officer of the Corporation 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 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 non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such person in connection with any such Proceeding. Notwithstanding the preceding sentence, except as otherwise provided in Section 9.4, the Corporation shall be required to indemnify a person in connection with a Proceeding initiated by such person only if the Proceeding was authorized in the specific case by the Board.
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9.2 INDEMNIFICATION OF OTHERS.
The Corporation shall have the power to indemnify and hold harmless, to the extent permitted by applicable law as it presently exists or may hereafter be amended, any employee or agent of the Corporation who was or is made or is threatened to be made a party or is otherwise involved in any 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 an employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person in connection with any such Proceeding.
9.3 PREPAYMENT OF EXPENSES.
The Corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys’ fees) incurred by any officer or director of the Corporation, and may pay the expenses incurred by any employee or agent of the Corporation, 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 person to repay all amounts advanced if it should be ultimately determined that the person is not entitled to be indemnified under this Article IX or otherwise.
9.4 DETERMINATION; CLAIM.
If a claim for indemnification (following the final disposition of such Proceeding) or advancement of expenses under this Article IX is not paid in full within sixty (60) days after a written claim therefor has been received by the Corporation the claimant 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 claimant was not entitled to the requested indemnification or payment of expenses under applicable law.
9.5 NON-EXCLUSIVITY OF RIGHTS.
The rights conferred on any person by this Article IX shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Certificate, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
9.6 INSURANCE.
The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust enterprise or non-profit entity against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of the DGCL.
9.7 OTHER INDEMNIFICATION.
The Corporation’s obligation, if any, to indemnify or advance expenses to any 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 non-profit entity shall be reduced by any amount such person may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise.
9.8 CONTINUATION OF INDEMNIFICATION.
The rights to indemnification and to prepayment of expenses provided by, or granted pursuant to, this Article IX shall continue notwithstanding that the person has ceased to be a director or officer of the Corporation and shall inure to the benefit of the estate, heirs, executors, administrators, legatees and distributees of such person.
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9.9 AMENDMENT OR REPEAL.
The provisions of this Article IX shall constitute a contract between the Corporation, on the one hand, and, on the other hand, each individual who serves or has served as a director or officer of the Corporation (whether before or after the adoption of these Bylaws), in consideration of such person’s performance of such services, and pursuant to this Article IX the Corporation intends to be legally bound to each such current or former director or officer of the Corporation. With respect to current and former directors and officers of the Corporation, the rights conferred under this Article IX are present contractual rights and such rights are fully vested, and shall be deemed to have vested fully, immediately upon adoption of these Bylaws. With respect to any directors or officers of the Corporation who commence service following adoption of these Bylaws, the rights conferred under this provision shall be present contractual rights and such rights shall fully vest, and be deemed to have vested fully, immediately upon such director or officer commencing service as a director or officer of the Corporation. Any repeal or modification of the foregoing provisions of this Article IX shall not adversely affect any right or protection (i) hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification or (ii) under any agreement providing for indemnification or advancement of expenses to an officer or director of the Corporation in effect prior to the time of such repeal or modification.
ARTICLE X - AMENDMENTS
Subject to the limitations set forth in Section 9.9 of these Bylaws or the provisions of the Certificate, the Board is expressly empowered to adopt, amend or repeal the Bylaws of the Corporation. The stockholders also shall have power to adopt, amend or repeal the Bylaws of the Corporation at any annual or special meeting of stockholders, provided that notice of such proposed adoption, amendment or repeal is given in the notice of such meeting of stockholders.
ARTICLE XI – FORUM FOR ADJUDICATION OF DISPUTES
Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation, its directors, officers or employees arising pursuant to any provision of the DGCL or these Bylaws, or (iv) any action asserting a claim against the Corporation, its directors, officers, employees or agents governed by the internal affairs doctrine, except for, as to each of (i) through (iv) 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.
Unless the Corporation consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article XI.
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Exhibit 4.1
Exhibit 10.1
Exhibit 10.2
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS AND SHARES MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
ADITX THERAPEUTICS, INC.
COMMON STOCK PURCHASE WARRANT
March 8, 2018
Warrant No.: 001
FOR VALUE RECEIVED, the undersigned, ADiTx Therapeutics, Inc., a Delaware corporation (the “Company”), hereby certifies that Sekris Biomedical, Inc., a Delaware corporation with a principal place of business at 5 E. Citrus Avenue, Suite 201, Redlands, California 92373, or its registered assigns, is the registered holder (the “Holder”), of this Common Stock Purchase Warrant (the “Warrant”) and is entitled to purchase from the Company up to 1,000,000 shares (the “Warrant Shares”) of common stock, $0.001 par value per share, of the Company (the “Common Stock”), subject to the terms, conditions, and adjustment as set forth in this Warrant.
1. Warrant to Purchase Common Stock. The Holder shall have the right to purchase all or any part of the Warrant Shares at a price per Warrant Share equal to $2.00 per Warrant Share (the “Exercise Price”).
2. Right to Exercise Warrants. The rights represented by this Warrant may be exercised for any number of Warrant Shares represented by this Warrant at any time from the date hereof until March 8, 2023 (the “Expiration Date”).
3. Exercise of Warrant.
3.1 Manner of Exercise. This Warrant may only be exercised by the Holder hereof, in accordance with the terms and conditions hereof, in whole or in part with respect to any portion of this Warrant, into shares of Common Stock, during normal business hours on any day other than a Saturday or a Sunday or a day on which commercial banking institutions in Los Angeles, California are authorized by law to be closed (a “Business Day”) on or prior to the Expiration Date, with respect to such portion of this Warrant, by (i) surrender of this Warrant to the Company at its office maintained pursuant to Section 7.2(a) hereof, (ii) delivery of a properly executed Election to Purchase Form, attached hereto as Exhibit A, and (iii) payment to the Company of the Exercise Price (if the payment is made by check, after funds have cleared the bank) for the number of Warrant Shares specified in the above mentioned purchase form together with applicable stock transfer taxes, if any.
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 surrendered and the Election to Purchase Form and payment of the Exercise Price is received (if funds are received by check, when the funds have cleared the bank) by the Company as provided in Section 3.1 hereof (“Exercise Date”), and, at such time, the corporation, association, partnership, trust, organization, business, individual, government or political subdivision thereof or a governmental agency (a “Person” or the “Persons”) in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon exercise as provided herein shall be deemed to have become the holder or holders of record thereof. Once all or any portions of this Warrant is exercised and accepted by the Company, all transactions are final and irrevocable.
3.3 Delivery of Stock Certificates. As soon as practicable after each exercise of this Warrant, in whole or in part, and in any event within Fifteen (15) Business Days thereafter, the Company will cause to be issued in the name of and delivered to the Holder hereof or, subject to Section 8 hereof, as the Holder (upon payment by the Holder of any applicable transfer taxes):
(a) either non-certificated shares or certificate(s), in paper or electronic form (with appropriate restrictive legends, as applicable) for the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock to which the Holder shall be entitled upon exercise; Notwithstanding the foregoing, no fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
(b) in case exercise is in part only, a new Warrant of like tenor, dated the date hereof and calling in the aggregate on the face thereof for the number of shares of Common Stock equal to the number of shares called for on the face of this Warrant minus the number of shares designated by the Holder upon exercise as provided in Section 3.1 hereof (without giving effect to any adjustment thereof).
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3.4 Shares to be Fully Paid; Reservation of Shares. The Company covenants and agrees that all shares of Common Stock which may be issued upon the exercise of rights presented by this Warrant will, upon issuance by the Company, be validly issued, fully paid and nonassessable, and free from preemptive rights and free from all taxes, liens and charges with respect thereto. The Company further covenants and agrees that, from and after the date of issuance of the Warrant and during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved, free from preemptive rights, out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the exercise of this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant.
4. Adjustment of Rights.
4.1 Stock Dividends, Stock Splits, Etc. If the Company declares or pays a stock dividend on its Common Stock payable in Common Stock or other securities, or subdivides the outstanding Common Stock into a greater amount of Common Stock, then upon exercise of this Warrant, for each Warrant Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Warrant Shares of record as of the date the dividend or subdivision occurred.
4.2 Reclassifications, Exchange or Substitution. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise of this Warrant, Holder shall be entitled to receive, upon exercise of this Warrant, the number and kind of securities and property that Holder would have received for the Warrant Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. The Company or its successor shall promptly issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4.2, including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 4.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.
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4.3 Adjustments for Combinations, Etc. If the outstanding shares of Common Stock are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased.
4.4 Merger or Consolidation. In case of any consolidation of the Company with, or merger of the Company into any other corporation, or in the case of any sale or conveyance of all or substantially all of the assets of the Company other than in connection with a plan of complete liquidation of the Company, then as a condition of such consolidation, merger or sale or conveyance, adequate provision will be made whereby the registered holder of the Warrant will have the right to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock immediately theretofore subject to acquisition upon the exercise of this Warrant, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore subject to acquisition and receivable upon exercise of this Warrant had such consolidation, merger or sale or conveyance not taken place. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 4 hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant.
5. No Impairment. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets 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 carry out all such terms and take all such action as may be reasonably necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment.
6. Restrictions on Transfer.
6.1 Restrictive Legends. This Warrant and each Warrant issued upon transfer or in substitution for this Warrant pursuant to Section 7, each certificate for Common Stock issued upon the exercise of any Warrant and each certificate issued upon the transfer of any such Common Stock shall be transferable only upon satisfaction of the conditions specified in this Section 6 and Section 7.4. Each of the foregoing securities shall be stamped or otherwise imprinted with a legend reflecting the restrictions on transfer set forth in Section 6 and Section 7.4 hereof and any restrictions required under the Securities Act of 1933, as amended (the “Act”).
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6.2 Notice of Proposed Transfer; Opinion of Counsel. Prior to any transfer of any securities which are not registered under an effective registration statement under the Act (“Restricted Securities”), the Holder will give written notice to the Company of the Holder’s intention to affect a transfer and to comply in all other respects with this Section 6.2. Each notice (i) shall describe the manner and circumstances of the proposed transfer, and (ii) shall designate counsel for the Holder giving the notice. The Holder giving notice will submit a copy thereof to the counsel designated in the notice. The following provisions shall then apply:
(a) If in the opinion of counsel for the Holder reasonably satisfactory to the Company the proposed transfer may be effected without registration of Restricted Securities under the Act (which opinion shall state the basis of the legal conclusions reached therein), the Holder shall thereupon 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 6.1 hereof.
(b) If the opinion called for in (a) 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 6.2 and fulfillment of the provisions of clause (a) above, or (y) such Restricted Securities have been effectively registered under the Act.
(c) Notwithstanding the foregoing, the restrictions imposed upon the transferability of any of its rights to acquire Common Stock or Common Stock issuable on the exercise of such rights do not apply to transfers from the beneficial owner of any of the aforementioned securities to its nominee or from such nominee to its beneficial owner, and shall terminate as to any particular share of Common Stock when (1) such security shall have been effectively registered under the Securities Act and sold by the holder thereof in accordance with such registration or (2) such security shall have been sold without registration in compliance with Rule 144 under the Securities Act, or (3) a letter shall have been issued to the Holder at its request by the staff of the Securities and Exchange Commission (the “SEC”) or a ruling shall have been issued to the Holder at its request by the SEC stating that no action shall be recommended by such staff or taken by SEC, as the case may be, if such security is transferred without registration under the Securities Act in accordance with the conditions set forth in such letter or ruling and such letter or ruling specifies that no subsequent restrictions on transfer are required. Whenever the restrictions imposed hereunder shall terminate, as hereinabove provided, the Holder or holder of a share of Common Stock then outstanding as to which such restrictions have terminated shall be entitled to receive from the Company, without expense to such holder, one or more new certificates for the Warrant or for such shares of Common Stock not bearing any restrictive legend.
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7. Ownership, Transfer and Substitution of Warrant.
7.1 Ownership of Warrant. The Company may treat the person in whose name this Warrant is registered in the Warrant Register maintained pursuant to Section 7.2(b) hereof as the owner and holder thereof 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 Section 6 hereof, this Warrant, if properly assigned, may be exercised by a new holder without a new Warrant first having been issued.
7.2 Office; Transfer and Exchange of Warrant.
(a) The Company maintains a mailing address at 11161 Anderson Street, Suite 105-10014 Loma Linda, California 92354 as the office where notices, presentations and demands in respect of this Warrant may be made upon it until the Company notifies the holder of this Warrant of any change of location of the office.
(b) The Company shall cause to be kept at its office maintained pursuant to Section 7.2(a) hereof a Warrant Register for the registration and transfer of this Warrant. The names and addresses of holders of this Warrant, the transfers thereof and the names and addresses of transferees of this Warrant shall be registered in such Warrant Register. The Person in whose name any Warrant shall be so registered shall be deemed and treated as the owner and holder thereof for all purposes of this Warrant, and the Company shall not be affected by any notice or knowledge to the contrary.
(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 7.2(a) hereof, the Company at its expense will (subject to compliance with Section 6 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 shares of Common Stock called for on the face of this Warrant so surrendered.
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7.3 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 7.2(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.
7.4 Restrictions on Transfer. In addition to the restrictions on transfer set forth in Section 7 hereof, neither this Warrant nor any portion of this Warrant may be transferred without the consent of the Company.
8. No Rights or Liabilities as Stockholder. No Holder shall be entitled to vote or receive dividends or be deemed the holder of any shares of Common Stock 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 this Warrant shall have been exercised and the shares of Common Stock 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 liquidation, dissolution or the winding up of the Company.
9. Notices of Record Date. Etc. In case the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any stock dividend or other non-cash distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right; or of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company; or of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the registered holder of this Warrant a notice specifying, as the case may be: (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice unless such prior notice is waived by the registered holder of this Warrant. Provided, however, that the failure by the Company to provide such notice shall not invalidate any such action.
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10. Notices. Any notice or other communication in connection with this Warrant shall be deemed to be given if in writing (or in the form of a facsimile) addressed as hereinafter provided and actually delivered at said address: (a) if to any Holder, at the registered address of such holder as set forth in the Warrant Register kept at the office of the Company maintained pursuant to Section 7.2(a) hereof, or (b) if to the Company, to the attention of its Chief Executive Officer at its office maintained pursuant to Section 7.2(a) hereof; provided, however, that the exercise of any Warrant shall be effective in the manner provided in Section 3 hereof.
11. Payment of Taxes. The Company will pay all documentary stamp taxes attributable to the issuance of shares of Common Stock 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 registration of any certificate for shares of Common Stock 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 shares of Common Stock underlying this Warrant upon exercise hereof.
12. Warrant Agent The Company shall serve as warrant agent under this Warrant. Upon thirty (30) days notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or stockholders services business shall be successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register.
13. Severability. If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provision shall be excluded from the Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.
14. Governing Law This Warrant shall be governed by and construed in accordance with the laws of Delaware, without regard for its conflict of laws rules.
1 5 . Successors All of the covenants, agreements, representations and warranties contained in this Warrant shall bind the parties hereto and their respective heirs, executors, administrators, distributes, successors and assigns.
1 6 . 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. The section headings in this Warrant are for purposes of convenience only and shall not constitute a part hereof.
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IN WITNESS WHEREOF, the Company has caused this Common Stock Purchase Warrant to be duly executed as of the date first above written.
| ADITX THERAPEUTICS, INC. | ||
| By: | /s/ Amro Albanna | |
| Amro Albanna | ||
| Chief Executive Officer | ||
EXHIBIT A
ELECTION TO PURCHASE
| TO: | ADITX THERAPEUTICS, INC. | DATED: __________________, _______ |
The registered holder of the attached Warrant as named below (the “Holder”) hereby subscribes for __________ shares of the Common Stock of ADiTx Therapeutics, Inc., a Delaware corporation, covered by the attached Warrant and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:
The Warrant Shares shall be delivered by physical delivery of a certificate to:
[ SIGNATURE OF HOLDER]
Name of Holder:
Signature of Authorized Signatory of Holder:
Name of Authorized Signatory:
Title of authorized Signatory:
|
|
| Date: |
Exhibit 10.3
Exhibit 10.4
EXCLUSIVE LICENSE AGREEMENT WITH EQUITY
This Agreement between THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY (“Stanford”), an institution of higher education having powers under the laws of the State of California, and Aditx Therapeutics, Inc. (“Aditxt”), a corporation having a principal place of business at 11161 Anderson St., Suite 105-10014, Loma Linda, CA 92354, is effective on the 3rd day of February, 2020 (“Effective Date”).
| 1. | BACKGROUND |
Stanford has an assignment of an invention (insert marketing description here). It is entitled “Flowspot: a Method for Detection and Measurement of Specific Cellular Responses,” was invented in the laboratory of Drs. Dolly Tyan and Ge Chen and is described in Stanford Docket S13-350. Stanford wants to have the invention perfected and marketed as soon as possible so that resulting products may be available for public use and benefit.
Stanford currently has a single non-exclusive license in effect under the Licensed Patents. As of the Effective Date, Stanford OTL represents that to the knowledge of Stanford’s Office of Technology Licensing representative and without conducting any further investigation, there are no other licensees.
| 2. | DEFINITIONS |
Whenever used in this Agreement with an initial capital letter, the following terms, whether used in the singular or the plural, shall have the meanings specified below.
| 2.1 | “Change of Control” means the following, as applied only to the entirety of that part of Aditxt’s business that exercises all of the rights granted under this Agreement: |
| (A) | acquisition of ownership—directly or indirectly, beneficially or of record—by any person or group (within the meaning of the Exchange Act and the rules of the SEC or equivalent body under a different jurisdiction) of the capital stock of Aditxt representing more than 35% of either the aggregate ordinary voting power or the aggregate equity value represented by the issued and outstanding capital stock of Aditxt; and/or |
| (B) | the sale of all or substantially all Aditxt’s assets and/or business in one transaction or in a series of related transactions. |
Notwithstanding the foregoing, a “Change of Control” will not include an initial public offering or secondary public offering of Aditxt’s equity securities and/or a bona fide equity financing with venture capital or private equity investors.
| 2.2 | “Exclusive” means that, subject to Sections 3 and 5, Stanford will not grant further licenses under the Licensed Patents in the Licensed Field of Use in the Licensed Territory. |
Aditxt acknowledges that Stanford has already granted a non-exclusive license in the Nonexclusive Field of Use, under the Licensed Patents in the Licensed Field of Use in the Licensed Territory.
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| 2.3 | “Licensed Field of Use” means: |
| (A) | Exclusive Field of Use: All fields of use except for the Nonexclusive Field of Use; |
| (B) | Nonexclusive Field of Use: In vitro medical diagnostics (outside of human transplantation) for diseases including cancer, immunology, hematology, gene therapy and cell therapy (including CAR-T cell therapy, NK cell therapy, checkpoint inhibitor therapy, antigen specific T cell therapy), and vaccine evaluation. |
| 2.4 | “Licensed Patent” means Stanford’s rights in U.S. Patent Application, Serial Number15/336,439, filed on October 27, 2016, and any divisional, continuation, or reexamination application, extension, and each patent that issues or reissues from any of these patent applications. Any claim of an unexpired Licensed Patent is presumed to be valid unless it has been held to be invalid by a final judgment of a court of competent jurisdiction from which no appeal can be or is taken. “Licensed Patent” excludes any continuation-in-part (CIP) patent application or patent. Neither party will file a CIP patent application without the other party’s prior written consent. |
| 2.5 | “Licensed Product” means a product, method or service in the Licensed Field of Use, the making, having made, using, importing or selling of which, absent this license, infringes, induces infringement, or contributes to infringement of a Licensed Patent. |
| 2.6 | “Licensed Territory” means anywhere worldwide where there is an enforceable Licensed Patent. |
| 2.7 | “Net Sales” means all gross revenue derived by Aditxt or sublicensees, their distributors or designees, from the sale, transfer or other disposition of Licensed Product to an end user. Net Sales excludes the following items (but only as they pertain to the making, using, importing or selling of Licensed Products, are included in gross revenue, and are separately billed): |
| (A) | import, export, excise and sales taxes, and custom duties, but only to the extent that these are not subsequently reimbursed; |
| (B) | costs of insurance, packing, and transportation from the place of manufacture to the customer’s premises or point of installation; |
| (C) | costs of installation at the place of use; and |
| (D) | credit for returns, allowances, or trades. |
For purposes of calculating Net Sales, transfers to a sublicensee of Licensed Product under this Agreement for (i) end use (but not resale) by the sublicensee shall be treated as sales by Aditxt at list price of Aditxt, or (ii) resale by a sublicensee shall be treated as sales at the list price of the sublicensee upon sale or lease by such sublicensee.
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| 2.8 | “Nonroyalty Sublicensing Consideration” means any consideration received by Aditxt from a sublicensee hereunder but excluding any consideration for: |
| (A) | royalties on products sales (royalties on product sales by sublicensees will be treated as if Aditxt made the sale of such product); |
| (B) | investments in Aditxt stock, but only if the investments are at market value; |
| (C) | research and development expenses calculated on a fully burdened basis, incurred for development of the Licensed Product after the effective date of the Sublicense; and |
| (D) | debt |
| 2.9 | “Stanford Indemnitees” means Stanford, Stanford Health Care and Lucile Packard Children’s Hospital at Stanford and their respective trustees, officers, employees, students, agents, faculty, representatives, and volunteers. |
| 2.10 | “Sublicense” means any agreement between Aditxt and a third party that contains a grant to Stanford’s Licensed Patents regardless of the name given to the agreement by the parties; however, an agreement to make, have made, use or sell Licensed Products on behalf of Aditxt is not considered a Sublicense. |
| 3. | GRANT |
Grant. Subject to the terms and conditions of this Agreement, Stanford grants Aditxt a license to Stanford’s rights in the Licensed Patent in the Licensed Field of Use to make, have made, use, import, offer to sell and sell Licensed Product in the Licensed Territory.
| 3.1 | Exclusivity. The license to the Licensed Patents is Exclusive, including the right to sublicense under Section 4, in the Licensed Field of Use beginning on the Effective Date and ending when the last Licensed Patent expires. |
| 3.2 | Retained Rights. Stanford retains the right, on behalf of itself, Stanford Health Care, Lucile Packard Children’s Hospital at Stanford and all other non-profit research institutions, to practice the Licensed Patent for any non-profit purpose, including sponsored research and collaborations. Aditxt agrees that, notwithstanding any other provision of this Agreement, it has no right to enforce the Licensed Patent against any such institution. Stanford and any such other institution have the right to publish any information included in a Licensed Patent. |
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| 3.3 | Specific Exclusion. Stanford does not: |
| (A) | grant to Aditxt any other licenses, implied or otherwise, to any patents or other rights of Stanford other than those rights granted under Licensed Patent, regardless of whether the patents or other rights are dominant or subordinate to any Licensed Patent, or are required to exploit any Licensed Patent; |
| (B) | commit to Aditxt to bring suit against third parties for infringement, except as described in Section 14; and |
| (C) | agree to furnish to Aditxt any technology or technological information or to provide Aditxt with any assistance. |
| 4. | SUBLICENSING |
| 4.1 | Permitted Sublicensing. Aditxt may grant Sublicenses in the Licensed Field of Use and Licensed Territory only during the Exclusive term and only if Aditxt is developing or selling Licensed Products. Sublicenses with any exclusivity must include diligence requirements commensurate with the diligence requirements of Appendix A. Stanford agrees that Aditxt may, by mutual agreement, apportion without discrimination between Aditxt patents and Stanford patents a commercially reasonable percentage of sublicensing payments made to Stanford pursuant to Section 4.6. Negotiation of any Sublicense must be an arms-length transaction. |
| 4.2 | Required Sublicensing. If Aditxt is unable or unwilling to serve or develop a potential market or market territory for which there is a company willing to be a sublicensee and which has adequate resources and (a) such potential sublicensee has provided Stanford and Aditxt with a bona fide, detailed proposal to develop a Licensed Product for such potential market, and (b) such proposed development is not within or detrimental to Aditxt’s current or planned Licensed Products, as reasonably demonstrated by Aditxt in a material communication to third parties such as an investor presentation or a public disclosure, Aditxt will, at Stanford’s request, negotiate in good faith a Sublicense within 6 months with any such company. Stanford would like licensees to address unmet needs, such as those of neglected patient populations or geographic areas, giving particular attention to improved therapeutics, diagnostics and agricultural technologies for the developing world. |
| 4.3 | Sublicense Requirements. Any Sublicense: |
| (A) | is subject to this Agreement; |
| (B) | will reflect that any sublicensee will not further sublicense; |
| (C) | will prohibit sublicensee from paying royalties to an escrow or other similar account; |
| (D) | will expressly include the provisions of Sections 8, 9, and 10 for the benefit of Stanford; and |
| (E) | will include the provisions of Section 4.4 and require the transfer of all the sublicensee’s obligations to Aditxt, including the payment of royalties specified in the Sublicense, to Stanford or its designee, if this Agreement is terminated. If the sublicensee is a spin-out from Aditxt, Aditxt must guarantee the sublicensee’s performance with respect to the payment of Stanford’s share of Sublicense royalties. |
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| 4.4 | Litigation by sublicensee. Any Sublicense must include the following clauses: |
| (A) | In the event sublicensee brings an action seeking to invalidate any Licensed Patent: |
| (1) | sublicensee will double the payment paid to Aditxt during the pendency of such action. Moreover, should the outcome of such action determine that any claim of a patent challenged by the sublicensee is both valid and infringed by a Licensed Product, sublicensee will pay triple times the payment paid under the original Sublicense; |
| (2) | sublicensee will have no right to recoup any royalties paid before or during the period challenge; |
| (3) | any dispute regarding the validity of any Licensed Patent shall be litigated in the courts located in Santa Clara County, and the parties agree not to challenge personal jurisdiction in that forum; and |
| (4) | sublicensee shall not pay royalties into any escrow or other similar account. |
| (B) | sublicensee will provide written notice to Stanford at least three months prior to bringing an action seeking to invalidate a Licensed Patent. Sublicensee will include with such written notice an identification of all prior art it believes invalidates any claim of the Licensed Patent. |
| 4.5 | Copy of Sublicenses and sublicensee Royalty Reports. Aditxt will submit to Stanford copies of each Sublicense within 30 days of signing, any subsequent amendments and all copies of sublicensees’ royalty reports. The copies must be unredacted. Beginning with the first Sublicense, the Chief Financial Officer or equivalent will certify annually regarding the name and number of sublicensees. |
| 4.6 | Sharing of Nonroyalty Sublicensing Consideration. Aditxt will pay to Stanford a portion of all Nonroyalty Sublicensing Consideration for the Sublicense of Licensed Patents, as provided below: |
| (A) | 35% for Sublicenses executed on or before the first commercial sale of a Licensed Product (RUO kit or service); |
| (B) | 25% for Sublicenses executed thereafter. |
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| 5. | GOVERNMENT RIGHTS |
This Agreement may be subject to Title 35 Sections 200-204 of the United States Code. Among other things, these provisions provide the United States Government with nonexclusive rights in the Licensed Patent. They also impose the obligation that Licensed Product sold or produced in the United States be “manufactured substantially in the United States.” If applicable, Aditxt will ensure all obligations of these provisions are met.
| 6. | DILIGENCE |
| 6.1 | Milestones. Because the invention is not yet commercially viable as of the Effective Date, Aditxt will diligently develop, manufacture, and sell Licensed Product and will diligently develop markets for Licensed Product. In addition, Aditxt will meet the milestones shown in Appendix A, and notify Stanford in writing as each milestone is met. |
| 6.2 | Progress Report. By March 1 of each year, beginning March 2021, Aditxt will submit a written annual report to Stanford covering the preceding calendar year. The report will include information sufficient to enable Stanford to satisfy reporting requirements of the U.S. Government and for Stanford to ascertain progress by Aditxt toward meeting this Agreement’s diligence requirements. Each report will describe, where relevant: Aditxt’s progress toward commercialization of Licensed Product, including work completed, key scientific discoveries, summary of work-in-progress, current schedule of anticipated events or milestones, market plans for introduction of Licensed Product, and significant corporate transactions involving Licensed Product. Aditxt will specifically describe how each Licensed Product is related to each Licensed Patent. |
| 6.3 | Clinical Trial Notice. Aditxt will notify the Stanford University Office of Technology Licensing prior to commencing any clinical trials at Stanford. If Aditxt does not notify Stanford University Office of Technology Licensing at least 15 days prior to enrolling the first patient in a clinical trial at Stanford, Aditxt agrees that it will pay $50,000 to Stanford within 30 days of being invoiced. |
| 7. | ROYALTIES |
| 7.1 | License Issue Fee. Aditxt will pay to Stanford a noncreditable, nonrefundable license issue fee of $25,000 within 60 days of signing this Agreement. |
| 7.2 | Equity Interest. As further consideration, Aditxt will grant to Stanford 37,500 shares of common stock in Aditxt. Aditxt agrees the shares are valued at US$2.00 and will provide Stanford with the capitalization table upon which the above calculation is made. Aditxt will issue 28.34% of all shares granted to Stanford pursuant to this Section 7.2 directly to and in the name of the inventors listed below allocated as stated below: |
| Dolly Tyan | 5,313 shares |
| Ge Chen | 5,313 shares |
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| 7.3 | [Intentionally left blank] |
| 7.4 | Purchase Right. |
| (A) | Stanford shall have the right, but not the obligation, to purchase for cash up to its Share of the securities issued in any Qualifying Offering on the terms, and subject to the conditions, set forth in this Section 7.4 and Section 7.5 (the “Purchase Right”). For purposes of this Section 7.4 and Section 7.5: |
| (1) | “Adjustment Event” means the final closing of the first Threshold Qualifying Offering occurring after the date of this Agreement. |
| (2) | “Board of Directors” means (i) if Aditxt is organized as a corporation, its board of directors, and (ii) if Aditxt is organized as a limited liability company, Aditxt manager(s) or member(s) or both that have the power to direct the principal management and activities of Aditxt, whether through ownership of voting securities, by agreement, or otherwise. |
| (3) | “Qualifying Offering” means a private offering of Aditxt’s equity securities (or securities convertible into or exercisable for Aditxt’s equity securities) for cash (or in satisfaction of debt issued for cash) having its final closing on or after the date of this Agreement and which includes investment by one or more venture capital, professional angel, corporate or other similar institutional investors other than Stanford. For the avoidance of doubt, if Aditxt is a limited liability company, then “equity securities” means limited liability company interests in Aditxt. |
| (4) | “Share” means: |
| (i) | 10% with respect to any Qualifying Offering having a closing on or before the date of an Adjustment Event; or |
| (ii) | with respect to any Qualifying Offering having a closing after an Adjustment Event, but before a Termination Event, the percentage necessary for Stanford to maintain its pro rata ownership interest in Aditxt on a Fully-Diluted Basis. |
| (5) | “Threshold Qualifying Offering” means any Qualifying Offering which either (i) is at least $2,500,000 in size or (ii) involves the sale to outside investors of at least 25% of the equity securities outstanding after such round on a Fully-Diluted Basis. |
| (6) | The parties shall construe the term “Fully-Diluted Basis” mutatis mutandis in the case where Aditxt is organized as a limited liability company. |
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| (B) | The Purchase Right shall terminate upon the earliest to occur of the following (each a “Termination Event”): |
| (1) | Stanford’s execution of an investor rights agreement or similar agreement (each a “Rights Agreement”) in connection with a Threshold Qualifying Offering so long the Rights Agreement satisfies the terms of this Section 7.4 and Section 7.5 below; |
| (2) | Stanford purchases less than its entire Share of a Qualifying Offering; |
| (3) | Stanford fails to give an election notice within the Notice Period for a Qualifying Offering which has its final closing within 90 days of the date such notice is received by Stanford and which is closed on terms that are the same or less favorable to the investors as the terms stated in Aditxt’s notice to Stanford; |
| (4) | The closing of a firm commitment underwritten public offering of Aditxt’s common stock; or |
| (5) | The closing of the sale of all or substantially all of Aditxt’s assets to a company publicly traded on one of the major recognized exchanges. |
| (C) | The Purchase Right shall not apply to the issuance of securities: (i) to employees, individuals who are members of Aditxt’s Board of Directors as of the time of issuance, and service providers to Aditxt pursuant to a plan approved by Aditxt’s Board of Directors; or (ii) as additional consideration in lending or leasing transactions; or (iii) to an entity pursuant to an arrangement that Aditxt’s Board of Directors determines in good faith is a strategic partnership or similar arrangement of Aditxt (i.e., an arrangement in which the entity’s purchase of securities is not primarily for the purpose of financing Aditxt); or (iv) to owners of another entity in connection with the acquisition of that entity by Aditxt. |
| (D) | For the avoidance of doubt: (i) any securities Stanford may acquire or have the right to acquire under Section 7.2 shall not reduce the number of securities Stanford may purchase under this Section 7.4 or under any applicable Rights Agreement; and (ii) Stanford shall not be obligated to purchase under this Section 7.4 any Aditxt securities it has the right to acquire under Section 7.2 above. |
| (E) | If Aditxt has entered into more than one Exclusive (Equity) Agreement or other agreement to license intellectual property from Stanford, and Stanford has fully exercised its right to purchase its Share in connection with a Qualifying Offering under any such agreement, Stanford will waive its right to purchase its Share in connection with a Qualifying Offering under all other applicable agreements. In the event that Stanford has not fully exercised its right to purchase its Share in connection with a Qualifying Offering under any agreement, then Stanford may only exercise its right to purchase under a single agreement, and will waive its right to purchase under all others. |
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| 7.5 | Rights Agreements; Information Rights; Notice; Elections. |
| (A) | Aditxt shall ensure that each Rights Agreement executed by Stanford in connection with a Qualifying Offering will grant to Stanford the same rights as all other investors who are parties to that Rights Agreement. In particular, Aditxt shall ensure that each such Rights Agreement will grant to Stanford the same right to purchase additional securities in future offerings, the same information rights, and the same registration rights as are granted to other parties thereto, including all such rights granted to any investor designated as a “Major Investor” or other similar designation, even if Stanford is not so designated. |
| (B) | Notwithstanding any terms to the contrary contained in any applicable Rights Agreement: |
(1) Stanford shall not have any representation on the Board of Directors or rights to attend meetings of the Board of Directors;
(2) In connection with all Qualifying Offerings, Aditxt shall give Stanford notice of the terms of the offering, including: (i) the names of the investors, the allocation of equity securities among them and the total amounts to be invested by each of them in such offering; (ii) pre- and post- (projected) financing capitalization table; (iii) investor presentation (if available); (iv) an introduction to the lead investor in such offering for the purpose of discussing the lead investor’s due diligence process; and (v) such other documents and information as Stanford may reasonably request for the purpose of making an investment decision or verifying the amount of equity securities it is entitled to purchase in such offering; and
(3) Stanford may elect to exercise its Purchase Right, in whole or in part, by notice given to Aditxt within 5 Stanford business days (i.e., days other than Saturdays, Sundays, and holidays or other days on which Stanford is officially closed) after receipt of Aditxt’s notice (“Notice Period”).
| (C) | If Stanford has no information rights under a Rights Agreement and to the extent that such information has been prepared by Aditxt for other purposes, so long as Stanford holds Aditxt securities, Aditxt shall furnish to Stanford, upon request and as promptly as reasonably practicable, Aditxt’s annual consolidated financial statements and annual operating plan, including an annual report of the holders of Aditxt’s securities, and such other information as Stanford may reasonably request from time to time for the purpose of valuing its interest in Aditxt. |
| (D) | Notwithstanding any notice provision in this Agreement to the contrary, any notice given under this Agreement that refers or relates to any of Section 7.4 above or this Section 7.5 shall be copied concurrently to pvfnotices@stanford.edu; provided, however, that delivery of the copy will not by itself constitute notice for any purpose under this Agreement. |
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| 7.6 | License Maintenance Fee. Beginning on the first anniversary of the Effective Date and each anniversary thereafter, Aditxt will pay Stanford a yearly license maintenance fee as follows: |
$40,000 / year in 2021, 2022, 2023 and 2024,
$60,000 / year starting in 2025 until the last Licensed Patent expires.
Yearly maintenance payments are nonrefundable, but they are creditable each year as described in Section 7.11.
| 7.7 | Milestone Payments. Aditxt will pay Stanford the following milestone payments: |
| (A) | $25,000 on the payment of a patent issue fee for a Licensed Patent after the Effective Date; |
| (B) | $50,000 on the first commercial sales of a Licensed Product (RUO kit or service); |
| (C) | $25,000 at the beginning of any clinical study for regulatory clearance of an in vitro diagnostic product developed as a potential Licensed Product. |
| 7.8 | Earned Royalty. In addition to the annual license maintenance fee, Aditxt will pay Stanford earned royalties on Net Sales as follows: |
4% of Net Sales for Net Sales less than or equal to $5M annually;
6% of Net Sales for Net Sales great than $5M annually.
| 7.9 | Earned Royalty if Aditxt Challenges the Patent. Notwithstanding the above, should Aditxt bring an action seeking to invalidate any Licensed Patent, Aditxt will pay royalties to Stanford at double the rates specified under Section 7.8 during the pendency of such action. Moreover, should the outcome of such action determine that any claim of a patent challenged by Aditxt is both valid and infringed by a Licensed Product, Aditxt will triple the rates specified under Section 7.8. |
| 7.10 | Obligation to Pay Royalties. A royalty is due Stanford under this Agreement for any activity conducted under the licenses granted. For convenience’s sake, the amount of that royalty is calculated using Net Sales. Nonetheless, if certain Licensed Products are made, used, imported, or offered for sale before the date this Agreement terminates or expires, and those Licensed Products are sold after the termination or expiration date, Aditxt and its sublicensees will pay Stanford an earned royalty for their exercise of rights based on the Net Sales of those Licensed Products. Upon expiration or termination of this agreement, Aditxt and its sublicensees will provide to Stanford an inventory listing of all Licensed Products on hand that were manufactured prior to the expiration or termination date, and such listing to be certified and signed by an officer of Aditxt. Aditxt and its sublicensees will be responsible for paying royalties on sales of such Licensed Products in accordance with Section 7.8 of this Agreement. |
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| 7.11 | Creditable Payments. The license maintenance fee paid in a calendar year may be offset against earned royalty payments due on Net Sales occurring in that year. |
For example:
| (A) | if Aditxt pays Stanford a $10 maintenance payment for year Y, and according to Section 7.8 $15 in earned royalties are due Stanford for Net Sales in year Y, Aditxt will only need to pay Stanford an additional $5 for that year’s earned royalties. |
| (B) | if Aditxt pays Stanford a $10 maintenance payment for year Y, and according to Section 7.8 $3 in earned royalties are due Stanford for Net Sales in year Y, Aditxt will not need to pay Stanford any earned royalty payment for that year. Aditxt will not be able to offset the remaining $7 against a future year’s earned royalties. |
| 7.12 | No Escrow. Aditxt shall not pay royalties into any escrow or other similar account. |
| 7.13 | Currency. Aditxt will calculate the royalty on sales in currencies other than U.S. Dollars using the appropriate foreign exchange rate for the currency quoted by the Wall Street Journal on the close of business on the last banking day of each calendar quarter. Aditxt will make royalty payments to Stanford in U.S. Dollars. |
| 7.14 | Non-U.S. Taxes. Aditxt will pay all non-U.S. taxes related to royalty payments. These payments are not deductible from any payments due to Stanford. |
| 7.15 | Interest. Any payments not made when due will bear interest at the lower of (a) the Prime Rate published in the Wall Street Journal plus 200 basis points or (b) the maximum rate permitted by law. |
| 8. | ROYALTY REPORTS, PAYMENTS, AND ACCOUNTING |
| 8.1 | Earned Royalty Payment and Report. Beginning with the first sale of a Licensed Product by Aditxt or a sublicensee, or with the first receipt of any Nonroyalty Sublicensing Consideration by Aditxt, Aditxt will submit to Stanford a written report, an earned royalty payment and/or Nonroyalty Sublicensing Consideration payment due Stanford within 30 days after each calendar period, where the period is initially on a per-year basis, and changes to a per-quarter basis when annual royalty payments to Stanford exceed $200,000. This report will be in the form of Appendix B and will state the number, description, and aggregate Net Sales of Licensed Product during the completed calendar time period and details about any Sublicenses. The report will include an overview of the process and documents relied upon to permit Stanford to understand how the earned royalties and Nonroyalty Sublicensing Consideration are calculated. With each report, Aditxt will include any earned royalty payment and Nonroyalty Sublicensing Consideration payment due Stanford for the completed time period (as calculated under Section 7.8 and Section 4.6). |
| 8.2 | No Refund. In the event that a validity or non-infringement challenge of a Licensed Patent brought by Aditxt is successful, Aditxt will have no right to recoup any royalties paid before or during the period challenge. |
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| 8.3 | Termination Report. Aditxt will pay to Stanford all applicable royalties and submit to Stanford a written report within 90 days after the license terminates or expires. Aditxt will continue to submit earned royalty payments and reports to Stanford after the license terminates or expires, until all Licensed Products made or imported under the license have been sold. |
| 8.4 | Accounting. Aditxt will maintain records showing manufacture, importation, sale, and use of a Licensed Product for 7 years from the date of sale of that Licensed Product. Records will include general-ledger records showing cash receipts and expenses, and records that include: production records, customers, invoices, serial numbers, and related information in sufficient detail to enable Stanford to determine the royalties payable under this Agreement. |
| 8.5 | Audit by Stanford. Aditxt will allow Stanford to appoint a mutually agreed upon third party to examine Aditxt’s records to verify payments made by Aditxt under this Agreement. |
| 8.6 | Paying for Audit. Stanford will pay for any audit done under Section 8.5. But if the audit reveals an underreporting of earned royalties due Stanford of 5% or more for the period being audited, Aditxt will pay the audit costs. |
| 9. | EXCLUSIONS AND NEGATION OF WARRANTIES |
| 9.1 | Negation of Warranties. Stanford provides Aditxt the rights granted in this Agreement AS IS and WITH ALL FAULTS. Stanford makes no representations and extends no warranties of any kind, either express or implied. Among other things, Stanford disclaims any express or implied warranty: |
| (A) | of merchantability, of fitness for a particular purpose; |
| (B) | of non-infringement; or |
| (C) | arising out of any course of dealing. |
| 9.2 | No Representation of Licensed Patent. Aditxt also acknowledges that Stanford does not represent or warrant: |
| (A) | the validity or scope of any Licensed Patent; or |
| (B) | that the exploitation of Licensed Patent will be successful. |
| 10. | INDEMNITY |
| 10.1 | Indemnification. Aditxt will indemnify, hold harmless, and defend all Stanford Indemnitees against any claim of any kind arising out of or related to the exercise of any rights granted Aditxt under this Agreement or the breach of this Agreement by Aditxt. |
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| 10.2 | No Indirect Liability. Stanford is not liable for any special, consequential, lost profit, expectation, punitive or other indirect damages in connection with any claim arising out of or related to this Agreement, whether grounded in tort (including negligence), strict liability, contract, or otherwise. |
| 10.3 | Workers’ Compensation. Aditxt will comply with all statutory workers’ compensation and employers’ liability requirements for activities performed under this Agreement. |
| 10.4 | Insurance. During the term of this Agreement, Aditxt will maintain Commercial General Liability Insurance with a reputable and financially secure insurance carrier to cover the activities of Aditxt and its affiliates and sublicensees. The insurance will provide minimum limits of liability of $2,000,000 per occurrence and will include all Stanford Indemnitees as additional insureds. Prior to any use of a Licensed Product in or for humans, the insurance coverage will be increased to provide minimum limits of liability of $5,000,000 per occurrence. Prior to any clinical trial using the Licensed Product, the insurance will include Clinical Trial Insurance in addition to the increased minimum limits of liability of $5M per occurrence. Prior to any offering for sale of Licensed Product by Aditxt, or its affiliates or sublicensees, the insurance will include Product Liability Insurance, and will have minimum limits of liability of $5,000,000 per occurrence. Insurance must cover claims incurred, discovered, manifested, or made during or after the expiration of this Agreement and must be placed with carriers with ratings of at least A- as rated by A.M. Best. Within 15 days of the Effective Date of this Agreement, and for each instance in which the coverage is changed as per the requirements above, Aditxt will furnish a Certificate of Insurance evidencing primary coverage and additional insured requirements. Aditxt will provide to Stanford 30 days prior written notice of cancellation or material change to this insurance coverage. Aditxt will advise Stanford in writing that it maintains a combination of excess liability coverage (following form) over primary insurance for at least the minimum limits set forth above. All insurance of Aditxt will be primary coverage; insurance of Stanford Indemnitees will be excess and noncontributory. |
| 11. | EXPORT |
Aditxt and its sublicensees will comply with all applicable United States laws and regulations controlling the export of licensed commodities and technical data relating to this Agreement. (For the purpose of this paragraph, “licensed commodities” means any article, material or supply but does not include information; and “technical data” means tangible or intangible technical information that is subject to U.S. export regulations, including blueprints, plans, diagrams, models, formulae, tables, engineering designs and specifications, manuals and instructions.) These laws and regulations may include, but are not limited to, the Export Administration Regulations (15 CFR 730-774), the International Traffic in Arms Regulations (22 CFR 120-130) and the various economic sanctions regulations administered by the U.S. Department of the Treasury (31 CFR 500-600).
Among other things, these laws and regulations may prohibit or require a license for the export or retransfer of certain commodities and technical data to specified countries, entities and persons. Aditxt hereby gives written assurance that it will comply with, and will cause its sublicensees to comply with all United States export control laws and regulations, that it understands it may be held responsible for any violation of such laws and regulations by itself or its sublicensees, and that it will indemnify, defend and hold Stanford harmless for the consequences of any such violation.
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| 12. | MARKING |
Before any Licensed Patent issues, Aditxt will mark Licensed Product with the words “Patent Pending.” Otherwise, Aditxt will mark Licensed Product with the number of any issued Licensed Patent.
| 13. | STANFORD NAMES AND MARKS |
Aditxt will not use (i) Stanford’s name or other trademarks, (ii) the name or trademarks of any organization related to Stanford, or (iii) the name of any Stanford faculty member, employee, student or volunteer. This prohibition includes, but is not limited to, use in press releases, advertising, marketing materials, other promotional materials, presentations, case studies, reports, websites, application or software interfaces, and other electronic media. Notwithstanding the foregoing, Aditxt may include Stanford’s name in factual statements in legal proceedings, patent applications and other regulatory filings. In addition, Aditxt may make a short factual statement that identifies Stanford as the licensor of the rights granted under this Agreement to actual or potential investors or acquirers, as well as in the “About Aditxt” or other similar section of the Aditxt website.
| 14. | PROSECUTION AND PROTECTION OF PATENTS |
| 14.1 | Patent Prosecution. |
| (A) | Stanford will be responsible for preparing, filing, prosecuting and maintaining the Licensed Patents. As long as Aditxt is current on all payments due under this Agreement, Stanford agrees to (i) instruct Stanford’s patent counsel to furnish to Aditxt copies of material documents relevant to such filing and prosecution prior to any deadlines, and (ii) allow Aditxt a reasonable opportunity to comment on material documents filed with any patent office with respect to the Licensed Patents. |
| (B) | In the event Aditxt decides that it no longer intends to pay for filing, prosecution, or maintenance of one or more Licensed Patents, Aditxt shall give Stanford written notice at least three (3) months in advance of any applicable deadline for that Licensed Patent. Stanford may in its discretion continue to prosecute and maintain such Licensed Patent(s) at its expense, in which case such Licensed Patent(s) will no longer be covered by the license granted under this Agreement and Aditxt will have no further obligation regarding patent expenses for such Licensed Patent(s). |
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| 14.2 | Patent Costs. Within 30 days after receiving a statement from Stanford, Aditxt will reimburse Stanford: |
| (A) | $22,635.02 to offset Licensed Patent’s patenting expenses, including but not limited to interference or reexamination matters, inventorship disputes and opposition proceedings incurred by Stanford before the Effective Date; and |
| (B) | for all Licensed Patent’s patenting expenses, including but not limited to interference or reexamination matters, inventorship disputes and opposition proceedings incurred by Stanford after the Effective Date. Stanford will pay the fees prescribed for large/small entities to the United States Patent and Trademark Office. If Aditxt requests that Stanford pay fees prescribed for a small entity, then Aditxt will bear all responsibility for notifying Stanford if its status changes to large entity. Aditxt is herein notified that the determination of entity size for the United States Patent and Trademark Office are set forth by the US federal government as defined in 15 U.S.C. §632 (13 CFR 121.801 through 121.805). |
| 14.3 | Infringement Procedure. Each party will promptly notify the other if it believes a third party infringes a Licensed Patent or if a third party files a declaratory judgment action with respect to any Licensed Patent. During the Exclusive term of this Agreement and if Aditxt is diligently developing Licensed Product, Aditxt may have the right to institute a suit against or defend any declaratory judgment action initiated by this third party, but only within fields of use where this Agreement is Exclusive, as provided in Section 14.4 through and including Section 14.8. |
| 14.4 | Aditxt Suit. Aditxt has the first right to institute and prosecute a suit or defend any declaratory judgment action, but only within fields of use where this Agreement is Exclusive. Aditxt agrees to use reasonable efforts to settle with the third party without litigation. If reasonable efforts are unsuccessful and Aditxt: |
| (A) | provides claim chart evidence of the infringement to Stanford, and |
| (B) | is diligently developing, offering for sale, or selling Licensed Product. |
then Aditxt may institute and prosecute a suit or defend any declaratory judgment action so long as it conforms with the requirements of this Section. If Aditxt decides to institute suit, it will notify Stanford in writing and give Stanford the opportunity to institute suit jointly as provided in Section 14.5. Aditxt will diligently pursue the suit to the extent that and for so long as doing so is in its commercial interests, which shall be determined by Aditxt in its sole judgment, and Aditxt will bear the entire cost of the litigation, including expenses and counsel fees incurred by Stanford. Aditxt will keep Stanford reasonably apprised of all developments in the suit and will make a good faith effort to incorporate Stanford’s input on any substantive submissions or positions taken in the litigation regarding the scope, validity and enforceability of the Licensed Patent. Aditxt will not initiate, prosecute, settle or otherwise compromise any such suit in a manner that adversely affects Stanford’s interests without Stanford’s prior written consent. Stanford may be named as a party only if:
| (C) | Aditxt’s and Stanford’s respective counsel recommend that such action is necessary in their reasonable opinion to achieve standing; |
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| (D) | Stanford is not the first named party in the action; and |
| (E) | the pleadings and any public statements about the action state that Aditxt is pursuing the action and that Aditxt has the right to join Stanford as a party. |
| 14.5 | Joint Suit. If Stanford and Aditxt so agree, they may institute suit or defend the declaratory judgment action jointly. If so, they will: |
| (A) | prosecute the suit in both their names; |
| (B) | bear the out-of-pocket costs equally; |
| (C) | share any recovery or settlement equally; and |
| (D) | agree how they will exercise control over the action. |
| 14.6 | Stanford Suit. If neither Section 14.4 nor 14.5 apply, Stanford has the right to institute and prosecute a suit or defend any declaratory judgment action, and may name Aditxt as a party for standing purposes. If Stanford decides to institute suit, it will notify Aditxt in writing. If Aditxt does not notify Stanford in writing that it desires to jointly prosecute the suit within 15 days after the date of the notice, Aditxt will assign and hereby does assign to Stanford all rights, causes of action, and damages resulting from the alleged infringement. Stanford will bear the entire cost of the litigation and will retain the entire amount of any recovery or settlement. |
| 14.7 | Recovery. Any recovery or settlement received in connection with any suit will first be shared by Stanford and Aditxt equally to cover the litigation costs each incurred, and next shall be paid to Stanford or Aditxt to cover any litigation costs it incurred in excess of the litigation costs of the other. In any suit initiated by Aditxt, any recovery in excess of litigation costs will be shared between Aditxt and Stanford as follows: (i) for any recovery other than amounts paid for willful infringement: (A) Stanford will receive fifteen percent (15%) of the recovery if Stanford was not a party in the litigation; (B) Stanford will receive twenty-five percent (25%) of the recovery if Stanford was a party in the litigation, or (C) Stanford will receive fifty percent (50%) of the recovery if Stanford incurred any litigation costs in connection with the litigation; and (ii) for any recovery for willful infringement, Stanford will receive fifty percent (50%) of the recovery; and all other amounts shall be retained by Aditxt. In any suit initiated by Stanford, any recovery in excess of litigation costs will belong to Stanford. Stanford and Aditxt agree to be bound by all determinations of patent infringement, validity, and enforceability (but no other issue) resolved by any adjudicated judgment in a suit brought in compliance with this Section 14. |
| 14.8 | Abandonment of Suit. If either Stanford or Aditxt commences a suit and then wants to abandon the suit, it will give timely notice to the other party. The other party may continue prosecution of the suit after Stanford and Aditxt agree on the sharing of expenses and any recovery in the suit. |
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| 15. | TERMINATION |
| 15.1 | Termination by Aditxt. Aditxt may terminate this Agreement by giving Stanford written notice at least 30 days in advance of the effective date of termination selected by Aditxt. |
| 15.2 | Termination by Stanford. |
| (A) | Stanford may also terminate this Agreement if Aditxt: |
| (1) | is delinquent on any report or payment; |
| (2) | is not diligently developing and commercializing Licensed Product; |
| (3) | misses a milestone described in Appendix A; |
| (4) | is in breach of any provision; or |
| (5) | provides any false report. |
| (B) | Termination under this Section 15.2 will take effect 30 days after written notice by Stanford unless Aditxt remedies the problem in that 30-day period. To be clear, Aditxt will not be considered to be in breach absent its receipt of written notice by Stanford. |
| 15.3 | Surviving Provisions. Surviving any termination or expiration are: |
| (A) | Aditxt’s obligation to make all payments, accrued or accruable, including but not limited to fees, royalties and patent costs; |
| (B) | any claim of Aditxt or Stanford, accrued or to accrue, because of any breach or default by the other party; and |
| (C) | the provisions of Sections 8, 9, and 10 and any other provision that by its nature is intended to survive. |
| 16. | CHANGE OF CONTROL, ASSIGNMENT AND NON-ASSIGNABILITY |
| 16.1 | Change of Control. If there is a Change of Control or if this Agreement is assigned to a third party, Aditxt will pay Stanford a $200,000 (“Change of Control/Assignment Fee”) per Section 16.2. |
| 16.2 | Conditions of Assignment. Aditxt may assign this Agreement upon prior and complete performance of the following conditions: |
| (A) | Aditxt must give Stanford written notice of the assignment within 5 business days, including the new assignee’s contact information; and |
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| (B) | the new assignee must agree in writing to Stanford to be bound by this Agreement; and |
| (C) | Stanford must have received the full Change of Control/Assignment Fee. |
| 16.3 | After the Assignment. Upon a permitted assignment of this Agreement pursuant to Section 16, Aditxt will be released of liability under this Agreement and the term “Aditxt” in this Agreement will mean the assignee. |
| 16.4 | Bankruptcy. In the event of a bankruptcy or insolvency, assignment is permitted only to a party that can provide adequate assurance of future performance, including diligent development and sales of Licensed Product. |
| 16.5 | Nonassignability of Agreement. Except in conformity with Section 16.2 and Section 16.4, this Agreement is not assignable by Aditxt under any other circumstances and any attempt to assign this Agreement by Aditxt is null and void. |
| 17. | DISPUTE RESOLUTION |
| 17.1 | Dispute Resolution by Arbitration. Any dispute between the parties regarding any payments made or due under this Agreement will be settled by arbitration in accordance with the JAMS Arbitration Rules and Procedures, provided that in the case of a good faith dispute as to the amount due, the cure period under Section 15.2 will be tolled until the amount due has been finally determined in such an arbitration. The parties are not obligated to settle any other dispute that may arise under this Agreement by arbitration. |
| 17.2 | Request for Arbitration. Either party may request such arbitration. Stanford and Aditxt will mutually agree in writing on a third-party arbitrator within 30 days of the arbitration request. The arbitrator’s decision will be final and nonappealable and may be entered in any court having jurisdiction. |
| 17.3 | Discovery. The parties will be entitled to discovery as if the arbitration were a civil suit in the California Superior Court. The arbitrator may limit the scope, time, and issues involved in discovery. |
| 17.4 | Place of Arbitration. The arbitration will be held in Stanford, California unless the parties mutually agree in writing to another place. |
| 17.5 | Patent Validity. Any dispute regarding the validity of any Licensed Patent shall be litigated in the courts located in Santa Clara County, California, and the parties agree not to challenge personal jurisdiction in that forum. |
| 18. | NOTICES |
| 18.1 | Legal Action. Aditxt will provide written notice to Stanford at least three months prior to bringing an action seeking to invalidate any Licensed Patent or a declaration of non-infringement. Aditxt will include with such written notice an identification of all prior art it believes invalidates any claim of the Licensed Patent. |
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| 18.2 | All Notices. All notices under this Agreement are deemed fully given when written, addressed, and sent as follows: |
All general notices to Aditxt are mailed or emailed to:
| Name: | Amro Albanna | ||
| 11161 Anderson Street, Suite 105- | |||
| Address: | 10014 | ||
| Loma Linda, CA 92354 | |||
| Email: | aalbanna@aditxt.com |
All financial invoices to Aditxt (i.e., accounting contact) are e-mailed to:
| Name: | Accounts payable | ||
| Email: | accounting@aditxt.com |
All patent prosecution related notices are e-mailed to both addresses below:
| Name: | Patent Notices | ||
| Email: | patentinfo@aditxt.com | ||
| Name: | Seed IP | ||
| Email: | patentinfo@SeedIP.com | ||
All general notices to Stanford are e-mailed or mailed to:
Office of Technology Licensing
415 Broadway Street
2nd Floor, MC 8854
Redwood City, CA 94063
info@otlmail.stanford.edu
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All payments to Stanford are mailed to:
Stanford University
Office of Technology Licensing
Department #44439
P.O. Box 44000
San Francisco, CA 94144-4439
All progress reports to Stanford are e-mailed or mailed to:
Office of Technology Licensing
415 Broadway Street
2nd Floor, MC 8854
Redwood City, CA 94063
info@otlmail.stanford.edu
Any notice related to Section 7.4 or Section 7.5 (Stanford Purchase Rights) shall be copied concurrently to pvfnotices@stanford.edu.
Either party may change its address with written notice to the other party.
| 19. | MISCELLANEOUS |
| 19.1 | Waiver. No term of this Agreement can be waived except by the written consent of the party waiving compliance. |
| 19.2 | Choice of Law. This Agreement and any dispute arising under it is governed by the laws of the State of California, United States of America, applicable to agreements negotiated, executed, and performed within California. |
| 19.3 | Entire Agreement. The parties have read this Agreement and agree to be bound by its terms, and further agree that it constitutes the complete and entire agreement of the parties and supersedes all previous communications, oral or written, and all other communications between them relating to the license and to the subject hereof. The parties agree that this Agreement supersedes all previous and future purchase orders. This Agreement may not be amended except by writing executed by authorized representatives of both parties. No representations or statements of any kind made by either party, which are not expressly stated herein, will be binding on such party. |
| 19.4 | Exclusive Forum. The state and federal courts having jurisdiction over Stanford, California, United States of America, provide the exclusive forum for any court action between the parties relating to this Agreement. Aditxt submits to the jurisdiction of such courts, and waives any claim that such a court lacks jurisdiction over Aditxt or constitutes an inconvenient or improper forum. |
| 19.5 | Headings. No headings in this Agreement affect its interpretation. |
Page 20 of 23
| 19.6 | Electronic Copy. The parties to this document agree that a copy of the original signature (including an electronic copy) may be used for any and all purposes for which the original signature may have been used. The parties further waive any right to challenge the admissibility or authenticity of this document in a court of law based solely on the absence of an original signature. |
The parties execute this Agreement in duplicate originals by their duly authorized officers or representatives.
| THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY | |||
| Signature: | /s/ Mona Wan (Feb 3, 2020) | ||
| Name: | Mona Wan | ||
| Title: | Associate Director | ||
| Date: | Feb 3, 2020 |
| ADITX THERAPEUTICS, INC. | |||
| Signature: | /s/ Amro Albanna (Feb 3, 2020) | ||
| Name: | Amro Albanna | ||
| Title: | CEO | ||
| Date: | Feb 3, 2020 |
Page 21 of 23
Appendix A - Milestones
| 1. | Aditxt has already provided Stanford a preliminary business plan. By June 30, 2020, Aditxt will provide Stanford a detailed document covering Aditxt’s plans as to projected product development, markets and sales forecasts, manufacturing and operations, and financial forecasts until at least $10,000,000 (“Business Plan”). Stanford will treat this Business Plan as confidential information and to protect it as Stanford would its own confidential information. |
| 2. | By March 31, 2020, Aditxt will provide to Stanford a listing of the management team or a schedule for the recruitment of key management positions. |
| 3. | By September 30, 2020, Aditxt will conduct validation studies. |
| 4. | By September 30, 2020, Aditxt will hold a pre-submission meeting with FDA. |
| 5. | By December 31, 2020, Aditxt will submit a 510(k) application to FDA. |
| 6. | By December 31, 2021, Aditxt will obtain FDA approval. |
| 7. | By December 31, 2021, Aditxt will complete a prototype assay kit. |
| 8. | By December 31, 2021 Aditxt and Stanford will agree on further development and commercialization milestones for specific fields of use in writing. |
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Appendix B - Sample Reporting Form
Stanford Docket No. SXX-YYY
This report is provided pursuant to the license agreement between Stanford University and (Aditxt Name)
License Agreement Effective Date:
Name(s) of Licensed Products being reported:
| Report Covering Period | ||||
| Yearly Maintenance Fee | $ | |||
| Number of Sublicenses Executed | ||||
| Gross Revenue | ||||
| U.S. Gross Revenue | $ | |||
| Non-U.S. Gross Revenue | $ | |||
| Net Sales | ||||
| U.S. Net Sales | $ | |||
| Non-U.S. Net Sales | $ | |||
| Royalty Calculation | ||||
| Royalty Subtotal | $ | |||
| Credit | $ | |||
| Royalty Due | $ | |||
Name(s) of Sublicenses being reported:
Calculation of Nonroyalty Sublicensing Consideration:
Comments:
Page 23 of 23
Exhibit 10.5
PATENT & TECHNOLOGY LICENSE AGREEMENT
This Patent and Technology License Agreement (“Agreement”) is effective on March 15, 2018 (the “Effective Date”) and is entered by and between Loma Linda University (“LLU”), a California Religious Institution, whose address is 24887 Taylor Street, Suite 201, Loma Linda, California 92354, and ADiTx Therapeutics, Inc., a Delaware C Corporation, with its principal place of business at 11161 Anderson St., Suite 105-10014, Loma Linda, CA 92354 (“Licensee”) (collectively, “Parties”, or singly, “Party”).
No binding agreement between the Parties will exist until this Agreement has been signed by both Parties. Unsigned drafts of the Agreement shall not be considered offers.
Background
LLU owns Licensed Subject Matter (defined below). LLU has determined that development and commercialization of the Licensed Subject Matter is in the public’s best interest and is consistent with LLU’s educational and research missions and goals. LLU desires to have the Licensed Subject Matter developed and commercialized for the benefit of Licensee, the Inventors, LLU and the public.
WHEREAS, the Licensed Subject Matter was licensed to Sekris Biomedical Corporation (“Sekris”) under the Patent & Technology License Agreement (the “Prior Agreement”) between Sekris and LLU effective May 25, 2011, the First Amendment to the Prior Agreement effective June 24, 2011, the Second Amendment to the Prior Agreement effective July 16, 2012, the Third Amendment to the Prior Agreement effective December 27, 2012 (collectively “Amendments to the Prior Agreement”);
WHEREAS, Sekris assigned to Licensee on March 8, 2018 all rights and interests pursuant to Section 12.2 of the Prior Agreement and Amendments to the Prior Agreement; and
WHEREAS, Licensee desires to amend and restate the license from LLU to practice the Licensed Subject Matter, which license will supersede any prior agreement entered between LLU and Licensee, and the Prior Agreement and Amendments to the Prior Agreement between LLU and Sekris, as provided herein.
NOW, THEREFORE, for and in consideration of mutual covenants and agreements contained herein, and the other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
| 1. | Definitions: When capitalized, the following terms will have the following meanings: |
“Affiliate” means any business entity more than fifty percent (50%) owned by Licensee, any business entity which owns more than fifty percent (50%) of Licensee, or any business entity that is more than 50% owned by a business entity that owns more than fifty percent (50%) of Licensee.
“Contract Quarter” means the three-month periods ending on March 31, June 30, September 30 and December 31, or any stub period thereof at the commencement of this Agreement or the expiration or termination of this Agreement.
“Contract Year” means the 12-month period ending on December 31, or any stub period thereof at the commencement of this Agreement or the expiration or termination of this Agreement.
“FDA” means United States Food and Drug Administration.
“Field” means research and clinical use for all uses.
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“Government” means any branch, department, agency, or other unit of the United States of America or the State of California.
“Gross Consideration” means all cash and non-cash consideration (e.g., securities).
“Inventors” (or singly, “Inventor”) means the individuals listed on Exhibit A.
“Licensed Process” means a method or process whose practice or use is covered by a Valid Claim and/or incorporates or uses Patent Rights or Technology Rights.
“Licensed Product” means any product or component (a) the manufacture, use, sale, offer for sale or import of which is covered by a Valid Claim, and/or incorporates or uses any Patent Rights or Technology Rights, or (b) which is made using a Licensed Process.
“Licensed Service” means performance of a service using a Licensed Product, or the practice of a Licensed Process. For clarity, non-profit research and development of Licensed Products by Licensee, its Affiliates, or Sublicensees do not constitute a Licensed Service.
“Licensed Subject Matter” means Patent Rights and/or Technology Rights.
“Milestone Fees” means all fees identified as Milestone Fees in Section 3.1(c).
“Net Product Sales” means the Gross Consideration from the Sale of Licensed Products less the following items directly attributable to the Sale of such Licensed Products that are specifically identified on the invoice for such Sale and borne by the Licensee, Affiliates, or Sublicensees as the seller: (a) discounts and rebates actually granted; (b) sales, value added, use and other taxes and government charges actually paid, excluding income taxes; (c) import and export duties actually paid; (d) freight, transport, packing and transit insurance charges actually paid or allowed; and (e) other amounts actually refunded, allowed or credited due to rejections or returns, but not exceeding the original invoiced amount. Net Product Sales exclude a reasonable quantity used internally by Licensor, its Affiliates or Sublicensees solely for testing or quality control purposes, marketing or demonstration purposes, or seeking governmental approval (e.g., FDA clinical trials).
“Net Service Sales” means the Gross Consideration received from the Sale of Licensed Services less the following items, directly attributable to the Sale of such Licensed Services that are specifically identified on the invoice for such Sale and borne by the Licensee, Affiliates, or Sublicensees as the seller: (a) discounts and rebates actually granted; (b) sales, value added, use and other taxes and government charges actually paid, excluding income taxes; and (c) other amounts actually refunded, allowed or credited due to rejections or re-works, but not exceeding the original invoiced amount.
“Non-Royalty Sublicensing Consideration” means the Gross Consideration received by the Licensee or its Affiliate from a Sublicensee in consideration of the grant of a sublicense under the Licensed Subject Matter (including, without limitation, license or option or distribution fees, fees to maintain license rights, and bonus/milestone payments), but excluding amounts received as running royalties or other revenue sharing based on Net Product Sales or Net Service Sales for which LLU receives a running royalty under Section 3.2. For the avoidance of doubt, Non-Royalty Sublicensing Consideration shall not include bona fide: (a) running royalties received by Licensee or an Affiliate based on Net Product Sales or Net Service Sales that are royalty-bearing to LLU under Section 3.2, (b) purchase price for Licensee’s stock or other securities not in excess of fair market value, and (c) amounts paid and used exclusively for research and development of Licensed Products or Licensed Services by Licensee.
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“Patent Rights” means the LLU’s rights in: (a) the patents and patent applications listed in Exhibit A to this Agreement; (b) all non-provisional patent applications that claim priority to any of the provisional applications listed in Exhibit A provided that the claims of such non-provisional applications are entitled to claim priority to such provisional applications; (c) all divisionals, continuations and continuations-in-part of the non-provisional patent applications identified in (a) and (b), above provided that the claims of such continuations-in-part are entitled to claim priority to at least one of the patent applications identified in (a) or (b), above; (d) all reissues, reexaminations, extensions, and foreign counterparts of any of the patents or patent applications identified in (a), (b) or (c), above; and (e) any patents that issue with respect to any of the patent applications listed in (a), (b), (c) or (d), above.
“Prosecution Counsel” means the law firm or attorney who is handling the prosecution of the Patent Rights. U.S. Prosecution Counsel as of the Effective Date is identified in Exhibit A to this Agreement.
“Quarterly Payment Deadline” means the day that is thirty (30) days after the last day of any particular Contract Quarter.
“Regulatory Approval” means the approval by the Regulatory Authority needed for a particular national jurisdiction to market, Sell and use a Licensed Product or Licensed Service in that national jurisdiction.
“Regulatory Authority” means the governmental authority responsible for granting any necessary licenses or approvals for the marketing, Sale and use of a Licensed Product or Licensed Service in a particular national jurisdiction, including without limitation, the FDA, European Medicines Agency or Koseisho (i.e. the Japanese Ministry of Health and Welfare).
“Sell, Sale or Sold” means any transfer or other disposition of Licensed Products or Licensed Services for which consideration is received by Licensee, its Affiliates or Sublicensees. A Sale of Licensed Products or Licensed Services will be deemed completed at the time Licensee or its Affiliate or its Sublicensee receives such consideration.
“Sublicense Agreement” means any agreement or arrangement pursuant to which Licensee (or an Affiliate or Sublicensee) grants to any third party any of the license rights granted to the Licensee under this Agreement.
“Sublicense Fees” means the fees specified in Section 3.1(d).
“Sublicensee” means any entity to whom an express sublicense has been granted under the Patent Rights and/or Technology Rights. For clarity, a third party wholesaler or distributor who has no significant responsibility for marketing and promotion of the Licensed Product or Licensed Services within its distribution territory or field (i.e., the third party simply functions as a reseller), and who does not pay any consideration to Licensee or an Affiliate for such wholesale or distributor rights, shall not be deemed a Sublicensee and the resale by such a wholesaler or distributor shall not be treated as royalty bearing Net Sales by a Sublicensee, provided that a royalty is being paid by Licensee for the initial transfer to the wholesaler or distributor pursuant to Section 3.2. This definition does not limit Licensee’s rights to grant or authorize sublicenses under this Agreement.
“Technology Rights” means LLU’s rights in technical information, know-how, processes, procedures, compositions, devices, methods, formulas, protocols, techniques, designs, drawings or data created before the Effective Date by Inventors while employed at LLU and within the Field which are not covered by a Valid Claim but which are necessary for practicing inventions claimed in patents and/or patent applications listed in the definition of Patent Rights.
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“Territory” means worldwide.
“Valid Claim” means a claim of (a) an issued and unexpired patent included within the Patent Rights unless the claim has been held unenforceable or invalid by the final, un-reversed, and un-appealable decision of a court or other governmental body of competent jurisdiction, has been irretrievably abandoned or disclaimed, or has otherwise been finally admitted or finally determined by the relevant governmental authority to be invalid, un-patentable or unenforceable, whether through reissue, reexamination, disclaimer or otherwise, or (b) a pending patent application within the Patent Rights to the extent the claim continues to be prosecuted in good faith.
| 2. | License Grant and Commercialization |
| 2.1 | Grant |
| (a) | LLU grants to Licensee a royalty-bearing exclusive license under Patent Rights to manufacture, have manufactured, use, offer for Sale, Sell and/or import Licensed Products in the Field in the Territory and to perform Licensed Services in the Field in the Territory. |
| (b) | LLU grants to Licensee a royalty-bearing exclusive license under Technology Rights to manufacture, have manufactured, use, offer for Sale, Sell and/or import Licensed Products in the Field in the Territory and to perform Licensed Services in the Field in the Territory. |
| (c) | This grant is subject to (i) the payment by Licensee to LLU of all consideration required under this Agreement, (ii) any rights of, or obligations to, the Government as set forth in Section 11.2 (Government Rights), and (iii) rights retained by LLU to: |
| (1) | Publish the scientific findings from research related to the Patent Rights; and |
| (2) | Use the Licensed Subject Matter for teaching, research, education, and other educationally-related purposes; and |
| (3) | Grant rights to, and transfer material embodiments of, the Licensed Subject Matter to other academic institutions or non-profit research institutions for the purposes identified in Sections 2.1(c)(1) and 2.1(c)(2)(b), above. |
| (d) | LLU reserves all rights not expressly granted in this Agreement and disclaims the grant of any implied rights to Licensee. |
| 2.2 | Affiliates |
Licensee may extend the license granted herein to any Affiliate provided that the Affiliate agrees in writing to be bound by this Agreement to the same extent as Licensee. For the sake of clarity, any specific reference to “Licensee” in any provision of this Agreement shall include such Affiliate regardless of whether a specific reference to an “Affiliate” is made in such provision. Licensee shall deliver such Affiliate’s written agreement to LLU within thirty (30) calendar days following execution.
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| 2.3 | Sublicensing |
Licensee has the right to grant Sublicense Agreements under the Licensed Subject Matter consistent with the terms of this Agreement, subject to the following:
| (a) | A Sublicense Agreement shall not exceed the scope and rights granted to Licensee hereunder. Sublicensee must agree in writing to be bound by the applicable terms and conditions of this Agreement and shall agree that LLU is a third party beneficiary of the Sublicense Agreement. In the event of termination of this Agreement, continued sublicense rights shall be governed by Section 7.5(a). Licensee may grant a Sublicensee the right to grant further sub-Sublicense Agreements consistent with this Agreement, in which case such sub-Sublicense Agreements shall be treated as “Sublicense Agreements” and such sub-Sublicensees shall be treated as “Sublicensees” for purposes of this Agreement. |
| (b) | Licensee shall deliver to LLU a true, complete, and correct copy of each Sublicense Agreement granted by Licensee, Affiliate or Sublicensee, and any modification or termination thereof, within thirty (30) days following the applicable execution, modification, or termination of such Sublicense Agreement. If the Sublicense Agreement is not in English, Licensee shall provide LLU an accurate English translation in addition to a copy of the original agreement. |
| (c) | Notwithstanding any such Sublicense Agreement, Licensee will remain primarily liable to LLU for all of the Licensee’s duties and obligations contained in this Agreement, including without limitation the payment of running royalties due under Section 3.2 whether or not paid to Licensee by a Sublicensee. Any act or omission of a Sublicensee that would be a breach of this Agreement if performed by Licensee will be deemed to be a breach by Licensee, provided that, if Licensee cures Sublicensee’s breach within ninety (90) days of Sublicensee’s breach, then the Sublicensee’s breach will be considered cured and no longer considered a breach. Each Sublicense Agreement will contain a right of termination by Licensee in the event that the Sublicensee breaches the payment or reporting obligations affecting LLU or any other terms and conditions of the Sublicense Agreement that would constitute a breach of this Agreement if such acts were performed by Licensee. |
| 2.4 | Diligent Commercialization |
Licensee by itself or through its Affiliates and Sublicensees will use diligent efforts to make Licensed Products and/or Licensed Services (as applicable) commercially available in the Field within the Territory. Without limiting the foregoing, Licensee will:
| (a) | maintain a bona fide, funded, ongoing and active research, development, manufacturing, regulatory, marketing or sales program (all as commercially reasonable) to make License Products and/or Licensed Services commercially available in the Field to the public as soon as commercially practicable within the Territory, and |
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| (b) | achieve the following Diligence Milestone events by the deadlines indicated: |
| Diligence Milestone Events | Deadlines | |
| Completion of financing round | July 31, 2018 | |
| Regulatory approval of IND application to initiate first-in-human clinical trials | March 31, 2020 | |
| Completion of first-in-human (phase I/II) clinical trials | March 31, 2022 | |
| Completion of Phase III clinical trials | March 31, 2024 | |
| Biologic Licensing Approval by FDA | March 31, 2025 |
| (c) | If the obligations under Sections 2.4 (a) and 2.4(b) are not fulfilled, LLU may treat such failure as a breach in accordance with Section 7.3(b). |
| (d) | Licensee may extend any of the deadlines for achieving the Diligence Milestones set forth in Section 2.4(b) above, up to a maximum of three (3) times, upon written notice to LLU requesting an extension and full payment of the Extension Fee, as defined below prior to expiration of the deadline. For purposes of this Agreement, the term “Extension Fee” shall mean one hundred thousand dollars ($100,000) for each extension request. Upon payment of each Extension Fee with respect to any of the Diligence Milestones, an additional year will be added to the time for completion of such Diligence Milestone and all other as yet unmet Diligence Milestones. It is understood and agreed that time is of the essence with respect to payment of the Extension Fee, and failure to timely pay an Extension Fee shall not be subject to any cure period. |
| 3. | Compensation |
In consideration of rights granted to Licensee, Licensee will pay LLU the following fees and royalties. All fees and royalties are not refundable and are not creditable against other fees and royalties. Payments shall be made as specified in Section 18.2.
| 3.1 | Non-Royalty Payments due from Licensee |
| (a) | Patent Expenses. Licensee will pay all Patent Expenses in accordance with Article 6. |
| (b) | Scheduled License Fees. Licensee will pay license fees in the following amounts and in accordance with the following schedule. |
| (i) | Upfront License Fee: Licensee shall pay an Upfront License Fee of twenty five thousand dollars ($25,000) due (without invoice) within thirty (30) days of either the Effective Date or the date this Agreement has been fully executed by all Parties, whichever is later (“Upfront License Fee”). Licensee’s obligations to pay all future patent expenses pursuant to Article 6 (Patent Expenses and Prosecution) will not be limited by such amount. The Upfront License Fee shall not be subject to the thirty (30) day cure period set forth in Section 7.3(a), below. |
| (ii) | Annual Fees: Licensee shall pay the following Annual Fees: |
Twenty five thousand dollars ($25,000) due on March 31, 2020, and every anniversary thereafter until the termination of this agreement.
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| (c) | Milestone Fees. Licensee will pay Milestone Fees within thirty (30) days of achieving the following milestone events: |
| Milestone Events | Milestone Fees | |
| Completion of financing round (estimated in Section 2.4(b) to be on or before July 31, 2018) | Two hundred thousand dollars ($200,000) | |
| Regulatory approval of IND application to initiate first-in-human clinical trials (estimated in Section 2.4(b) to be on or before March 31, 2020) | One hundred seventy five thousand dollars ($175,000) | |
| Completion of first-in-human (phase I/II) clinical trials (estimated in Section 2.4(b) to be on or before March 31, 2022) | One hundred thousand dollars ($100,000) | |
| Completion of Phase III clinical trials (estimated in Section 2.4(b) to be on or before March 31, 2024) | Five hundred thousand dollars ($500,000) | |
| Biologic Licensing Approval by FDA (estimated in Section 2.4(b) to be on or before March 31, 2025) | Five hundred thousand dollars ($500,000) | |
| One time success fee when the combined total of Net Product Sales and Net Service Sales are at least fifteen million dollars ($15,000,000) within any single Contract Year | Two hundred fifty thousand dollars ($250,000) |
Licensee shall promptly notify LLU that the milestone has been achieved as provided in Section 4.1(f).
| (d) | Sublicense Fees. Licensee will pay Sublicense Fees in an amount equal to twenty five percent (25%) of Non-Royalty Sublicensing Consideration on or before the Quarterly Payment Deadline for the Contract Quarter during which Licensee receives such consideration. |
| (e) | Past Patent Fees. Licensee shall pay LLU two hundred thousand dollars ($200,000) in partial compensation for expenses incurred by LLU for filing, prosecuting, defending and maintaining Patent Rights. This payment shall be due on a quarterly basis in three (3) installments, beginning at the end of the September 2018 and continuing through to the end of March 2019. made in the amounts of seventy thousand dollars ($70,000) due at the end of September 2018, seventy thousand dollars ($70,000) due at the end of December 2018, and a final payment of sixty thousand dollars ($60,000) due at the end of March 2019. |
| 3.2 | Royalties |
Licensee will pay running royalties on Net Product Sales and Net Service Sales during each Contract Quarter on or before the Quarterly Payment Deadline for such Contract Quarter, as follows: (a) one and one-half percent (1.5%) of Net Product Sales and Net Service Sales in each Contract Quarter for Licensed Products and Licensed Services covered by one or more Valid Claims; and (b) three quarter percent (0.75%) of Net Product Sales and Net Service Sales in each Contract Quarter for Licensed Products and Licensed Services not covered by a Valid Claim for Technology Rights and know-how for three (3) years beyond the expiration of all applicable Valid Claims. No royalty shall be payable under this Section 3.2 with respect to (i) Sales to an Affiliate or Sublicensee of a particular unit of Licensed Product that is used by such Affiliate or Sublicensee to perform a Licensed Service if LLU is paid a royalty on the Sale of such Licensed Service, (ii) the Sale of Licensed Products between or among Licensee, its Affiliates, and Sublicensees for re-sale purposes, provided LLU is paid a royalty with respect to the re-sale, or (iii) payments that constitute Non-Royalty Sublicensing Consideration.
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| 3.3 | Non-cash Consideration |
If Licensee receives or anticipates receipt of non-cash consideration from Sales or Sublicenses, the manner in which LLU will receive its compensation under this Agreement with respect to such non-cash consideration will be negotiated in good faith and timely agreed to by the Parties.
| 3.4 | Equity |
Licensee shall pay fifty thousand (50,000) of its common shares within thirty (30) days of either the Effective Date or the date this Agreement has been fully executed by all Parties, whichever is later.
| 4. | Reports and Plans |
The reports specified in this Article 4 will be sent to LLU’s contact identified in Section 18.1. If LLU requests the submission of information in a particular format, Licensee will use reasonable efforts to comply with such request.
| 4.1 | Quarterly Payment and Milestone Reports |
On or before each Quarterly Payment Deadline, Licensee will deliver to LLU a true and accurate report, certified by an officer of Licensee, giving such particulars of the business conducted by Licensee, its Affiliates and its Sublicensees (including copies of reports provided by Sublicensees and Affiliates to Licensee) during the preceding Contract Quarter under this Agreement as necessary for LLU to account for Licensee’s payments, including royalties, hereunder, even if no payments are due. The reports shall continue to be delivered after the termination or expiration of this Agreement until such time as all Licensed Products permitted to be Sold, if any, have been Sold or destroyed. The report shall include:
| (a) | The name of the Licensee, the title and date of this Agreement, and the period covered by the report; |
| (b) | The name of any Affiliates and Sublicensees whose activities are also covered by the report; |
| (c) | Identification of each Licensed Product and Licensed Service for which any royalty payments have become payable; |
| (d) | Net Product Sales and Net Service Sales segregated on a product-by-product, service-by service, and a country-by-country basis, or an affirmative statement that no Sales were made. The report shall also itemize the permitted deductions from the Gross Consideration used to arrive at the resulting Net Product Sales and Net Service Sales, on a product-by-product, service-by service, and country-by-country basis; |
| (e) | The applicable royalty rate; |
| (f) | An affirmative statement of whether any milestones with deadlines in that Contract Quarter under Section 2.4 and any milestones under Section 3.1(c) were achieved or not achieved, and the resulting Milestone Fee payable; |
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| (g) | Non-Royalty Sublicensing Consideration received by Licensee segregated on a Sublicense-by-Sublicense basis, or an affirmative statement that none was received; |
| (h) | If any consideration was received in currencies other than U.S. dollars, the report shall describe the currency exchange calculations; and |
| (i) | Any changes in accounting methodologies used to account for and calculate the items included in the report since the previous report. |
| 4.2 | Annual Written Progress Report and Commercialization Plan |
Within forty-five (45) days following the end of each Contract Year, Licensee will deliver to LLU a true and accurate signed written progress report that summarizes (a) Licensee’s efforts and accomplishments during the Contract Year to diligently commercialize Licensed Products and Licensed Services, and (b) Licensee’s development and commercialization plans with respect to Licensed Products and Licensed Services for the next Contract Year. The report shall also cover such activities by Affiliates and Sublicensees. The report shall contain the following information to the extent relevant to the activities under this Agreement:
| (i) | The name of the Licensee, the title and date of this Agreement, the names of any Affiliates and Sublicensees, and the products and services being developed and/or commercialized; |
| (ii) | The progress toward completing and the plans for completing the applicable milestone events pursuant to Sections 2.4 and 3.1(c); and |
| (iii) | The research and development activities, including status and plans for obtaining any necessary Regulatory Approvals, performed during the past year, and the plans for research and development activities for the next year. |
| 5. | Payment, Records, and Audits |
| 5.1 | Payments |
All amounts referred to in this Agreement are expressed in U.S. dollars without deductions for taxes, assessments, fees, or charges of any kind. All payments to LLU will be made in U.S. dollars by check or wire transfer (Licensee to pay all wire transfer fees) as specified in Section 18.2.
| 5.2 | Sales Outside the U.S. |
If any currency conversion shall be required in connection with the calculation of payments hereunder, such conversion shall be made using the rate used by Licensee for its financial reporting purposes in accordance with Generally Accepted Accounting Principles (or foreign equivalent) or, in the absence of such rate, using the average of the buying and selling exchange rate for conversion between the foreign currency and U.S. Dollars, for current transactions as reported in The Wall Street Journal on the last business day of the Contract Quarter to which such payment pertains.
| 5.3 | Late Payments |
Amounts that are not paid by Licensee when due will accrue a late charge from the due date until paid, at a rate equal to one percent (1.0%) per month (or the maximum allowed by law, if less). If Licensee is more than thirty (30) days in arrears on any payment or obligation due under this Agreement, LLU and Prosecution Counsel shall have no obligation to confer or otherwise communicate with, or provide any information to, Licensee under Article 6 of this Agreement, until Licensee becomes current on all payments and obligations under this Agreement.
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| 5.4 | Records |
For a period of six (6) years after the Contract Quarter to which the records pertain, Licensee shall keep, and shall cause its Affiliates and each Sublicensees to keep, complete and accurate records of their Sales, Net Product Sales, Net Service Sales, Milestone Fees, and Non-Royalty Sublicensing Consideration in sufficient detail to enable such payments to be determined and audited.
| 5.5 | Auditing |
Licensee and its Affiliates will permit LLU or its representatives, at LLU’s expense, to periodically examine books, ledgers, and records during regular business hours, at Licensee’s or its Affiliate’s place of business, on at least thirty (30) days advance notice, to the extent necessary to verify any payment or report required under this Agreement. For each Sublicensee, Licensee shall obtain such audit rights for LLU or itself. If Licensee obtains such audit rights for itself, Licensee will promptly conduct an audit of the Sublicensee’s records upon LLU’s request, and Licensee will furnish to LLU a copy of the findings from such audit. No more than one audit of Licensee, each Affiliate, and each Sublicensee shall be conducted under this Section 5.5 in any calendar year. If any amounts due LLU have been underpaid, then Licensee shall immediately pay LLU the amount of such underpayment plus accrued interest due in accordance with Section 5.3. If the amount of underpayment is equal to or greater than five percent (5%) of the total amount due for the records so examined, Licensee will pay the cost of such audit. Such audits may, at LLU ’s sole discretion, consist of a self-audit conducted by Licensee at Licensee’s expense and certified in writing by an authorized officer of Licensee. All information examined pursuant to this Section 5.5 shall be deemed to be the Confidential Information of the Licensee.
| 6. | Patent Expenses and Prosecution |
| 6.1 | Patent Expenses |
Licensee shall pay for filing, prosecuting, defending and maintaining Patent Rights and related patent searches, for so long as and in such countries as this Agreement remains in effect (“Patent Expenses”).
| 6.2 | Patent Prosecution |
Licensee shall instruct Prosecution Counsel directly for the prosecution and maintenance of the Patent Rights, although Licensee must remain in good standing with this Agreement for this permission to instruct Prosecution Counsel to remain in place. Upon filing, Licensee will provide LLU with copies of all applications for all such Patent Rights, and all other material submissions and correspondence with any patent authorities regarding such Patent Rights, in sufficient time for review and comment prior to filing, to the extent practicable under the circumstances. In addition, Licensee will provide LLU and its counsel with an opportunity to consult with Licensee and its counsel regarding prosecution and maintenance of any such Patent Rights, and Licensee will not unreasonably refuse to address all reasonable comments timely made by or on behalf of LLU. In the event of any breach of this Agreement by Licensee, LLU may elect to take over the prosecution and maintenance of the Patent Rights at any time. The Parties agree that they share a common legal interest to get valid enforceable patents and that Licensee will maintain as privileged all information received pursuant to this Section 6.2. Notwithstanding Section 18.1, the Parties may, at their own discretion, provide (or instruct Prosecution Counsel to provide) documents and communications regarding patent prosecution and maintenance to the other Party or the other Party’s designee by email or regular U.S. mail.
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| 6.3 | Ownership |
All patent applications and patents directly related and capable of claiming priority to the Patent Rights will be in the name of LLU and owned by LLU. No payments due under this Agreement will be reduced as the result of co-ownership interests in the Patent Rights by Licensee or any other party, wherein ownership or co-ownership is established by inventorship as determined in accordance with United States patent law.
| 6.4 | Non-Pursued Patent Rights |
If Licensee does not choose to pursue patent rights in a particular jurisdiction and LLU chooses to do so, then in each such case Licensee shall so notify LLU, promptly in writing and in good time to enable LLU to meet any deadlines by which an action must be taken, but no less than thirty (30) days of such deadlines, to preserve such patent rights in such jurisdiction, Licensee shall so notify LLU and thereafter said patent rights on the basis of any particular claim, patent application or patent, as appropriate, shall no longer be included in the Patent Rights and Licensee shall have no further rights thereto.
| 6.5 | Withdrawal from Paying Patent Expenses |
If at any time Licensee wishes to cease paying Patent Expenses for a particular Patent Right or for patent prosecution or maintenance for a patent or patent application in a particular jurisdiction, Licensee must give LLU at least sixty (60) days prior written notice and Licensee will continue to be obligated to pay for the Patent Expenses which reasonably accrue with respect thereto during said notice period. Thereafter, said particular Patent Right, patent application, or patent shall no longer be included in the Patent Rights and Licensee shall have no further rights thereto.
| 6.6 | U.S. Patent and Trademark Office Entity Size Status |
Licensee represents that as of the Effective Date the entity size status of Licensee in accordance with the regulations of the U.S. Patent and Trademark Office is as set forth in Exhibit A. Licensee will inform LLU in writing on a timely basis of any change in its U.S. Patent and Trademark Office entity size status.
| 7. | Term and Termination |
| 7.1 | Term |
Unless earlier terminated as provided herein, the term of this Agreement is from the Effective Date until the last to occur of: (a) the expiration of all patents issued under Patent Rights (if any) and the cancellation, withdrawal, or express abandonment of all patent applications under Patents Rights (if any), or (b) the date required for Licensee to pay any Milestone Fees in Section 3.1(c) or running royalties in Section 3.2(b).
| 7.2 | Termination by Licensee |
Licensee, at its option, may terminate this Agreement, provided Licensee is not in default on any of its obligations under this Agreement, by providing LLU written notice of intent to terminate, which such termination will be effective ninety (90) days following receipt of such notice by LLU.
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| 7.3 | Termination by LLU |
LLU may immediately terminate this Agreement, or Licensee’s rights with respect to any part of Licensed Subject Matter, or any part of Field, or any part of Territory, or the exclusive nature of the license grant, upon delivery of written notice to Licensee of LLU’s decision to terminate, if any of the following occur:
| (a) | Licensee becomes in arrears in any payments due under this Agreement and Licensee fails to make the required payment within ninety (90) days after delivery of written notice from LLU (except for the Upfront License Fee in Section 3.1(b)(i), for which no cure period applies); or |
| (b) | Licensee is in breach of any non-payment provision of this Agreement, and does not cure such breach within ninety (90) days after delivery of written notice from LLU; or |
| (c) | LLU delivers notice to Licensee of three or more actual breaches of this Agreement in any twelve- (12-) month period, even in the event that Licensee cures such breaches in the allowed period, provided that this Section 7.3(c) does not apply to Sublicensee breaches cured by Licensee under Section 2.3(c); or |
| (d) | Licensee or its Affiliate or Sublicensee initiates any proceeding or action to challenge the validity, enforceability, or scope of one or more of the Patent Rights, or assists a third party in pursuing such a proceeding or action. |
| 7.4 | Other Conditions of Termination |
This Agreement will terminate:
| (a) | Immediately without the necessity of any action being taken by LLU or Licensee: (i) if Licensee becomes bankrupt or insolvent; (ii) Licensee’s board of directors elects to liquidate its assets or dissolve its business; (iii) Licensee ceases its business operations; (iv) Licensee makes an assignment for the benefit of creditors; or (v) if the business or assets of Licensee are otherwise placed in the hands of a receiver, assignee or trustee, whether by voluntary act of Licensee or otherwise; or |
| (b) | At any time by mutual written agreement between Licensee and LLU; or |
| (c) | Immediately, upon written notice from LLU to Licensee, if the Upfront License Fee specified in Section 3.1(b)(i) is not timely paid. |
| 7.5 | Effect of Termination |
If this Agreement is terminated for any reason:
| (a) | All rights and licenses of Sublicensees shall terminate upon termination of this Agreement; provided however, if the Sublicense Agreement is for all of the Field for all of the Territory, and the Sublicensee is in good standing and agrees in writing to assume all of the obligations of Licensee and provides LLU with written notice thereof within thirty (30) days after termination of this Agreement, then such Sublicense Agreement shall survive; and |
| (b) | Licensee (and any Affiliates or Sublicensees) shall cease making, having made, distributing, having distributed, using, selling, offering to sell, leasing, loaning and importing any Licensed Products and performing Licensed Services by the effective date of termination; and |
| (c) | Licensee shall tender payment of all accrued royalties and other payments due to LLU as of the effective date of termination within thirty (30) days thereafter; and |
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| (d) | Nothing in this Agreement will be construed to release either Party from any obligation that matured prior to the effective date of termination; and |
| (e) | The provisions of Articles 8 (Confidentiality), 9 (Infringement and Litigation), 11 (Representations and Disclaimers), 12 (Limit of Liability), 13 (Indemnification), 14 (Insurance), 17 (Use of Name), 18 (Notices), and 19 (General Provisions) shall survive any termination or expiration of this Agreement. In addition, the provisions of Article 3 (Compensation), Section 4.1 (Quarterly Payment and Milestone Reports), Article 5 (Payment, Records and Audits), and Section 6.1 (Patent Expenses) shall survive with respect to all activities and payment obligations accruing prior to the termination or expiration of this Agreement. |
| 8. | Confidentiality |
| 8.1 | Definition |
“Confidential Information” means all information that is of a confidential and proprietary nature to LLU or Licensee and provided by one party (the “Disclosing Party”) to the other party (the “Receiving Party”) under this Agreement.
| 8.2 | Protection and Marking |
All Confidential Information disclosed by Disclosing Party in tangible form, and marked “confidential” and forwarded to the Receiving Party, or if disclosed orally, is designated as confidential at the time of disclosure: (i) is to be held in strict confidence by the Receiving Party, (ii) is to be used by the Receiving Party only as authorized in this Agreement, and (iii) shall not be disclosed by the Receiving Party, its agents or employees without the prior written consent of the Disclosing Party or as authorized in this Agreement. Licensee has the right to use and disclose Confidential Information of LLU reasonably in connection with the exercise of its rights under this Agreement, including without limitation disclosing to Affiliates, Sublicensees, potential investors, acquirers, and others on a need to know basis, if such Confidential Information is provided under conditions which reasonably protect the confidentiality thereof. The Receiving Party’s obligation of confidence hereunder includes, without limitation, using at least the same degree of care with the Disclosing Party’s Confidential Information as Receiving Party uses to protect its own Confidential Information, but always at least a reasonable degree of care.
| 8.3 | Confidentiality of Terms of Agreement |
Neither Party shall disclose to any third party the terms of this Agreement without the prior written consent of the other Party hereto, except each Party may disclose the terms of this Agreement: (a) to advisors, actual or potential Sublicensees, acquirers or investors, and others on a need to know basis, in each case, under appropriate confidentiality obligations substantially similar to those of this Article 8. LLU may disclose the existence of this Agreement and the Field to other potential third party licensees for uses outside the Field. In addition, LLU may disclose relevant non-financial terms (such as patent prosecution, infringement and litigation obligations) in confidence to other potential third party licensees. Notwithstanding the foregoing, the existence of this Agreement shall not be considered Confidential Information.
| 8.4 | Disclosure Required by Court Order or Law |
If the Receiving Party is required to disclose Disclosing Party’s Confidential Information, or any terms of this Agreement, pursuant to the order or requirement of a court, administrative agency, or other governmental body or applicable law, the Receiving Party may disclose such Confidential Information or terms to the extent required, provided that the Receiving Party shall use reasonable efforts to provide the Disclosing Party with reasonable advance notice thereof to enable the Disclosing Party to seek a protective order and otherwise seek to prevent such disclosure. To the extent that Confidential Information so disclosed does not become part of the public domain by virtue of such disclosure, it shall remain Confidential Information protected pursuant to Article 8.
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| 8.5 | Copies |
The Receiving Party shall not copy or record any of the Confidential Information of the Disclosing Party, except as reasonably necessary to exercise its rights or perform its obligations under this Agreement, and for archival and legal purposes.
| 8.6 | Continuing Obligations |
Subject to the exclusions listed in Section 8.7, the Parties’ confidentiality obligations under this Agreement will survive termination of this Agreement and will continue for a period of five years thereafter.
| 8.7 | Exclusions |
Information shall not be considered Confidential Information of a Disclosing Party under this Agreement to the extent that the Receiving Party can establish by competent written proof that such information:
| (a) | Was in the public domain at the time of disclosure; or |
| (b) | Later became part of the public domain through no act or omission of the Receiving Party, its employees, agents, successors or assigns in breach of this Agreement; or |
| (c) | Was lawfully disclosed to the Receiving Party by a third party having the right to disclose such information not under an obligation of confidentiality; or |
| (d) | Was already known by the Receiving Party at the time of disclosure; or |
| (e) | Was independently developed by the Receiving Party without use of the Disclosing Party’s Confidential Information. |
| 8.8 | Copyright Notice |
The placement of a copyright notice on any Confidential Information will not be construed to mean that such information has been published and will not release the other Party from its obligation of confidentiality hereunder.
| 8.9 | No Limitation on LLU’s Publication Rights |
Nothing in this Article 8 shall be construed to limit LLU’s reserved right to publish the scientific findings from research related to Licensed Subject Matter, as set forth in Section 2.1(c).
| 9. | Infringement and Litigation |
| 9.1 | Notification |
If LLU’s office for technology transfer or Licensee becomes aware of any infringement or potential infringement of Patent Rights in the Field, each Party shall promptly notify the other of such in writing.
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| 9.2 | Licensee’s Enforcement Rights |
Licensee shall enforce the Patent Rights against any infringement by a third party in the Field. Licensee shall provide LLU with written notice of its intent to file an infringement lawsuit at least twenty (20) days before filing. Licensee shall be responsible for payment of all fees and expenses associated with such enforcement incurred by Licensee and incurred by LLU in providing cooperation or joining as a party as provided in Section 9.4. Any monetary recovery for actual damages or punitive or enhanced damages in excess of Licensee’s documented, third-party expenses in enforcing the Patent Rights and amounts actually reimbursed by Licensee to LLU under this Section 9.2 shall be shared by Licensee with LLU as follows: twenty-five percent (25%) of such monetary recovery shall be paid to LLU and seventy-five percent (75%) shall be retained by Licensee.
| 9.3 | LLU’s Enforcement Rights |
If Licensee does not file suit within six months after a written request by LLU to initiate an infringement action against an infringer in the Field, then LLU shall have the right, in its sole discretion, to bring suit to enforce any Patent Right licensed hereunder against the infringing activities, with LLU retaining all recoveries from such enforcement. If LLU pursues such infringement action, LLU may, as part of the resolution thereof, grant non-exclusive license rights to the alleged infringer notwithstanding Licensee’s exclusive license rights.
| 9.4 | Cooperation between the Parties |
In any infringement suit or dispute, the Parties shall cooperate fully with each other. At the request of the Party bringing suit, the other Party will permit reasonable access, after reasonable advance notice and subject to any confidentiality obligations (including but not limited to restrictions on access to patient information), to all relevant personnel, records, papers, information, samples, specimens, etc., during regular business hours. If it is necessary to name LLU as a party in such action, then Licensee must first obtain LLU’s prior written permission, which permission shall not be unreasonably withheld, provided that LLU shall have reasonable prior input on choice of counsel on any matter where such counsel represents LLU, and Licensee and such counsel agree to follow all required procedures requested by LLU General Counsel.
| 10. | Export Compliance |
Licensee understands that the Arms Export Control Act (AECA), including its implementing International Traffic In Arms Regulations (ITAR), and the Export Administration Act (EAA), including its Export Administration Regulations (EAR), are some (but not all) of the laws and regulations that comprise the U.S. export laws and regulations. Licensee further understands that the U.S. export laws and regulations include (but are not limited to): (a) ITAR and EAR product/service/data-specific requirements; (b) ITAR and EAR ultimate destination-specific requirements; (c) ITAR and EAR end user-specific requirements; (d) Foreign Corrupt Practices Act; and (e) anti-boycott laws and regulations. Licensee will comply with all then-current applicable export laws and regulations of the U.S. Government (and other applicable U.S. laws and regulations) pertaining to the Licensed Products and Licensed Services (including any associated products, items, articles, computer software, media, services, technical data, and other information). Licensee certifies that it will not, directly or indirectly, export (including any deemed export), or re-export (including any deemed re-export) the Licensed Products and Licensed Services (including any associated products, items, articles, computer software, media, services, technical data, and other information) in violation of applicable U.S. laws and regulations. Licensee will include a provision in its agreements, substantially similar to this Article 10, with its Sublicensees, third party wholesalers and distributors, and physicians, hospitals or other healthcare providers who purchase a Licensed Product, requiring that these parties comply with all then-current applicable U.S. export laws and regulations and other applicable U.S. laws and regulations.
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| 11. | Representations and Disclaimers |
| 11.1 | LLU Representations |
LLU makes no representations or warranties, express or implied, as to any matter whatsoever including, without limitation: (a) the condition of the Licensed Subject Matter, the Licensed Product, the Licensed Services or results derived therefrom; or (b) the ownership, merchantability, or fitness for a particular purpose of the Licensed Subject Matter, the Licensed Product, the Licensed Services or results derived therefrom; or (c) the scope of the licensed Patent Rights or Technology Rights or that such Patent Rights or Technology Rights may be exploited by the Licensee without infringing other patents.
LLU warrants that it has not previously granted any rights that would conflict with the rights granted by this Agreement.
Licensee, by execution hereof, acknowledges, covenants and agrees that it has not been induced in any way by the University or its employees to enter into this Agreement, and further warrants and represents that: (a) it has conducted sufficient due diligence with respect to all items and issues pertaining to this Article 11 and all other matters pertaining to this Agreement; and (b) the Licensee has adequate knowledge and expertise, or has utilized knowledgeable and expert consultants, to adequately conduct the due diligence, and agrees to accept all risks inherent herein.
| 11.2 | Government Rights |
Licensee understands that Licensed Subject Matter may have been developed under a funding agreement with Government and, if so, that Government may have certain rights relative thereto. This Agreement is made subject to the Government’s rights under any such agreement and under any applicable Government law or regulation. To the extent that there is a conflict between any such agreement, such applicable law or regulation and this Agreement, the terms of such Government agreement, and applicable law or regulation, shall prevail. Licensee shall assure that, to the extent required by U.S. laws and regulations, Licensed Products used or Sold in the U.S. will be manufactured substantially in the U.S., unless a written waiver is obtained in advance from the U.S. Government.
| 11.3 | LLU Entity Disclaimers |
EXCEPT AS SPECIFICALLY SET FORTH IN SECTION 11.1, LICENSEE UNDERSTANDS AND AGREES THAT NEITHER LLU MAKES ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, AS TO THE LICENSED PRODUCTS OR LICENSED SERVICES, OR AS TO THE OPERABILITY OR FITNESS FOR ANY USE OR PARTICULAR PURPOSE, MERCHANTABILITY, SAFETY, EFFICACY, APPROVABILITY BY REGULATORY AUTHORITIES, TIME AND COST OF DEVELOPMENT, PATENTABILITY, AND/OR BREADTH OF PATENT RIGHTS. NEITHER LLU MAKES ANY REPRESENTATION AS TO WHETHER ANY PATENT WITHIN PATENT RIGHTS IS VALID, OR AS TO WHETHER THERE ARE ANY PATENTS NOW HELD, OR WHICH WILL BE HELD, BY OTHERS OR BY LLU THAT MIGHT BE REQUIRED FOR USE OF PATENT RIGHTS IN FIELD. LLU MAKES NO REPRESENTATION THAT THE INVENTIONS CONTAINED IN PATENT RIGHTS DO NOT INFRINGE ANY OTHER PATENTS NOW HELD OR THAT WILL BE HELD BY OTHERS OR BY LLU. NOTHING IN THIS AGREEMENT WILL BE CONSTRUED AS CONFERRING BY IMPLICATION, ESTOPPEL OR OTHERWISE ANY LICENSE OR RIGHTS TO ANY PATENTS OR TECHNOLOGY OF LLU OTHER THAN THE PATENT RIGHTS, WHETHER SUCH PATENTS ARE DOMINANT OR SUBORDINATE TO THE PATENT RIGHTS, OR THE TECHNOLOGY RIGHTS SPECIFICALLY DESCRIBED HEREIN.
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| 11.4 | Licensee Representations |
By execution of this Agreement, Licensee represents, warrants, acknowledges, covenants and agrees (a) that Licensee has not been induced in any way by LLU or its employees to enter into this Agreement, and (b) that Licensee has been given an opportunity to conduct sufficient due diligence with respect to all items and issues pertaining to this Article 11 (Representations and Disclaimers) and all other matters pertaining to this Agreement; and (c) that Licensee has adequate knowledge and expertise, or has utilized knowledgeable and expert consultants, to adequately conduct the due diligence, and (d) that Licensee accepts all risks inherent herein. Licensee represents that it is a duly organized, validly existing entity of the form indicated in the preamble to this Agreement, and is in good standing under the laws of its jurisdiction of organization as indicated in the preamble of this Agreement, and has all necessary corporate or other appropriate power and authority to execute, deliver and perform its obligations hereunder.
| 12. | Limit of Liability |
IN NO EVENT SHALL LLU, ITS MEMBER INSTITUTIONS, OR THEIR RESPECTIVE INVENTORS, MEMBERS OF THE BOARD OF TRUSTEES, OFFICERS, EMPLOYEES, STUDENTS, AGENTS OR AFFILIATED ENTERPRISES, BE LIABLE FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL, INCIDENTAL, EXEMPLARY, OR PUNITIVE DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF PROFITS OR REVENUE) ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ITS SUBJECT MATTER, REGARDLESS OF WHETHER THE FOREGOING OR ANY PARTY HERETO KNOWS OR SHOULD KNOW OF THE POSSIBILITY OF SUCH DAMAGES. OTHER THAN FOR CLAIMS AGAINST LICENSEE FOR INDEMNIFICATION (ARTICLE 13) OR FOR MISUSE OR MISAPPROPRIATION OR INFRINGEMENT OF LLU’S INTELLECTUAL PROPERTY RIGHTS OR BREACH OF DUTY TO MAINTAIN CONFIDENTIAL INFORMATION, LICENSEE WILL NOT BE LIABLE TO LLU FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF PROFITS OR REVENUE) ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ITS SUBJECT MATTER, REGARDLESS OF WHETHER LICENSEE KNOWS OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH DAMAGES.
| 13. | Indemnification |
| 13.1 | Indemnification Obligation |
SUBJECT TO SECTION 13.2, LICENSEE SHALL HOLD HARMLESS, DEFEND AND INDEMNIFY LLU, ITS MEMBER INSTITUTIONS, AND THEIR RESPECTIVE MEMBERS OF THE BOARD OF TRUSTEES, OFFICERS, EMPLOYEES, STUDENTS AND AGENTS (“INDEMNIFIED PARTIES”) FROM AND AGAINST ANY LIABILITIES, DAMAGES, CAUSES OF ACTION, SUITS, JUDGMENTS, LIENS, PENALTIES, FINES, LOSSES, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS’ FEES AND OTHER EXPENSES OF LITIGATION) (COLLECTIVELY “LIABILITIES”) RESULTING FROM CLAIMS OR DEMANDS BROUGHT BY THIRD PARTIES AGAINST AN INDEMNIFIED PARTY ON ACCOUNT OF ANY INJURY OR DEATH OF PERSONS, DAMAGE TO PROPERTY, OR ANY OTHER DAMAGE OR LOSS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE EXERCISE OR PRACTICE BY OR UNDER AUTHORITY OF LICENSEE, ITS AFFILIATES OR THEIR SUBLICENSEES, OR THIRD PARTY WHOLESALERS OR DISTRIBUTORS, OR PHYSICIANS, HOSPITALS OR OTHER HEALTHCARE PROVIDERS WHO PURCHASE A LICENSED PRODUCT OR LICENSED SERVICE, OF THE RIGHTS GRANTED BY LLU UNDER THIS AGREEMENT.
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| 13.2 | Conditions of Indemnification |
Licensee shall have no responsibility or obligation under Section 13.1 for any Liabilities to the extent caused by the gross negligence or willful misconduct of LLU.
| 14. | Insurance |
| 14.1 | Insurance Requirements |
Prior to any Licensed Product being used or Sold (including for the purpose of obtaining Regulatory Approval), and prior to any Licensed Service being performed by Licensee, an Affiliate, or by a Sublicensee, and for a period of five years after this Agreement expires or is terminated, Licensee shall, at its sole cost and expense, procure and maintain commercial general liability insurance in commercially reasonable and appropriate amounts for the Licensed Product being used or Sold or the Licensed Service being performed. Licensee shall use commercially reasonable efforts to have the LLU, its member institutions, and their respective Regents, officers, employees, and Inventors named as additional insureds. Such commercial general liability insurance shall provide, without limitation: (a) product liability coverage; (b) broad form contractual liability coverage for Licensee’s indemnification under this Agreement; and (c) coverage for litigation costs.
| 14.2 | Evidence of Insurance and Notice of Changes |
Upon request by LLU, Licensee shall provide LLU with written evidence of the insurance referenced in Section 14.1 above. Additionally, Licensee shall provide LLU with written notice of at least sixty (60) days prior to Licensee cancelling, not renewing, or materially changing such insurance.
| 15. | Assignment |
This Agreement may not be assigned by Licensee without the prior written consent of LLU, which consent will not be unreasonably withheld, except Licensee may assign this Agreement, without such consent, to any of its Affiliates and/or to an entity that acquires all or substantially all of its business or assets to which this Agreement pertains, whether by merger, reorganization, acquisition, sale, or otherwise.. A merger or other transaction in which the equity holders of Licensee prior to such event hold less than a majority of the equity of the surviving or acquiring entity shall be considered an assignment of this Agreement. For any permitted assignment to be effective, Licensee must be in good standing under this Agreement, and the assignee must assume in writing (a copy of which shall be promptly provided to LLU) all of Licensee’s interests, rights, duties and obligations under this Agreement and agree to comply with all terms and conditions of this Agreement as if assignee were an original Party to this Agreement.
| 16. | Marking and Compliance |
| 16.1 | Patent Markings |
Licensee shall assure that all Licensed Products Sold by Licensee, Affiliates, or Sublicensees will be legibly marked with the number of any applicable patent(s) licensed hereunder as part of the Patent Rights in accordance with each country’s patent marking laws, including Title 35, U.S. Code, or if such marking is not practicable, that the accompanying outer box or product insert for Licensed Products is marked accordingly.
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| 16.2 | Governmental Approvals and Marketing of Licensed Products and or Licensed Services |
Licensee will be responsible for obtaining all necessary governmental approvals for the development, production, distribution, Sale, and use of any Licensed Product or performance of any Licensed Service, at Licensee’s expense, including, without limitation, any safety studies. Licensee will have sole responsibility for any warning labels, packaging and instructions as to the use and the quality control for any Licensed Product or Licensed Service.
| 16.3 | Foreign Registration and Laws |
Licensee shall register this Agreement with any foreign governmental agency that requires such registration and Licensee will pay all costs and legal fees in connection with such registration. Licensee is responsible for compliance with all foreign laws affecting this Agreement or the Sale of Licensed Products and Licensed Services to the extent there is no conflict with United States law, in which case United States law will control.
| 17. | Use of Name |
Licensee will not use the name, trademarks or other marks of LLU, or any of its respective employees or Regents, without the advance written consent of LLU. LLU may use Licensee’s name and logo for annual reports, brochures, website and internal reports without prior consent.
| 18. | Notices and Payments |
| 18.1 | Any notice of the Parties required or permitted to be given or made under this Agreement will be in writing and will be deemed effective when sent in a manner that provides confirmation or acknowledgement of delivery and received at the mailing address or Fax number set forth below (unless changed by written notice pursuant to this Section 18.1). |
| Licensee Contact Information | LLU Contact Information | |
| Contact for Notice | Contact for Notice | |
| Attn: Amro Albanna, CEO | Attn: Kent Hansen, General Counsel | |
| 11161 Anderson St., Suite 105-10014 | Loma Linda University Health | |
| Loma Linda, CA 92354 | 24890 Tulip Avenue | |
| Tel: (951) 316-9002 | Loma Linda, California 92354 | |
| Email: aalbanna@aditxt.com | Fax: 909-558-2655 | |
| khansen@llu.edu |
Each Party shall update the other Party in writing with any changes in its contact information.
| 18.2 | All amounts payable hereunder by Licensee will be paid in United States funds without deductions for taxes, assessments, fees, or charges of any kind. Payments are to be made to Loma Linda University Health by wire transfer to: |
[_____________]
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REFERENCE: include title and Effective Date of Agreement and type of payment.
| 19. | General Provisions |
| 19.1 | Binding Effect |
This Agreement is binding upon and inures to the benefit of the Parties hereto, their respective executors, administrators, heirs, permitted assigns, and permitted successors in interest.
| 19.2 | Construction of Agreement |
Headings are included for convenience only and will not be used to construe this Agreement. The Parties acknowledge and agree that both Parties substantially participated in negotiating the provisions of this Agreement; therefore, both Parties agree that any ambiguity in this Agreement shall not be construed more favorably toward one Party than the other Party, regardless of which Party primarily drafted this Agreement.
| 19.3 | Counterparts and Signatures |
This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.
| 19.4 | Compliance with Laws |
Licensee will comply with all applicable federal, state and local laws and regulations, including, without limitation, all export laws and regulations.
| 19.5 | Governing Law |
This Agreement will be construed and enforced in accordance with laws of the U.S. and the State of California, without regard to any choice of law and/or conflicts of law principles that would otherwise refer to and apply the laws of another jurisdiction.
| 19.6 | Modification |
Any modification of this Agreement will be effective only if it is in writing and signed by duly authorized representatives of both Parties. No modification will be made by email communications.
| 19.7 | Severability |
If any provision hereof is held to be invalid, illegal or unenforceable in any jurisdiction, the Parties hereto shall negotiate in good faith a valid, legal and enforceable substitute provision that most nearly reflects the original intent of the Parties, and all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be construed in order to carry out the intentions of the Parties hereto as nearly as may be possible. Such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of such other provisions in any other jurisdiction, so long as the essential essence of this Agreement remains enforceable.
| 19.8 | Third Party Beneficiaries |
Nothing in this Agreement, express or implied, is intended to confer any benefits, rights or remedies on any entity, other than the Parties and their permitted successors and assigns.
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| 19.9 | Waiver |
Neither Party will be deemed to have waived any of its rights under this Agreement unless the waiver is in writing and signed by such Party. No delay or omission of a Party in exercising or enforcing a right or remedy under this Agreement shall operate as a waiver thereof.
| 19.10 | Entire Agreement |
This Agreement constitutes the entire agreement between the Parties regarding the subject matter hereof, and supersedes all prior written or verbal agreements, representations and understandings relative to such matters.
| 19.11 | Grant of Security Interest |
Licensee hereby grants to LLU a security interest in and to Licensee’s rights under this Agreement, as collateral security for the payment by Licensee of any and all sums that may be owed from time to time by Licensee to LLU. LLU shall have all rights of a secured party as specified in the California Uniform Commercial Code relative to this security interest and the enforcement thereof. Licensee hereby authorizes LLU to file with the appropriate governmental agencies appropriate UCC-1 financing statements to evidence this security interest.
| 20. | No Other Promises and Agreements; Representation by Counsel. |
Licensee hereby expressly states, warrants and represents that no promise or agreement which is not herein expressed has been made to Licensee in executing this Agreement except those explicitly set forth herein, and that Licensee is not relying upon any statement or representation of LLU or its representatives. Licensee is relying on Licensee’s own judgment and has had the opportunity to be represented by legal counsel. Licensee hereby warrants and represents that Licensee understands and agrees to all terms and conditions set forth in this Agreement.
IN WITNESS WHEREOF, the Parties hereto have caused their duly authorized representatives to execute this Agreement.
| LOMA LINDA UNIVERSITY HEALTH | ADITX THERAPEUTICS INC | |||
| By | /s/ Rodney Neal | By | /s/ Amro Albanna | |
| Printed Name: Rodney Neal | Printed Name: Amro Albanna | |||
| Title: Sr. Vice Pres., Finance | Title: CEO | |||
| Date: 3/15/2018 | Date: 3/15/2018 | |||
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EXHIBIT A
PATENT RIGHTS
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Exhibit 10.6
ADITX THERAPEUTICS, INC.
2017 EQUITY INCENTIVE PLAN
Established October 6, 2017
Ratified by Shareholder’s on October 6, 2017
Amended and Restated December 21, 2018 and Ratified on December 21, 2019
ADITX THERAPEUTICS, INC.
2017 EQUITY INCENTIVE PLAN
1. Purpose. The purpose of the ADiTx Therapeutics, Inc. 2017 Equity Incentive Plan is to provide a means through which the Company and its Affiliates may attract and retain key personnel and to provide a means whereby directors, officers, managers, employees, consultants and advisors (and prospective directors, officers, managers, employees, consultants and advisors) of the Company and its Affiliates can acquire and maintain an equity interest in the Company, or be paid incentive compensation, which may (but need not) be measured by reference to the value of Common Shares, thereby strengthening their commitment to the welfare of the Company and its Affiliates and aligning their interests with those of the Company’s stockholders.
2. Definitions. The following definitions shall be applicable throughout this Plan:
(a) “Affiliate” means (i) any person or entity that directly or indirectly controls, is controlled by or is under common control with the Company and/or (ii) to the extent provided by the Committee, any person or entity in which the Company has a significant interest as determined by the Committee in its discretion. The term “control” (including, with correlative meaning, the terms “controlled by” and “under common control with”), as applied to any person or entity, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person or entity, whether through the ownership of voting or other securities, by contract or otherwise.
(b) “Award” means, individually or collectively, any Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Stock Bonus Award and Performance Compensation Award granted under this Plan.
(c) “Award Agreement” means an agreement made and delivered in accordance with Section 15(a) of this Agreement evidencing the grant of an Award hereunder.
(d) “Board” means the Board of Directors of the Company.
(e) “Business Combination” has the meaning given such term in the definition of “Change in Control.”
(f) “Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions in New York City are authorized or obligated by federal law or executive order to be closed.
(g) “Cause” means, in the case of a particular Award, unless the applicable Award Agreement states otherwise, (i) the Company or an Affiliate having “cause” to terminate a Participant’s employment or service, as defined in any employment or consulting agreement or similar document or policy between the Participant and the Company or an Affiliate in effect at the time of such termination or (ii) in the absence of any such employment or consulting agreement, document or policy (or the absence of any definition of “Cause” contained therein),
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(A) a continuing material breach or material default (including, without limitation, any material dereliction of duty) by Participant of any agreement between the Participant and the Company, except for any such breach or default which is caused by the physical disability of the Participant (as determined by a neutral physician), or a continuing failure by the Participant to follow the direction of a duly authorized representative of the Company; (B) gross negligence, willful misfeasance or breach of fiduciary duty by the Participant; (C ) the commission by the Participant of an act of fraud, embezzlement or any felony or other crime of dishonesty in connection with the Participant’s duties; or (D) conviction of the Participant of a felony or any other crime that would materially and adversely affect: (i) the business reputation of the Company or (ii) the performance of the Participant’s duties to the Company. Any determination of whether Cause exists shall be made by the Committee in its sole discretion.
(h) “Change in Control” shall, in the case of a particular Award, unless the applicable Award Agreement states otherwise or contains a different definition of “Change in Control,” be deemed to occur upon:
(i) An acquisition (whether directly from the Company or otherwise) of any voting securities of the Company (the “Voting Securities”) by any “Person” (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)), immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than fifty percent (50%) of the combined voting power of the Company’s then outstanding Voting Securities.
(ii) The individuals who constitute the members of the Board cease, by reason of a financing, merger, combination, acquisition, takeover or other non-ordinary course transaction affecting the Company, to constitute at least fifty-one percent (51%) of the members of the Board; or
(iii) Approval by the Board and, if required, stockholders of the Company of, or execution by the Company of any definitive agreement with respect to, or the consummation of (it being understood that the mere execution of a term sheet, memorandum of understanding or other non-binding document shall not constitute a Change of Control):
(A) A merger, consolidation or reorganization involving the Company, where either or both of the events described in clauses (i) or (ii) above would be the result;
(B) A liquidation or dissolution of or appointment of a receiver, rehabilitator, conservator or similar person for, or the filing by a third party of an involuntary bankruptcy against, the Company; provided, however, that to the extent necessary to comply with Section 409A of the Code, the occurrence of an event described in this subsection (B) shall not permit the settlement of Restricted Stock Units granted under this Plan; or
(C) An agreement for the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a subsidiary of the Company).
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(i) “Code” means the Internal Revenue Code of 1986, as amended, and any successor thereto. References in this Plan to any section of the Code shall be deemed to include any regulations or other interpretative guidance under such section, and any amendments or successor provisions to such section, regulations or guidance.
(j) “Committee” means a committee of at least two people as the Board may appoint to administer this Plan or, if no such committee has been appointed by the Board, the Board. Unless altered by an action of the Board, the Committee shall be the Compensation Committee of the Board.
(k) “Common Shares” means the common stock, par value $0.001 per share, of the Company (and any stock or other securities into which such common shares may be converted or into which they may be exchanged).
(l) “Company” means ADiTx Therapeutics, Inc., a Delaware corporation, together with its successors and assigns.
(m) “Date of Grant” means the date on which the granting of an Award is authorized, or such other date as may be specified in such authorization.
(n) “Disability” means a “permanent and total” disability incurred by a Participant while in the employ of the Company or an Affiliate. For this purpose, a permanent and total disability shall mean that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months.
(o) “Effective Date” means the date as of which this Plan is adopted by the Board, subject to Section 3 of this Plan.
(p) “Eligible Director” means a person who is (i) a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act, and (ii) an “outside director” within the meaning of Section 162(m) of the Code.
(q) “Eligible Person” means any (i) individual employed by the Company or an Affiliate; provided, however, that no such employee covered by a collective bargaining agreement shall be an Eligible Person unless and to the extent that such eligibility is set forth in such collective bargaining agreement or in an agreement or instrument relating thereto; (ii) director of the Company or an Affiliate; (iii) consultant or advisor to the Company or an Affiliate, provided that if the Securities Act applies such persons must be eligible to be offered securities registrable on Form S-8 under the Securities Act; or (iv) prospective employees, directors, officers, consultants or advisors who have accepted offers of employment or consultancy from the Company or its Affiliates (and would satisfy the provisions of clauses (i) through (iii) above once he or she begins employment with or begins providing services to the Company or its Affiliates).
(r) “Exchange Act” has the meaning given such term in the definition of “Change in Control,” and any reference in this Plan to any section of (or rule promulgated under) the Exchange Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.
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(s) “Exercise Price” has the meaning given such term in Section 7(b) of this Plan.
(t) “Fair Market Value”, unless otherwise provided by the Committee in accordance with all applicable laws, rules regulations and standards, means, on a given date, (i) if the Stock is listed on a securities exchange, the closing sales price on the principal such exchange on such date or, in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which sales were reported, or (ii) if the Stock is not listed on a securities exchange, the mean between the bid and offered prices as quoted by the applicable interdealer quotation system for such date, provided that if the Stock is not quoted on an interdealer quotation system or it is determined that the fair market value is not properly reflected by such quotations, Fair Market Value will be determined by such other method as the Committee determines in good faith to be reasonable and in compliance with Code Section 409A.
(u) “Immediate Family Members” shall have the meaning set forth in Section 15(b) of this Plan.
(v) “Incentive Stock Option” means an Option that is designated by the Committee as an incentive stock option as described in Section 422 of the Code and otherwise meets the requirements set forth in this Plan.
(w) “Indemnifiable Person” shall have the meaning set forth in Section 4(e) of this Plan.
(x) “Mature Shares” means Common Shares owned by a Participant that are not subject to any pledge or security interest and that have been either previously acquired by the Participant on the open market or meet such other requirements, if any, as the Committee may determine are necessary in order to avoid an accounting earnings charge on account of the use of such shares to pay the Exercise Price or satisfy a withholding obligation of the Participant.
(y) “Negative Discretion” shall mean the discretion authorized by this Plan to be applied by the Committee to eliminate or reduce the size of a Performance Compensation Award consistent with Section 162(m) of the Code.
(z) “Nonqualified Stock Option” means an Option that is not designated by the Committee as an Incentive Stock Option.
(aa) “Option” means an Award granted under Section 7 of this Plan.
(bb) “Option Period” has the meaning given such term in Section 7(c) of this Plan.
(cc) “Participant” means an Eligible Person who has been selected by the Committee to participate in this Plan and to receive an Award pursuant to Section 6 of this Plan.
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(dd) “Performance Compensation Award” shall mean any Award designated by the Committee as a Performance Compensation Award pursuant to Section 11 of this Plan.
(ee) “Performance Criteria” shall mean the criterion or criteria that the Committee shall select for purposes of establishing the Performance Goal(s) for a Performance Period with respect to any Performance Compensation Award under this Plan.
(ff) “Performance Formula” shall mean, for a Performance Period, the one or more objective formulae applied against the relevant Performance Goal to determine, with regard to the Performance Compensation Award of a particular Participant, whether all, some portion but less than all, or none of the Performance Compensation Award has been earned for the Performance Period.
(gg) “Performance Goals” shall mean, for a Performance Period, the one or more goals established by the Committee for the Performance Period based upon the Performance Criteria.
(hh) “Performance Period” shall mean the one or more periods of time, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to, and the payment of, a Performance Compensation Award.
(ii) “Permitted Transferee” shall have the meaning set forth in Section 15(b) of this Plan.
(jj) “Person” has the meaning given such term in the definition of “Change in Control.”
(kk) “Plan” means this ADiTx Therapeutics, Inc. 2017 Equity Incentive Plan, as amended from time to time.
(ll) “Retirement” means the fulfillment of each of the following conditions: (i) the Participant is good standing with the Company as determined by the Committee; (ii) the voluntary termination by a Participant of such Participant’s employment or service to the Company and (B) that at the time of such voluntary termination, the sum of: (1) the Participant’s age (calculated to the nearest month, with any resulting fraction of a year being calculated as the number of months in the year divided by 12) and (2) the Participant’s years of employment or service with the Company (calculated to the nearest month, with any resulting fraction of a year being calculated as the number of months in the year divided by 12) equals at least 62 (provided that, in any case, the foregoing shall only be applicable if, at the time of Retirement, the Participant shall be at least 55 years of age and shall have been employed by or served with the Company for no less than 5 years).
(mm) “Restricted Period” means the period of time determined by the Committee during which an Award is subject to restrictions or, as applicable, the period of time within which performance is measured for purposes of determining whether an Award has been earned.
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(nn) “Restricted Stock Unit” means an unfunded and unsecured promise to deliver Common Shares, cash, other securities or other property, subject to certain restrictions (including, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 9 of this Plan.
(oo) “Restricted Stock” means Common Shares, subject to certain specified restrictions (including, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 9 of this Plan.
(pp) “SAR Period” has the meaning given such term in Section 8(c) of this Plan.
(qq) “Securities Act” means the Securities Act of 1933, as amended, and any successor thereto. Reference in this Plan to any section of the Securities Act shall be deemed to include any rules, regulations or other official interpretative guidance under such section, and any amendments or successor provisions to such section, rules, regulations or guidance.
(rr) “Stock Appreciation Right” or “SAR” means an Award granted under Section 8 of this Plan which meets all of the requirements of Section 1.409A-1(b)(5)(i)(B) of the Treasury Regulations.
(ss) “Stock Bonus Award” means an Award granted under Section 10 of this Plan.
(tt) “Strike Price” means, except as otherwise provided by the Committee in the case of Substitute Awards, (i) in the case of a SAR granted in tandem with an Option, the Exercise Price of the related Option, or (ii) in the case of a SAR granted independent of an Option, the Fair Market Value on the Date of Grant.
(uu) “Subsidiary” means, with respect to any specified Person:
(i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of outstanding Company voting securities (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(ii) any partnership or limited liability company (or any comparable foreign entity) (a) the sole general partner or managing member (or functional equivalent thereof) or the managing general partner of which is such Person or Subsidiary of such Person or (b) the only general partners or managing members (or functional equivalents thereof) of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).
(vv) “Substitute Award” has the meaning given such term in Section 5(e).
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(ww) “Treasury Regulations” means any regulations, whether proposed, temporary or final, promulgated by the U.S. Department of Treasury under the Code, and any successor provisions.
3. Effective Date; Duration. The Plan shall be effective as of October 6, 2017, 2017 (the “Effective Date”), but no Award shall be exercised or paid (or, in the case of a stock Award, shall be granted unless contingent on stockholder approval) unless and until this Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months after the date this Plan is adopted by the Board. The expiration date of this Plan, on and after which date no Awards may be granted hereunder, shall be the tenth anniversary of the Effective Date; provided, however, that such expiration shall not affect Awards then outstanding, and the terms and conditions of this Plan shall continue to apply to such Awards.
4. Administration.
(a) The Committee shall administer this Plan. To the extent required to comply with the provisions of Rule 16b-3 promulgated under the Exchange Act (if the Board is not acting as the Committee under this Plan) or necessary to obtain the exception for performance-based compensation under Section 162(m) of the Code, as applicable, it is intended that each member of the Committee shall, at the time he takes any action with respect to an Award under this Plan, be an Eligible Director. However, the fact that a Committee member shall fail to qualify as an Eligible Director shall not invalidate any Award granted by the Committee that is otherwise validly granted under this Plan. The acts of a majority of the members present at any meeting at which a quorum is present or acts approved in writing by a majority of the Committee shall be deemed the acts of the Committee. Whether a quorum is present shall be determined based on the Committee’s charter as approved by the Board.
(b) Subject to the provisions of this Plan and applicable law, the Committee shall have the sole and plenary authority, in addition to other express powers and authorizations conferred on the Committee by this Plan and its charter, to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of Common Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Common Shares, other securities, other Awards or other property, or canceled, forfeited, or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances the delivery of cash, Common Shares, other securities, other Awards or other property and other amounts payable with respect to an Award; (vii) interpret, administer, reconcile any inconsistency in, settle any controversy regarding, correct any defect in and/or complete any omission in this Plan and any instrument or agreement relating to, or Award granted under, this Plan; (viii) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Committee shall deem appropriate for the proper administration of this Plan; (ix) accelerate the vesting or exercisability of, payment for, or lapse of restrictions on, Awards; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of this Plan.
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(c) The Committee may delegate to one or more officers of the Company or any Affiliate the authority to act on behalf of the Committee with respect to any matter, right, obligation, or election that is the responsibility of or that is allocated to the Committee herein, and that may be so delegated as a matter of law, except for grants of Awards to persons (i) subject to Section 16 of the Exchange Act or (ii) who are, or who are reasonably expected to be, “covered employees” for purposes of Section 162(m) of the Code.
(d) Unless otherwise expressly provided in this Plan, all designations, determinations, interpretations, and other decisions under or with respect to this Plan or any Award or any documents evidencing Awards granted pursuant to this Plan shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons or entities, including, without limitation, the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, and any stockholder of the Company.
(e) No member of the Board, the Committee, delegate of the Committee or any employee, advisor or agent of the Company or the Board or the Committee (each such person, an “Indemnifiable Person”) shall be liable for any action taken or omitted to be taken or any determination made in good faith with respect to this Plan or any Award hereunder. Each Indemnifiable Person shall be indemnified and held harmless by the Company against and from (and the Company shall pay or reimburse on demand for) any loss, cost, liability, or expense (including attorneys’ fees) that may be imposed upon or incurred by such Indemnifiable Person in connection with or resulting from any action, suit or proceeding to which such Indemnifiable Person may be a party or in which such Indemnifiable Person may be involved by reason of any action taken or omitted to be taken under this Plan or any Award Agreement and against and from any and all amounts paid by such Indemnifiable Person with the Company’s approval, in settlement thereof, or paid by such Indemnifiable Person in satisfaction of any judgment in any such action, suit or proceeding against such Indemnifiable Person, provided, that the Company shall have the right, at its own expense, to assume and defend any such action, suit or proceeding and once the Company gives notice of its intent to assume the defense, the Company shall have sole control over such defense with counsel of the Company’s choice. The foregoing right of indemnification shall not be available to an Indemnifiable Person to the extent that a final judgment or other final adjudication (in either case not subject to further appeal) binding upon such Indemnifiable Person determines that the acts or omissions of such Indemnifiable Person giving rise to the indemnification claim resulted from such Indemnifiable Person’s bad faith, fraud or willful criminal act or omission or that such right of indemnification is otherwise prohibited by law or by the Company’s Certificate of Incorporation or Bylaws. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such Indemnifiable Persons may be entitled under the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any other power that the Company may have to indemnify such Indemnifiable Persons or hold them harmless.
(f) Notwithstanding anything to the contrary contained in this Plan, the Board may, in its sole discretion, at any time and from time to time, grant Awards and administer this Plan with respect to such Awards. In any such case, the Board shall have all the authority granted to the Committee under this Plan.
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5. Grant of Awards; Shares Subject to this Plan; Limitations.
(a) The Committee may, from time to time, grant Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Stock Bonus Awards and/or Performance Compensation Awards to one or more Eligible Persons.
(b) Subject to Section 12 of this Plan, the Committee is authorized to deliver under this Plan an aggregate of 5,000,000 Common Shares.
(c) Common Shares underlying Awards under this Plan that are forfeited, cancelled, expire unexercised, or are settled in cash shall be available again for Awards under this Plan at the same ratio at which they were previously granted. Notwithstanding the foregoing, the following Common Shares shall not be available again for Awards under the Plan: (i) shares tendered or held back upon the exercise of an Option or settlement of an Award to cover the Exercise Price of an Award; (ii) shares that are used or withheld to satisfy tax obligations of the Participant; and (iii) shares subject to a Stock Appreciation Right that are not issued in connection with the stock settlement of the SAR upon exercise thereof.
(d) Common Shares delivered by the Company in settlement of Awards may be authorized and unissued shares, shares held in the treasury of the Company, shares purchased on the open market or by private purchase, or a combination of the foregoing.
(e) Subject to compliance with Section 1.409A-3(f) of the Treasury Regulations, Awards may, in the sole discretion of the Committee, be granted under this Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity acquired by the Company or with which the Company combines (“Substitute Awards”). The number of Common Shares underlying any Substitute Awards shall be counted against the aggregate number of Common Shares available for Awards under this Plan.
(f) Notwithstanding any provision in the Plan to the contrary (but subject to adjustment as provided in Section 12), the Committee shall not grant to any one Eligible Person in any one calendar year Awards for more than 120,000 Common Shares in the aggregate without approval of the full Board.
6. Eligibility. Participation shall be limited to Eligible Persons who have entered into an Award Agreement or who have received written notification from the Committee, or from a person designated by the Committee, that they have been selected to participate in this Plan.
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7. Options.
(a) Generally. Each Option granted under this Plan shall be evidenced by an Award Agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)). Each Option so granted shall be subject to the conditions set forth in this Section 7, and to such other conditions not inconsistent with this Plan as may be reflected in the applicable Award Agreement. All Options granted under this Plan shall be Nonqualified Stock Options unless the applicable Award Agreement expressly states that the Option is intended to be an Incentive Stock Option. Notwithstanding any designation of an Option, to the extent that the aggregate Fair Market Value of Common Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company or any Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonqualified Stock Options. Incentive Stock Options shall be granted only to Eligible Persons who are employees of the Company and its Affiliates, and no Incentive Stock Option shall be granted to any Eligible Person who is ineligible to receive an Incentive Stock Option under the Code. No Option shall be treated as an Incentive Stock Option unless this Plan has been approved by the stockholders of the Company in a manner intended to comply with the stockholder approval requirements of Section 422(b)(1) of the Code, 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. In the case of an Incentive Stock Option, the terms and conditions of such grant shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code. If for any reason an Option intended to be an Incentive Stock Option (or any portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such nonqualification, such Option or portion thereof shall be regarded as a Nonqualified Stock Option appropriately granted under this Plan.
(b) Exercise Price. The exercise price (“Exercise Price”) per Common Share for each Option shall not be less than 100% of the Fair Market Value of such share determined as of the Date of Grant; provided, however, that in the case of an Incentive Stock Option granted to an employee who, at the time of the grant of such Option, owns shares representing more than 10% of the voting power of all classes of shares of the Company or any Affiliate, the Exercise Price per share shall not be less than 110% of the Fair Market Value per share on the Date of Grant; and, provided further, that notwithstanding any provision herein to the contrary, the Exercise Price shall not be less than the par value per Common Share.
(c) Vesting and Expiration. Unless otherwise provided by the Committee in an Award Agreement, Options shall vest and become exercisable in such manner and on such date or dates determined by the Committee and as set forth in the applicable Award Agreement, and shall expire after such period, not to exceed ten (10) years from the Date of Grant, as may be determined by the Committee (the “Option Period”); provided, however, that the Option Period shall not exceed five (5) years from the Date of Grant in the case of an Incentive Stock Option granted to a Participant who on the Date of Grant owns shares representing more than 10% of the voting power of all classes of shares of the Company or any Affiliate; and, provided, further, that notwithstanding any vesting dates set by the Committee, the Committee may, in its sole discretion, accelerate the exercisability of any Option, which acceleration shall not affect the terms and conditions of such Option other than with respect to exercisability:
(i) an Option shall vest and become exercisable with respect to 100% of the Common Shares subject to such Option on the third (3rd) anniversary of the Date of Grant;
(ii) the unvested portion of an Option shall expire upon termination of employment or service of the Participant granted the Option, and the vested portion of such Option shall remain exercisable for:
(A) five years following termination of employment or service by reason of such Participant’s death or Disability (with the determination of Disability to be made by the Committee on a case by case basis), but not later than the expiration of the Option Period;
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(B) for directors, officers and employees of the Company only, five years following termination of employment or service by reason of such Participant’s Retirement, but not later than the expiration of the Option Period, (it being understood that any Incentive Stock Option held by the Participant shall be treated as a Nonqualified Stock Option if exercise is not undertaken within 90 days of the date of Retirement);
(C) five years following the resignation of employment or service by the Participant, but not later than the expiration of the Option Period;
(D) five years following termination of employment or service for any reason other than such Participant’s death, Disability, resignation, or Retirement, and other than such Participant’s termination of employment or service for Cause, but not later than the expiration of the Option Period; and
(E) three years following termination of employment or service for Cause, but not later than the expiration of the Option Period.
(d) Method of Exercise and Form of Payment. No Common Shares shall be delivered pursuant to any exercise of an Option until payment in full of the Exercise Price therefor is received by the Company and the Participant has paid to the Company an amount equal to any federal, state, local and non-U.S. income and employment taxes required to be withheld. Options that have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company accompanied by payment of the Exercise Price. The Exercise Price shall be payable (i) in cash, check (subject to collection), cash equivalent and/or vested Common Shares valued at the Fair Market Value at the time the Option is exercised (including, pursuant to procedures approved by the Committee, by means of attestation of ownership of a sufficient number of Common Shares in lieu of actual delivery of such shares to the Company); provided, however, that such Common Shares are not subject to any pledge or other security interest and are Mature Shares and; (ii) by such other method as the Committee may permit in accordance with applicable law, in its sole discretion, including without limitation: (A) in other property having a fair market value (as determined by the Committee in its discretion) on the date of exercise equal to the Exercise Price or (B) if there is a public market for the Common Shares at such time, by means of a broker-assisted “cashless exercise” pursuant to which the Company is delivered a copy of irrevocable instructions to a stockbroker to sell the Common Shares otherwise deliverable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the Exercise Price or (C) by a “net exercise” method whereby the Company withholds from the delivery of the Common Shares for which the Option was exercised that number of Common Shares having a Fair Market Value equal to the aggregate Exercise Price for the Common Shares for which the Option was exercised. Any fractional Common Shares shall be settled in cash. The payment to be made by the Participant for any federal, state, local and non-U.S. income and employment taxes required to be withheld shall be paid in the form provided for in Section 15 of this agreement.
(e) Notification upon Disqualifying Disposition of an Incentive Stock Option. Each Participant awarded an Incentive Stock Option under this Plan shall notify the Company in writing immediately after the date he makes a disqualifying disposition of any Common Shares acquired pursuant to the exercise of such Incentive Stock Option. A disqualifying disposition is any disposition (including, without limitation, any sale) of such Common Shares before the later of (A) two years after the Date of Grant of the Incentive Stock Option or (B) one year after the date of exercise of the Incentive Stock Option. The Company may, if determined by the Committee and in accordance with procedures established by the Committee, retain possession of any Common Shares acquired pursuant to the exercise of an Incentive Stock Option as agent for the applicable Participant until the end of the period described in the preceding sentence.
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(f) Compliance with Laws, etc. Notwithstanding the foregoing, in no event shall a Participant be permitted to exercise an Option in a manner that the Committee determines would violate the Sarbanes-Oxley Act of 2002, if applicable, or any other applicable law or the applicable rules and regulations of the Securities and Exchange Commission or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or traded.
8. Stock Appreciation Rights.
(a) Generally. Each SAR granted under this Plan shall be evidenced by an Award Agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)). Each SAR so granted shall be subject to the conditions set forth in this Section 8, and to such other conditions not inconsistent with this Plan as may be reflected in the applicable Award Agreement. Any Option granted under this Plan may include tandem SARs. The Committee also may award SARs to Eligible Persons independent of any Option.
(b) Exercise Price. The Exercise Price per Common Share for each Option shall not be less than 100% of the Fair Market Value of such share determined as of the Date of Grant.
(c) Vesting and Expiration. Unless otherwise provided by the Committee in an Award Agreement, a SAR granted in connection with an Option shall become exercisable and shall expire according to the same vesting schedule and expiration provisions as the corresponding Option. A SAR granted independent of an Option shall vest and become exercisable and shall expire in such manner and on such date or dates determined by the Committee and shall expire after such period, not to exceed ten years, as may be determined by the Committee (the “SAR Period”); provided, however, that notwithstanding any vesting dates set by the Committee, the Committee may, in its sole discretion, accelerate the exercisability of any SAR, which acceleration shall not affect the terms and conditions of such SAR other than with respect to exercisability:
(i) a SAR shall vest and become exercisable with respect to 100% of the Common Shares subject to such SAR on the third anniversary of the Date of Grant;
(ii) the unvested portion of a SAR shall expire upon termination of employment or service of the Participant granted the SAR, and the vested portion of such SAR shall remain exercisable for:
(A) five years following termination of employment or service by reason of such Participant’s death or Disability (with the determination of Disability to be made by the Committee on a case by case basis), but not later than the expiration of the SAR Period;
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(B) for directors, officers and employees of the Company only, five years following termination of employment or service by reason of such Participant’s Retirement;
(C) five years following the resignation of employment or service by the Participant, but not later than the expiration of the SAR Period;
(D) five years following termination of employment or service for any reason other than such Participant’s death, Disability, resignation, or Retirement, and other than such Participant’s termination of employment or service for Cause, but not later than the expiration of the SAR Period;
(E) three years following termination of employment or service for Cause, but not later than the expiration of the SAR Period; and
(d) Method of Exercise. SARs that have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Award, specifying the number of SARs to be exercised and the date on which such SARs were awarded. Notwithstanding the foregoing, if on the last day of the Option Period (or in the case of a SAR independent of an option, the SAR Period), the Fair Market Value exceeds the Strike Price, the Participant has not exercised the SAR or the corresponding Option (if applicable), and neither the SAR nor the corresponding Option (if applicable) has expired, such SAR shall be deemed to have been exercised by the Participant on such last day and the Company shall make the appropriate payment therefor.
(e) Payment. Upon the exercise of a SAR, the Company shall pay to the Participant an amount equal to the number of shares subject to the SAR that are being exercised multiplied by the excess, if any, of the Fair Market Value of one Common Share on the exercise date over the Strike Price, less an amount equal to any federal, state, local and non-U.S. income and employment taxes required to be withheld. The Company shall pay such amount in cash, in Common Shares valued at fair market value, or any combination thereof, as determined by the Committee. Any fractional Common Share shall be settled in cash.
9. Restricted Stock and Restricted Stock Units.
(a) Generally. Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award Agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)). Each such grant shall be subject to the conditions set forth in this Section 9, and to such other conditions not inconsistent with this Plan as may be reflected in the applicable Award Agreement.
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(b) Restricted Accounts; Escrow or Similar Arrangement. Upon the grant of Restricted Stock, a book entry in a restricted account shall be established in the Participant’s name at the Company’s transfer agent and, if the Committee determines that the Restricted Stock shall be held by the Company or in escrow rather than held in such restricted account pending the release of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company (i) an escrow agreement satisfactory to the Committee, if applicable, and (ii) the appropriate share power (endorsed in blank) with respect to the Restricted Stock covered by such agreement. If a Participant shall fail to execute an agreement evidencing an Award of Restricted Stock and, if applicable, an escrow agreement and blank share power within the amount of time specified by the Committee, the Award shall be null and void ab initio. Subject to the restrictions set forth in this Section 9 and the applicable Award Agreement, the Participant generally shall have the rights and privileges of a stockholder as to such Restricted Stock, including without limitation the right to vote such Restricted Stock and the right to receive dividends, if applicable. To the extent shares of Restricted Stock are forfeited, any share certificates issued to the Participant evidencing such shares shall be returned to the Company, and all rights of the Participant to such shares and as a stockholder with respect thereto shall terminate without further obligation on the part of the Company.
(c) Vesting; Acceleration of Lapse of Restrictions. Unless otherwise provided by the Committee in an Award Agreement: (i) the Restricted Period shall lapse with respect to 100% of the Restricted Stock and Restricted Stock Units on the third (3rd) anniversary of the Date of Grant; and (ii) the unvested portion of Restricted Stock and Restricted Stock Units shall terminate and be forfeited upon termination of employment or service of the Participant granted the applicable Award.
(d) Delivery of Restricted Stock and Settlement of Restricted Stock Units.
(i) Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth in the applicable shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award Agreement. If an escrow arrangement is used, upon such expiration, the Company shall deliver to the Participant, or his beneficiary, without charge, the share certificate evidencing the shares of Restricted Stock that have not then been forfeited and with respect to which the Restricted Period has expired (rounded down to the nearest full share). Dividends, if any, that may have been withheld by the Committee and attributable to any particular share of Restricted Stock shall be distributed to the Participant in cash or, at the sole discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to the amount of such dividends, upon the release of restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends (except as otherwise set forth by the Committee in the applicable Award Agreement).
(ii) Unless otherwise provided by the Committee in an Award Agreement, upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, the Company shall deliver to the Participant, or his beneficiary, without charge, one Common Share for each such outstanding Restricted Stock Unit; provided, however, that the Committee may, in its sole discretion and subject to the requirements of Section 409A of the Code, elect to (i) pay cash or part cash and part Common Share in lieu of delivering only Common Shares in respect of such Restricted Stock Units or (ii) defer the delivery of Common Shares (or cash or part Common Shares and part cash, as the case may be) beyond the expiration of the Restricted Period if such delivery would result in a violation of applicable law until such time as is no longer the case. If a cash payment is made in lieu of delivering Common Shares, the amount of such payment shall be equal to the Fair Market Value of the Common Shares as of the date on which the Restricted Period lapsed with respect to such Restricted Stock Units, less an amount equal to any federal, state, local and non-U.S. income and employment taxes required to be withheld.
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10. Stock Bonus Awards. The Committee may issue unrestricted Common Shares, or other Awards denominated in Common Shares, under this Plan to Eligible Persons, either alone or in tandem with other awards, in such amounts as the Committee shall from time to time in its sole discretion determine. Each Stock Bonus Award granted under this Plan shall be evidenced by an Award Agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)). Each Stock Bonus Award so granted shall be subject to such conditions not inconsistent with this Plan as may be reflected in the applicable Award Agreement.
11. Performance Compensation Awards.
(a) Generally. The Committee shall have the authority, at the time of grant of any Award described in Sections 7 through 10 of this Plan, to designate such Award as a Performance Compensation Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code. The Committee shall have the authority to make an award of a cash bonus to any Participant and designate such Award as a Performance Compensation Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code.
(b) Discretion of Committee with Respect to Performance Compensation Awards. With regard to a particular Performance Period, the Committee shall have sole discretion to select the length of such Performance Period, the type(s) of Performance Compensation Awards to be issued, the Performance Criteria that will be used to establish the Performance Goal(s), the kind(s) and/or level(s) of the Performance Goals(s) that is (are) to apply and the Performance Formula. Within the first 90 calendar days of a Performance Period (or, if longer or shorter, within the maximum period allowed under Section 162(m) of the Code, if applicable), the Committee shall, with regard to the Performance Compensation Awards to be issued for such Performance Period, exercise its discretion with respect to each of the matters enumerated in the immediately preceding sentence and record the same in writing.
(c) Performance Criteria. The Performance Criteria that will be used to establish the Performance Goal(s) shall be based on the attainment of specific levels of performance of the Company and/or one or more Affiliates, divisions or operational units, or any combination of the foregoing, as determined by the Committee, which criteria will be based on one or more of the following business criteria: (i) revenue; (ii) sales; (iii) profit (net profit, gross profit, operating profit, economic profit, profit margins or other corporate profit measures); (iv) earnings (EBIT, EBITDA, earnings per share, or other corporate earnings measures); (v) net income (before or after taxes, operating income or other income measures); (vi) cash (cash flow, cash generation or other cash measures); (vii) stock price or performance; (viii) total stockholder return (stock price appreciation plus reinvested dividends divided by beginning share price); (ix) economic value added; (x) return measures (including, but not limited to, return on assets, capital, equity, investments or sales, and cash flow return on assets, capital, equity, or sales); (xi) market share; (xii) improvements in capital structure; (xiii) expenses (expense management, expense ratio, expense efficiency ratios or other expense measures); (xiv) business expansion or consolidation (acquisitions and divestitures); (xv) internal rate of return or increase in net present value; (xvi) working capital targets relating to inventory and/or accounts receivable; (xvii) inventory management; (xviii) service or product delivery or quality; (xix) customer satisfaction; (xx) employee retention; (xxi) safety standards; (xxii) productivity measures; (xxiii) cost reduction measures; and/or (xxiv) strategic plan development and implementation. Any one or more of the Performance Criteria adopted by the Committee may be used on an absolute or relative basis to measure the performance of the Company and/or one or more Affiliates as a whole or any business unit(s) of the Company and/or one or more Affiliates or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Criteria may be compared to the performance of a selected group of comparison companies, or a published or special index that the Committee, in its sole discretion, deems appropriate, or as compared to various stock market indices. The Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of Performance Goals pursuant to the Performance Criteria specified in this paragraph. To the extent required under Section 162(m) of the Code, the Committee shall, within the first 90 calendar days of a Performance Period (or, if longer or shorter, within the maximum period allowed under Section 162(m) of the Code), define in an objective fashion the manner of calculating the Performance Criteria it selects to use for such Performance Period and thereafter promptly communicate such Performance Criteria to the Participant.
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(d) Modification of Performance Goal(s). In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing Performance Criteria without obtaining stockholder approval of such alterations, the Committee shall have sole discretion to make such alterations without obtaining stockholder approval. The Committee is authorized at any time during the first 90 calendar days of a Performance Period (or, if longer or shorter, within the maximum period allowed under Section 162(m) of the Code, if applicable), or at any time thereafter to the extent the exercise of such authority at such time would not cause the Performance Compensation Awards granted to any Participant for such Performance Period to fail to qualify as “performance-based compensation” under Section 162(m) of the Code, in its sole discretion, to adjust or modify the calculation of a Performance Goal for such Performance Period, based on and in order to appropriately reflect the following events: (i) asset write-downs; (ii) litigation or claim judgments or settlements; (iii) the effect of changes in tax laws, accounting principles, or other laws or regulatory rules affecting reported results; (iv) any reorganization and restructuring programs; (v) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 (or any successor pronouncement thereto) and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the applicable year; (vi) acquisitions or divestitures; (vii) any other specific unusual or nonrecurring events, or objectively determinable category thereof; (viii) foreign exchange gains and losses; and (ix) a change in the Company’s fiscal year.
(e) Payment of Performance Compensation Awards.
(i) Condition to Receipt of Payment. Unless otherwise provided in the applicable Award Agreement, a Participant must be employed by the Company on the last day of a Performance Period to be eligible for payment in respect of a Performance Compensation Award for such Performance Period.
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(ii) Limitation. A Participant shall be eligible to receive payment in respect of a Performance Compensation Award only to the extent that: (A) the Performance Goals for such period are achieved; and (B) all or some of the portion of such Participant’s Performance Compensation Award has been earned for the Performance Period based on the application of the Performance Formula to such achieved Performance Goals.
(iii) Certification. Following the completion of a Performance Period, the Committee shall review and certify in writing whether, and to what extent, the Performance Goals for the Performance Period have been achieved and, if so, calculate and certify in writing that amount of the Performance Compensation Awards earned for the period based upon the Performance Formula. The Committee shall then determine the amount of each Participant’s Performance Compensation Award actually payable for the Performance Period and, in so doing, may apply Negative Discretion.
(iv) Use of Negative Discretion. In determining the actual amount of an individual Participant’s Performance Compensation Award for a Performance Period, the Committee may reduce or eliminate the amount of the Performance Compensation Award earned under the Performance Formula in the Performance Period through the use of Negative Discretion if, in its sole judgment, such reduction or elimination is appropriate. The Committee shall not have the discretion, except as is otherwise provided in this Plan, to (A) grant or provide payment in respect of Performance Compensation Awards for a Performance Period if the Performance Goals for such Performance Period have not been attained; or (B) increase a Performance Compensation Award above the applicable limitations set forth in Section 5 of this Plan.
(f) Timing of Award Payments. Performance Compensation Awards granted for a Performance Period shall be paid to Participants as soon as administratively practicable following completion of the certifications required by this Section 11, but in no event later than two-and-one-half months following the end of the fiscal year during which the Performance Period is completed in order to comply with the short-term deferral rules under Section 1.409A-1(b)(4) of the Treasury Regulations. Notwithstanding the foregoing, payment of a Performance Compensation Award may be delayed, as permitted by Section 1.409A-2(b)(7)(i) of the Treasury Regulations, to the extent that the Company reasonably anticipates that if such payment were made as scheduled, the Company’s tax deduction with respect to such payment would not be permitted due to the application of Section 162(m) of the Code.
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12. Changes in Capital Structure and Similar Events. In the event of (a) any recapitalization, stock split, reverse stock split, reorganization, merger, amalgamation, consolidation, split-up, split-off, combination, repurchase or exchange of Common Shares or other securities of the Company, issuance of warrants or other rights to acquire Common Shares or other securities of the Company, or other similar corporate transaction or event (including, without limitation, a Change in Control) that affects the Common Shares, or (b) unusual or nonrecurring events (including, without limitation, a Change in Control) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation system, accounting principles or law, such that in either case an adjustment is determined by the Committee in its sole discretion to be necessary or appropriate, then the Committee shall make any such adjustments that are equitable, including without limitation any or all of the following:
(i) adjusting any or all of (A) the number of Common Shares or other securities of the Company (or number and kind of other securities or other property) that may be delivered in respect of Awards or with respect to which Awards may be granted under this Plan (including, without limitation, adjusting any or all of the limitations under Section 5 of this Plan) and (B) the terms of any outstanding Award, including, without limitation, (1) the number of Common Shares or other securities of the Company (or number and kind of other securities or other property) subject to outstanding Awards or to which outstanding Awards relate, (2) the Exercise Price or Strike Price with respect to any Award or (3) any applicable performance measures (including, without limitation, Performance Criteria and Performance Goals);
(ii) providing for a substitution or assumption of Awards, accelerating the exercisability of, lapse of restrictions on, or termination of, Awards or providing for a period of time for exercise prior to the occurrence of such event; and
(iii) subject to the requirements of Section 409A of the Code, canceling any one or more outstanding Awards and causing to be paid to the holders thereof, in cash, Common Shares, other securities or other property, or any combination thereof, the value of such Awards, if any, as determined by the Committee (which if applicable may be based upon the price per Common Share received or to be received by other stockholders of the Company in such event), including without limitation, in the case of an outstanding Option or SAR, a cash payment in an amount equal to the excess, if any, of the fair market value (as of a date specified by the Committee) of the Common Shares subject to such Option or SAR over the aggregate Exercise Price or Strike Price of such Option or SAR, respectively (it being understood that, in such event, any Option or SAR having a per share Exercise Price or Strike Price equal to, or in excess of, the fair market value of a Common Share subject thereto may be canceled and terminated without any payment or consideration therefor); provided, however, that in the case of any “equity restructuring” (within the meaning of the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004) or ASC Topic 718, or any successor thereto), the Committee shall make an equitable or proportionate adjustment to outstanding Awards to reflect such equity restructuring. Any adjustment in Incentive Stock Options under this Section 12 (other than any cancellation of Incentive Stock Options) shall be made only to the extent not constituting a “modification” within the meaning of Section 424(h)(3) of the Code, and any adjustments under this Section 12 shall be made in a manner that does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act. The Company shall give each Participant notice of an adjustment hereunder and, upon notice, such adjustment shall be conclusive and binding for all purposes.
13. Effect of Change in Control. Notwithstanding any provision specifically provided in an Award Agreement or any provision of this Plan to the contrary, in the event of a Change in Control:
(a) the Committee may, in its sole discretion, accelerate the exercisability of any Option with respect to all or any portion of a particular outstanding Award or Awards, which acceleration shall not affect the terms and conditions of such Option other than with respect to exercisability;
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(b) the Committee may, in its sole discretion, cause the Restricted Period, with respect to all or any portion of a particular outstanding Award or Awards, to expire as of a time prior to the Change in Control (including without limitation a waiver of any applicable Performance Goals);
(c) the Committee may, in its sole discretion, with respect to all or any portion of a particular outstanding Award or Awards, cause Performance Periods in effect on the date the Change in Control occurs to end on such date of the Change in Control, and if the Committee, at its sole discretion does take said action, the committee shall (i) determine the extent to which Performance Goals with respect to each such Performance Period have been met based upon such audited or unaudited financial information or other information then available as it deems relevant and (ii) cause the Participant to receive partial or full payment of Awards for each such Performance Period based upon the Committee’s determination of the degree of attainment of the Performance Goals, or assuming that the applicable “target” levels of performance have been attained or on such other basis determined by the Committee.
To the extent practicable, if any such actions are taken by the Committee, in its sole discretion, under the immediately preceding clauses (a) through (c) such actions shall occur in a manner and at a time which allows affected Participants the ability to participate in the Change in Control transactions with respect to the Common Shares subject to their Awards.
14. Amendments and Termination.
(a) Amendment and Termination of this Plan. The Board may amend, alter, suspend, discontinue, or terminate this Plan or any portion thereof at any time; provided, that (i) no amendment to the definition of Eligible Person in Section 2(q), Section 5(b), Section 11(c) or Section 14(b) (to the extent required by the proviso in such Section 14(b)) shall be made without stockholder approval and (ii) no such amendment, alteration, suspension, discontinuation or termination shall be made without stockholder approval if such approval is necessary to comply with any tax or regulatory requirement applicable to this Plan (including, without limitation, as necessary to comply with any rules or requirements of any securities exchange or inter-dealer quotation system on which the Common Shares may be listed or quoted or to prevent the Company from being denied a tax deduction under Section 162(m) of the Code); and, provided, further, that any such amendment, alteration, suspension, discontinuance or termination that would materially and adversely affect the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the prior written consent of the affected Participant, holder or beneficiary.
(c) Amendment of Award Agreements. The Committee may, to the extent consistent with the terms of any applicable Award Agreement, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted or the associated Award Agreement, prospectively or retroactively; provided, however that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect the rights of any Participant with respect to any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant; and, provided, further, that without stockholder approval, except as otherwise permitted under Section 12 of this Plan, (i) no amendment or modification may reduce the Exercise Price of any Option or the Strike Price of any SAR, (ii) the Committee may not cancel any outstanding Option or SAR and replace it with a new Option or SAR, another Award or cash or take any action that would have the effect of treating such Award as a new Award for tax or accounting purposes and (iii) the Committee may not take any other action that is considered a “repricing” for purposes of the stockholder approval rules of the applicable securities exchange or inter-dealer quotation system on which the Common Shares are listed or quoted.
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15. General.
(a) Award Agreements. Each Award under this Plan shall be evidenced by an Award Agreement, which shall be delivered to the Participant (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)) and shall specify the terms and conditions of the Award and any rules applicable thereto, including without limitation, the effect on such Award of the death, Disability or termination of employment or service of a Participant, or of such other events as may be determined by the Committee. The Company’s failure to specify any term of any Award in any particular Award Agreement shall not invalidate such term, provided such terms was duly adopted by the Board or the Committee.
(b) Nontransferability; Trading Restrictions.
(i) Each Award shall be exercisable only by a Participant during the Participant’s lifetime, or, if permissible under applicable law, by the Participant’s legal guardian or representative. No Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or an Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
(ii) Notwithstanding the foregoing, the Committee may, in its sole discretion, permit Awards (other than Incentive Stock Options) to be transferred by a Participant, with or without consideration, subject to such rules as the Committee may adopt consistent with any applicable Award Agreement to preserve the purposes of this Plan, to: (A) any person who is a “family member” of the Participant, as such term is used in the instructions to Form S-8 under the Securities Act (collectively, the “Immediate Family Members”); (B) a trust solely for the benefit of the Participant and his or her Immediate Family Members; or (C) a partnership or limited liability company whose only partners or stockholders are the Participant and his or her Immediate Family Members; or (D) any other transferee as may be approved either (I) by the Board or the Committee in its sole discretion, or (II) as provided in the applicable Award Agreement (each transferee described in clauses (A), (B) (C) and (D) above is hereinafter referred to as a “Permitted Transferee”); provided, that the Participant gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the Participant in writing that such a transfer would comply with the requirements of this Plan.
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(iii) The terms of any Award transferred in accordance with the immediately preceding sentence shall apply to the Permitted Transferee and any reference in this Plan, or in any applicable Award Agreement, to a Participant shall be deemed to refer to the Permitted Transferee, except that (A) Permitted Transferees shall not be entitled to transfer any Award, other than by will or the laws of descent and distribution; (B) Permitted Transferees shall not be entitled to exercise any transferred Option unless there shall be in effect a registration statement on an appropriate form covering the Common Shares to be acquired pursuant to the exercise of such Option if the Committee determines, consistent with any applicable Award Agreement, that such a registration statement is necessary or appropriate; (C) the Committee or the Company shall not be required to provide any notice to a Permitted Transferee, whether or not such notice is or would otherwise have been required to be given to the Participant under this Plan or otherwise; and (D) the consequences of the termination of the Participant’s employment by, or services to, the Company or an Affiliate under the terms of this Plan and the applicable Award Agreement shall continue to be applied with respect to the Participant, including, without limitation, that an Option shall be exercisable by the Permitted Transferee only to the extent, and for the periods, specified in this Plan and the applicable Award Agreement.
(iv) The Committee shall have the right, either on an Award-by-Award basis or as a matter of policy for all Awards or one or more classes of Awards, to condition the delivery of vested Common Shares received in connection with such Award on the Participant’s agreement to such restrictions as the Committee may determine.
(c) Tax Withholding.
(i) A Participant shall be required to pay to the Company or any Affiliate, or the Company or any Affiliate shall have the right and is hereby authorized to withhold, from any cash, Common Shares, other securities or other property deliverable under any Award or from any compensation or other amounts owing to a Participant, the amount (in cash, Common Shares, other securities or other property) of any required withholding taxes, including any federal, state, local and non-U.S. income and employment taxes in respect of an Award, its exercise, or any payment or transfer under an Award or under this Plan and to take such other action as may be necessary in the opinion of the Committee or the Company to satisfy all obligations for the payment of such withholding and taxes.
(ii) Without limiting the generality of clause (i) above, the Committee may, in its sole discretion, require a Participant to pay the foregoing withholding liability in cash as a precondition to exercising the Participants Option until such time as Company has registered its stock and has established a relationship with a broker-dealer acting on the Company’s behalf to sell stock in the market. After such time the Committee, in its sole discretion, may permit a Participant to satisfy, in whole or in part, the foregoing withholding liability by (A) the delivery of Common Shares (which are not subject to any pledge or other security interest and are Mature Shares) owned by the Participant having a fair market value equal to such withholding liability or (B) having the Company withhold from the number of Common Shares otherwise issuable or deliverable pursuant to the exercise or settlement of the Award a number of shares with a fair market value equal to such withholding liability (but no more than the minimum required statutory withholding liability).
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(d) No Claim to Awards; No Rights to Continued Employment; Waiver. No employee of the Company or an Affiliate, or other person, shall have any claim or right to be granted an Award under this Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award. There is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards and the Committee’s determinations and interpretations with respect thereto need not be the same with respect to each Participant and may be made selectively among Participants, whether or not such Participants are similarly situated. Neither this Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ or service of the Company or an Affiliate, nor shall it be construed as giving any Participant any rights to continued service on the Board. The Company or any of its Affiliates may at any time dismiss a Participant from employment or discontinue any consulting relationship, free from any liability or any claim under this Plan, unless otherwise expressly provided in this Plan or any Award Agreement. By accepting an Award under this Plan, a Participant shall thereby be deemed to have waived any claim to continued exercise or vesting of an Award or to damages or severance entitlement related to non-continuation of the Award beyond the period provided under this Plan or any Award Agreement, notwithstanding any provision to the contrary in any written employment contract or other agreement between the Company and its Affiliates and the Participant, whether any such agreement is executed before, on or after the Date of Grant.
(e) International Participants. With respect to Participants who reside or work outside of the United States of America and who are not (and who are not expected to be) “covered employees” within the meaning of Section 162(m) of the Code, the Committee may in its sole discretion amend the terms of this Plan or outstanding Awards (or establish a sub-plan) with respect to such Participants in order to conform such terms with the requirements of local law or to obtain more favorable tax or other treatment for a Participant, the Company or its Affiliates.
(f) Designation and Change of Beneficiary. Each Participant may file with the Committee a written designation of one or more persons as the beneficiary(ies) who shall be entitled to receive the amounts payable with respect to an Award, if any, due under this Plan upon his or her death. A Participant may, from time to time, revoke or change his or her beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation filed with the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participant’s death, and in no event shall it be effective as of a date prior to such receipt. If no beneficiary designation is filed by a Participant, the beneficiary shall be deemed to be his or her spouse or, if the Participant is unmarried at the time of death, his or her estate. Upon the occurrence of a Participant’s divorce (as evidenced by a final order or decree of divorce), any spousal designation previously given by such Participant shall automatically terminate.
(g) Termination of Employment/Service. Unless determined otherwise by the Committee at any point following such event: (i) neither a temporary absence from employment or service due to illness, vacation or leave of absence nor a transfer from employment or service with the Company to employment or service with an Affiliate (or vice-versa) shall be considered a termination of employment or service with the Company or an Affiliate; and (ii) if a Participant’s employment with the Company and its Affiliates terminates, but such Participant continues to provide services to the Company and its Affiliates in a non-employee capacity (or vice-versa), such change in status shall not be considered a termination of employment with the Company or an Affiliate.
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(h) No Rights as a Stockholder. Except as otherwise specifically provided in this Plan or any Award Agreement, no person shall be entitled to the privileges of ownership in respect of Common Shares that are subject to Awards hereunder until such shares have been issued or delivered to that person. As such, no adjustments shall be made for dividends of any kind or nature, distributions, or other rights for which the record date is prior to the date such shares have been issued or delivered to that person.
(i) Government and Other Regulations.
(i) The obligation of the Company to settle Awards in Common Shares or other consideration shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell, and shall be prohibited from offering to sell or selling, any Common Shares pursuant to an Award unless such shares have been properly registered for sale pursuant to the Securities Act with the Securities and Exchange Commission or unless the Company has received an opinion of counsel, satisfactory to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale under the Securities Act any of the Common Shares to be offered or sold under this Plan. The Committee shall have the authority to provide that all certificates for Common Shares or other securities of the Company or any Affiliate delivered under this Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under this Plan, the applicable Award Agreement, the federal securities laws, or the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or inter-dealer quotation system upon which such shares or other securities are then listed or quoted and any other applicable federal, state, local or non-U.S. laws, and, without limiting the generality of Section 9 of this Plan, the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. Notwithstanding any provision in this Plan to the contrary, the Committee reserves the right to add any additional terms or provisions to any Award granted under this Plan that it in its sole discretion deems necessary or advisable in order that such Award complies with the legal requirements of any governmental entity to whose jurisdiction the Award is subject.
(ii) The Committee may cancel an Award or any portion thereof if it determines, in its sole discretion, that legal or contractual restrictions and/or blockage and/or other market considerations would make the Company’s acquisition of Common Shares from the public markets, the Company’s issuance of Common Shares to the Participant, the Participant’s acquisition of Common Shares from the Company and/or the Participant’s sale of Common Shares to the public markets, illegal, impracticable or inadvisable. If the Committee determines to cancel all or any portion of an Award in accordance with the foregoing, unless doing so would violate Section 409A of the Code, the Company shall pay to the Participant an amount equal to the excess of (A) the aggregate fair market value of the Common Shares subject to such Award or portion thereof canceled (determined as of the applicable exercise date, or the date that the shares would have been vested or delivered, as applicable), over (B) the aggregate Exercise Price or Strike Price (in the case of an Option or SAR, respectively) or any amount payable as a condition of delivery of Common Shares (in the case of any other Award). Such amount shall be delivered to the Participant as soon as practicable following the cancellation of such Award or portion thereof. The Committee shall have the discretion to consider and take action to mitigate the tax consequence to the Participant in cancelling an Award in accordance with this clause.
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(j) Payments to Persons Other Than Participants. If the Committee shall find that any person to whom any amount is payable under this Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to his spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.
(k) Nonexclusivity of this Plan. Neither the adoption of this Plan by the Board nor the submission of this Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options or other equity-based awards otherwise than under this Plan, and such arrangements may be either applicable generally or only in specific cases.
(l) No Trust or Fund Created. Neither this Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate, on the one hand, and a Participant or other person or entity, on the other hand. No provision of this Plan or any Award shall require the Company, for the purpose of satisfying any obligations under this Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under this Plan other than as general unsecured creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees under general law.
(m) Reliance on Reports. Each member of the Committee and each member of the Board shall be fully justified in acting or failing to act, as the case may be, and shall not be liable for having so acted or failed to act in good faith, in reliance upon any report made by the independent public accountant of the Company and its Affiliates and/or any other information furnished in connection with this Plan by any agent of the Company or the Committee or the Board, other than himself.
(n) Relationship to Other Benefits. No payment under this Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company except as otherwise specifically provided in such other plan.
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(o) Governing Law. This Award Agreement shall be governed by and construed in accordance with the laws of the State of Delaware except as superseded by applicable Federal law.
(p) Severability. If any provision of this Plan or any Award or Award Agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any person or entity or Award, or would disqualify this Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws in the manner that most closely reflects the original intent of the Award or the Plan, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of this Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, person or entity or Award and the remainder of this Plan and any such Award shall remain in full force and effect.
(q) Obligations Binding on Successors. The obligations of the Company under this Plan shall be binding upon any successor corporation or organization resulting from the merger, amalgamation, consolidation 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.
(r) Code Section 162(m) Approval. If so determined by the Committee, the provisions of this Plan regarding Performance Compensation Awards shall be disclosed and reapproved by stockholders no later than the first stockholder meeting that occurs in the fifth year following the year in which stockholders previously approved such provisions, in each case in order for certain Awards granted after such time to be exempt from the deduction limitations of Section 162(m) of the Code. Nothing in this clause, however, shall affect the validity of Awards granted after such time if such stockholder approval has not been obtained.
(s) Expenses; Gender; Titles and Headings. The expenses of administering this Plan shall be borne by the Company and its Affiliates. Masculine pronouns and other words of masculine gender shall refer to both men and women. The titles and headings of the sections in this Plan are for convenience of reference only, and in the event of any conflict, the text of this Plan, rather than such titles or headings shall control.
(t) Other Agreements. Notwithstanding the above, the Committee may require, as a condition to the grant of and/or the receipt of Common Shares under an Award, that the Participant execute lock-up, stockholder or other agreements, as it may determine in its sole and absolute discretion.
(u) Section 409A. The Plan and all Awards granted hereunder are intended to comply with, or otherwise be exempt from, the requirements of Section 409A of the Code. The Plan and all Awards granted under this Plan shall be administered, interpreted, and construed in a manner consistent with Section 409A of the Code to the extent necessary to avoid the imposition of additional taxes under Section 409A(a)(1)(B) of the Code. Notwithstanding anything in this Plan to the contrary, in no event shall the Committee exercise its discretion to accelerate the payment or settlement of an Award where such payment or settlement constitutes deferred compensation within the meaning of Section 409A of the Code unless, and solely to the extent that, such accelerated payment or settlement is permissible under Section 1.409A-3(j)(4) of the Treasury Regulations. If a Participant is a “specified employee” (within the meaning of Section 1.409A-1(i) of the Treasury Regulations) at any time during the twelve (12)-month period ending on the date of his termination of employment, and any Award hereunder subject to the requirements of Section 409A of the Code is to be satisfied on account of the Participant’s termination of employment, satisfaction of such Award shall be suspended until the date that is six (6) months after the date of such termination of employment.
(v) Payments. Participants shall be required to pay, to the extent required by applicable law, any amounts required to receive Common Shares under any Award made under this Plan.
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 |
Stock Option Award |
| Participant: | |
| Grant Date: | |
| Grant: Nonqualified Stock Option | |
| Expiration Date: |
This Stock Option Award (“Award Agreement”) evidences the grant, to the above-named Participant by Aditx Therapeutics, Inc., (the “Company”), of an option to purchase the number of shares of common stock of the Company as set forth below (the “Award”). The general terms of the Award are described below. The Award is subject to the terms provided herein and the terms, conditions and provisions in the Company’s 2017 Equity Incentive Plan, as amended from time to time (the “2017 Plan”), which are incorporated into this Award Agreement by reference. Except as otherwise expressly provided, all capitalized terms used that are not defined herein shall have the same meaning as provided in the 2017 Plan.
| 1. | Grant of Award. Pursuant to the 2017 Plan, subject to the terms and conditions contained herein, and subject to any applicable securities and/or other laws, the Award hereby granted, as of the Grant Date set forth above, to the above-named Participant conveys to the Participant the right to purchase from the Company up to shares (the “Option Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at an exercise price of $X.XX per share (the “Exercise Price”). |
| 2. | Nonqualified Stock Option. The Award granted hereunder is intended to be a nonqualified stock option and is not intended to constitute or be treated as an Incentive Stock Option as such term is defined under Section 422 of the Internal Revenue Code, as amended. |
| 3. | Vesting. Pursuant to the 2017 Plan, subject to the terms and conditions contained herein, and subject to any applicable securities and/or other laws, the Option Shares granted herein shall vest as follows: |
| 4. | Expiration. The Award granted herein, unless earlier terminated or forfeited under the terms provided herein and in the 2017 Plan, shall expire on the “Expiration Date” noted above. To the extent not previously exercised, the Award and all rights with respect thereto, shall terminate and become null and void upon the Expiration Date. |
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| 5. | Termination. The following describes the effect of termination of Participants employment or service by reason of Participant’s death, Disability, resignation, retirement, termination and termination for Cause on the exercisability. In the event of each of the following to occur: (i) the unvested portion of an Award shall expire immediately and no longer be exercisable and (ii) any already vested portion of the Award shall remain exercisable as follows: |
| (a) | until the Expiration Date in the event of termination of employment or service by reason of such Participant’s death or Disability (with the determination of Disability to be made by the Company on a case by case basis); |
| (b) | for directors, officers and employees of the Company only, until the Expiration Date in the event of termination of employment or service by reason of such Participant’s Retirement; |
| (c) | until the Expiration Date in the event of the resignation of employment or service by the Participant; |
| (d) | until the Expiration Date in the event of termination of employment or service for any reason other than such Participant’s death, Disability, resignation, or Retirement, and other than such Participant’s termination of employment or service for Cause; and |
| (e) | for three years following termination of employment or service for Cause, but not later than the Expiration Date. |
| 6. | Method of Exercise and Form of Payment. No Common Shares shall be delivered pursuant to any exercise of an Award until payment in full of the Exercise Price therefor is received by the Company and the Participant has paid to the Company an amount equal to any federal, state, local and non-U.S. income and employment taxes required to be withheld. Options Shares that have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company accompanied by payment of the Exercise Price. |
| (a) | The Exercise Price shall be payable (i) in cash, check (subject to collection), cash equivalent and/or vested Common Shares valued at the Fair Market Value at the time the Award is exercised (including, pursuant to procedures approved by the Company, by means of attestation of ownership of a sufficient number of Common Shares in lieu of actual delivery of such shares to the Company); provided, however, that such Common Shares are not subject to any pledge or other security interest and are Mature Shares and; (ii) by such other method as the Committee may permit in accordance with applicable law, in its sole discretion, including without limitation: (A) in other property having a fair market value (as determined by the Committee in its discretion) on the date of exercise equal to the Exercise Price or (B) if there is a public market for the Common Shares at such time, by means of a broker-assisted “cashless exercise” pursuant to which the Company is delivered a copy of irrevocable instructions to a stockbroker to sell the Common Shares otherwise deliverable upon the exercise of the Award and to deliver promptly to the Company an amount equal to the Exercise Price or (C) by a “net exercise” method whereby the Company withholds from the delivery of the Common Shares for which the Award was exercised that number of Common Shares having a Fair Market Value equal to the aggregate Exercise Price for the Common Shares for which the Award was exercised. Any fractional Common Shares shall be settled in cash. |
| (b) | The payment to be made by the Participant for any federal, state, local and non-U.S. income and employment taxes required to be withheld shall be paid as provided for in the Tax Withholding section below. |
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| (c) | The Company, at its sole discretion, may set a reasonable minimum number of shares of Common Stock that may be purchased on any exercise of an Award, provided that such minimum number will not prevent the Participant from exercising the Award for the full number of shares of Common Stock for which it is then exercisable. |
| 7. | Tax Withholding. |
| (a) | A Participant shall be required to pay to the Company or any Affiliate, or the Company or any Affiliate shall have the right and is hereby authorized to withhold, from any cash, Common Shares, other securities or other property deliverable under any Award or from any compensation or other amounts owing to a Participant, the amount (in cash, Common Shares, other securities or other property) of any required withholding taxes, including any federal, state, local and non-U.S. income and employment taxes in respect of an Award, its exercise, or any payment or transfer under an Award or under this Plan and to take such other action as may be necessary in the opinion of the Committee or the Company to satisfy all obligations for the payment of such withholding and taxes. |
| (b) | Without limiting the generality of clause (a) above, the Company may, in its sole discretion, require a Participant to pay the foregoing withholding liability in cash until such time as Company has registered its stock and has established a relationship with a broker-dealer acting on the Company’s behalf to sell stock in the market. After such time the Company, in its sole discretion, may permit a Participant to satisfy, in whole or in part, the foregoing withholding liability by (A) the delivery of Common Shares (which are not subject to any pledge or other security interest and are Mature Shares) owned by the Participant having a fair market value equal to such withholding liability or (B) having the Company withhold from the number of Common Shares otherwise issuable or deliverable pursuant to the exercise or settlement of the Award a number of shares with a fair market value equal to such withholding liability (but no more than the minimum required statutory withholding liability). |
| 8. | Stockholder Rights. Except as otherwise specifically provided in the 2017 Plan, the Participant shall not be entitled to the privileges of ownership in respect of Common Shares that are subject to Awards hereunder until such shares have been issued or delivered to that person. As such, no adjustments shall be made for dividends of any kind or nature, distributions, or other rights for which the record date is prior to the date such shares have been issued or delivered to that person. |
| 9. | Stock Certificate. Until the Option Shares are registered, each certificate representing the Option Shares shall be stamped or otherwise imprinted with a legend substantially in the following form: |
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM, SUCH COMPLIANCE, AT THE OPTION OF THE COMPANY, TO BE EVIDENCED BY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
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| 10. | Amendment. The Company may, subject to approval of the Participant amend the Award at any time if the Company determines, in its sole discretion that amendment is necessary or advisable in light of any applicable addition to or change in the Code, any regulations issued thereunder, or any federal or state securities law or other applicable law or regulation. |
| 11. | Acknowledgement. The Participant acknowledges having received and read a copy of this Award Agreement and the 2017 Plan and agrees to comply with the 2017 Plan and all laws, rules and regulations applicable to the Award and to the sale or other disposition of the Common Stock of the Company received. |
| 12. | Entire Agreement. This Award Agreement contains the entire understanding between the parties. No other representations or covenants have induced either party to execute this Award Agreement, and this Award Agreement supersedes all prior understandings among the parties hereto with respect to the subject matter contained herein. |
| 13. | Notices. Any notice to the Company provided for in this Award Agreement shall be addressed to the Company in care of its CEO at 11161 Anderson Street, Suite 105-10014 Loma Linda, California 92354, and any notice to the Participant shall be addressed to the Participant at the address currently in the records of the Company. Any notice shall be deemed duly given if and when properly addressed and posted by registered or certified mail, postage prepaid. |
| 14. | Severability. If any provision of this Award Agreement is held to be illegal or invalid for any reason, the remaining provisions are to remain in full force and effect and are to be construed and enforced in accordance with the purposes of this Award Agreement as if the illegal or invalid provision or provisions did not exist. |
| 15. | Governing Law. This Award Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware except as superseded by applicable Federal law. |
| 16. | Headings. The section headings of this Award Agreement are for convenience of reference only and do not form a part of the terms of this Award Agreement. |
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this Award Agreement, and the Participant has placed his or her signature hereon, effective as of the Grant Date.
| ADITX THERAPEUTICS, INC. | |
| Amro Albanna | |
| CEO | |
| ACCEPTED AND AGREED TO: | |
| Participant |
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Exhibit 10.7
CONSULTING AGREEMENT
This consulting agreement (“Agreement”) is effective as of March 1, 2018 by and between ADiTx Therapeutics, Inc. (“Client”) and Canyon Ridge Development LLC doing business as Mission Critical Solutions International (“Consultant”). Client and Consultant together may be referred to hereunder as the “Parties”.
Recitals
WHEREAS, Client wishes to engage Consultant upon the terms and conditions herein contained; and
WHEREAS, Consultant is willing to be engaged by Client upon the terms and conditions herein contained; and
WHEREAS, a significant portion of Client’s business and assets are comprised of Proprietary and Confidential Information, as defined below, which Client wishes to preserve and protect;
NOW, THEREFORE, in consideration of the recitals, and of the terms, covenants, and conditions set forth herein, and for other good and valuable consideration, receipt of which is hereby acknowledged, Client and Consultant mutually agree as follows:
1. Consulting Services. Client hereby retains Consultant to render the following services (the “Services”) to Client:
| ● | Project management, planning, scheduling and coordination assistance and related services |
| ● | Business process analysis and design assistance |
| ● | Consultation and assistance related to general business and corporate matters |
| ● | Coordinate and liaise, in a limited capacity, with certain Client vendors and strategic partners |
| ● | Other services as mutually agreed to by the Parties |
The manner, means, and schedule by which Consultant chooses to complete the services are in Consultant’s sole discretion and control. Consultant’s obligations shall be conditioned upon receiving such information and cooperation from Client as may be reasonably necessary to perform the services.
2. Services NOT Performed by Consultant. Although Consultant may be asked to comment upon or participate in the development or drafting of Client’s legal documents, financial statements, regulatory documents, and other documentation in the course of performing the services hereunder, Client acknowledges that Consultant is not an attorney, CPA, tax professional nor is Consultant providing legal, auditing, tax or accounting services, or opining on representations made in any financial statements, legal documents, or regulatory documents. Client acknowledges that Consultant’s comments should be interpreted only as things to consider. Client further acknowledges that Client should consult with its own legal, regulatory, auditing, tax and accounting advisors regarding any matters requiring legal, regulatory, auditing, tax or accounting advice. In no event shall Consultant be required by this Agreement to make management decisions for Client, nor shall Consultant make, or represent to others that Consultant can make, any management decisions for the Client; Client alone makes all decisions and should reject any opinions of Consultant that they do not agree with. Client further acknowledges and represents that Client alone is responsible for approving the acceptability of and the final decision to use any documents regardless of whether Consultant participated in the drafting of such documents; Client and not Consultant is responsible for final proofreading of all documents; and Consultant is not responsible for errors, omissions, or typographical errors in documents regardless of whether Consultant participated in the drafting of such documents. Client expressly acknowledges that Consultant shall not provide services of any kind related to accounts payable, accounts receivable or collections.
3. Relationship of Parties. The Consultant is an independent contractor of the Client. Nothing in this Agreement shall constitute the relationship of employer and employee, principal and agent, partnership or joint venture, or any other fiduciary relationship. Neither party is or shall claim to be a legal agent, representative, partner, or employee of the other. Neither party shall have the right or authority to contract in the name of the other, nor shall it assume or create any obligations, debts, accounts or liabilities for the other, direct the employees of the other, nor will it state or imply that it has such authority. Consultant shall retain the right to perform services for others during the term of this agreement.
Consultant acknowledges that Client shall not be responsible for federal, state and local taxes derived from the Consultant’s income or for the withholding and/or payment of any federal, state and local income and other payroll taxes, workers’ compensation, disability benefits applicable to Consultant.
4. Term. The term of this Agreement shall commence on the date first written above and shall remain in effect, unless earlier terminated, as provided for herein, until May 31, 2018.
5. Termination and Effect of Termination. Either Party may terminate this Agreement, with or without cause, upon thirty (30) days advance written notice to the other Party, unless otherwise mutually agreed upon in writing.
In the event of termination of this agreement Client shall pay for all services rendered and approved expenses incurred up to the date of termination. In this event Consultant shall submit a final invoice to Client and Client shall pay Consultant the final invoice within 5 business days of receipt of the invoice.
In the event of termination, Consultant shall, in accordance with Client’s written instructions and at Client’s expense, destroy or deliver to Client (i) all work product, work in progress, property, data, documentation or information or materials, prepared, conceived, discovered, developed or created by Consultant in connection with performing the Services or any other of the Consultant’s responsibilities owed to Client during the term hereof (collectively, “Work Product”), and (ii) all other property, data, etc., belonging to Client and in the possession or under the control of Consultant
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6. Compensation, Reimbursement, and Invoicing. Client agrees to pay Consultant a flat rate of $13,000.00 per month to provide Services provided hereunder (“Fees”).
In addition to Consultant’s Fees, Client shall also be charged a standard flat rate for basic expenses equal to two and one half percent (2.5%) of the Fees (“Basic Expense Fee”). Basic expenses includes reasonable postage/mail handling related cost (not including overnight delivery and messenger services), local mileage, reasonable printing and copying costs, minor office supplies, and basic level telecom/internet connectivity and IT support costs. No documentation to support the Basic Expense Fee shall be maintained or provided to Client.
In addition to Consultant’s Fees and the Basic Expense Fee, Consultant shall be entitled to payment or reimbursement for any additional expenses (“Additional Expenses”) incurred, only if such expenses have been authorized in advance by the Client. Additional Expenses include but are not limited to: travel, entertainment, food, and lodging; any per diem allowance; equipment; overnight delivery and express postage; printing, copying, office supply and telecommunication costs in excess of those covered as part of the Basic Expense Fee; or other similar costs. The Consultant will maintain adequate documentation and records to support such Additional Expenses invoiced to the client including receipts for travel related costs. Consultant maintains the right to require pre-payment by Client of certain significant expenditures.
Consultant shall submit invoices to the Client, for the Fees, Basic Expense Fee, and any Additional Expenses, two times per month: one invoice for the first through the fifteenth of the month and the second invoice for the sixteenth through the thirtieth of the month. Client shall pay invoiced amounts within five (5) days of receipt of an invoice. Interest may be charged on past-due accounts at the rate of 10% per month. If Client does not raise written objections to Consultant’s invoice and/or statement within ten (10) days of receipt, Client will be deemed to have accepted the invoice as accurate.
7. Disclosure of Information. Consultant agrees that at no time during or for five (5) years subsequent to the term of this Agreement will Consultant disclose or use, except in pursuit of the business of Client or any of its subsidiaries or affiliates, any Proprietary and Confidential Information of Client, or any subsidiary or affiliate of Client, acquired during the term of this Agreement. The term “Proprietary and Confidential Information” shall mean, but is not limited to, all information which is known or intended to be known only to Client, its subsidiaries and affiliates, and their employees, including any document, record, financial or other information of Client, or others in a confidential relationship with Client, and further relates to specific business matters such as the Client’s financial information, policies and procedures, fee structures, trade secrets, intellectual property, proprietary know-how, account information, and other information relating to other business of Client, its subsidiaries and affiliates, and their employees. Consultant agrees not to remove from the premises of Client except as necessary for Consultant to perform services in accordance with the terms of this Agreement, any document, record, or other information of Client or its affiliates.
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Consultant agrees, at Client’s expense, to return or destroy, immediately upon termination of Consultant’s services hereunder, any and all documentation relating to Proprietary and Confidential Information of Client and of others that is in the possession of Consultant, in whatever format it may be maintained, whether provided to, or developed by, Consultant, and to provide a certificate of destruction if required by Client.
Notwithstanding the foregoing, the restrictions contained in this Section 6 shall not apply to any Proprietary and Confidential Information that (i) was in the public domain prior to the execution of this Agreement (ii) has subsequently become part of the public domain by publication or otherwise through no cause attributable to Consultant, (iii] was received by Consultant, through no cause attributable to Consultant, from a third party which had no obligation of secrecy, confidentiality, non-use or nondisclosure with respect thereto (iv) is required by law or the order of any court or governmental agency, or in any litigation or similar proceeding to be disclosed; provided that the disclosing party shall, prior to making any such required disclosure, notify the other party with sufficient notice to permit that party to seek an appropriate protective order.
8. Proprietary and Confidential Information of Others. Consultant acknowledges that Client does business with clients and other strategic partners that supply Client with information of a confidential nature, and that Client has contractual obligations to preserve the confidential nature of such information. Consultant agrees to treat any information received from clients and strategic partners of Client as confidential, as if it were the Proprietary and Confidential Information of Client
9. Rights to Work Product.
Assignment. Except for the Fees, Basic Expense Fee, and any Additional Expenses payable to Consultant as provided hereunder, Client alone shall be entitled to all benefits, profits and results arising from or incidental to the Work Product or Services. Because the parties hereto intend for all Work Product to be owned exclusively and perpetually by Client, Consultant hereby unconditionally and irrevocably transfers and assigns to Client any and all intellectual property or other rights, title and interest, as the sole and exclusive property of Client (and of Client’s assigns, nominees, and successors), in or to any and all Work Product derived directly or indirectly from the performance of the Services contemplated hereunder. Consultant agrees to execute and deliver to Client any transfers, assignments, documents or other instruments necessary (collectively, “Necessary Instruments”) to apply for, prosecute, obtain or enforce any patent, copyright, trademark or other right or protection or to otherwise to vest complete and perpetual title and ownership of any Work Product and all associated rights exclusively in Client.
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Attorney-in-Fact. If Client is unable to secure Consultant’s signature on and delivery of any Necessary Instruments, whether due to Consultant’s mental or physical incapacity or any other cause, Consultant hereby irrevocably designates and appoints Client, and each of its duly authorized officers and agents, as Consultant’s agent and attorney-in-fact to act for and in Consultant’s behalf to execute and file any such Necessary Instruments and to do all other lawfully permitted acts to further the purposes of Section 5.1 with the same force and effect as if executed and delivered by Consultant.
Right to Revise. Client shall have the right to adapt, change, revise, delete from, add to and/or rearrange the Work Product or any part thereof written or created by Consultant, and to combine the same with other works to any extent, and to change or substitute the title thereof, and in this connection, Consultant hereby waives the “moral rights” of authors as that term is commonly understood throughout the world including, without limitation, any similar rights or principles of law which Consultant may now or later have by virtue of the law of any locality, state, nation, treaty, convention or other source. Unless otherwise specifically agreed, Consultant shall not be entitled to any compensation in addition to that provided for hereunder for any exercise by the Client of its rights set forth in the preceding sentence.
10. Limitation of Liability. It is expressly understood by the parties that the Consultant has no fiduciary obligations to the Client, but instead a contractual one described by the terms of this Agreement. IT IS EXPRESSLY ACKNOWLEDGED BY THE CLIENT THAT UNDER NO CIRCUMSTANCES SHALL CONSULTANT BE LIABLE TO THE CLIENT, OR TO ANYONE WHO MAY CLAIM ANY RIGHT DUE TO ANY RELATIONSHIP WITH THE CLIENT, FOR LOST PROFITS, OR SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL LOSS OR DAMAGE (EVEN IF CONSULTANT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES]. Furthermore, in no event shall Consultant’s liability to Client under any circumstances exceed the amount of Fees actually received by Consultant from Client under this Agreement as of a date certain. This limitation on liability provision shall apply to the fullest extent of the law, whether any claims are based in contract, statute, tort, or otherwise. The Client shall hold the Consultant free and harmless from any obligations, costs, claims, judgments, attorneys’ fees, and attachments arising from or growing out of the services rendered to the Client pursuant to the terms of this agreement or in any way connected with the rendering of services.
In no event shall Consultant be required by this Agreement to represent or make management decisions for the Client; Client alone makes all decisions and should reject any opinions of Consultant that they do not agree with.
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Further, Consultant will not be liable for delays or performance failures due to circumstances beyond Consultant’s control.
11. Indemnification. To the maximum extent permitted by applicable law, Client shall indemnify, defend and hold harmless Consultant, its affiliates, current or future officers, directors, owners, trustee, employees, and agents and their respective successors, heirs and assigns from and against any and all claims, causes of action, suits, investigations, and administrative actions or other proceedings, and all related demands, damages, judgments, joint or several, liabilities, loses, fines, penalties, assessments, cost, expenses (including attorney’s fees and expenses) of every kind and nature relating to or arising out of Consultant providing or having provided services to and on the behalf of the Client, and Client shall pay all costs and expenses (including attorney’s fees and expenses) as they are incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising there from, that Consultant incurs as a result of having performed services on behalf of Client
12. Representations of the Client. Client represents that it has the full right and authority to enter into and perform this Agreement. The consummation of the Agreement and the transactions contemplated herein do not violate any outstanding assignments, grants, licenses, encumbrances, obligations, agreements or understanding between Client and any other person or entity. Client represents and warrants to Consultant that Client is able to timely pay Consultant all fees and expenses incurred in the performance of the services hereunder.
13. Insurance. The Client agrees to have its Commercial General Liability Insurance policy endorsed to name the Consultant as an Additional Insured.
14. Conflict of Interest. The Consultant shall be free to perform services for other companies and persons. However, Consultant will notify the Client in writing of its performance of consultant services for any other company or person, if the performance of those services to others could conflict with its obligations under this Agreement. Upon receiving such notice, the Client may either (i) terminate this Agreement, in which event Client will pay Consultant, within 5 business days of termination, for all services rendered and approved expenses incurred through the date of termination; or (ii) provide written consent for the Consultant to provide the services in question to the other company or person. Failure of Client to terminate, this Agreement within five (5) business days of receipt of written notice of conflict shall constitute the Client’s ongoing consent to the Consultant’s provision of consulting services to said other company or person.
15. Entire Agreement. This Agreement contains the entire agreement between the parties pertaining to the subject matter hereof and supersedes any and all prior agreements, representations and understandings of the parties, written or oral. This Agreement is intended by the parties to be an integrated and final expression of the agreement and also is intended to be a final, complete and exclusive statement of the terms of their agreement concerning this Agreement. In the course of any prior dealings between the parties, no uses of trade, and no parole or extrinsic evidence of any nature shall be used to supplement, modify or vary any of the terms hereof. There are no conditions to the full effectiveness of this Agreement and there are no oral or other written representations or agreements between the parties concerning the subject matter of this Agreement, except as so expressly set forth herein. Any representation, promise or condition, whether oral or written, not specifically incorporated herein shall be of no valid or binding effect upon the parties. Each party to this Agreement further represents, warrants and agrees that he, she or it is not relying, and has not relied, upon any representation, warranty or statement, oral or written, made by any other party to this Agreement with respect to this Agreement, except as expressly set forth herein.
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16. Amendment and Waiver. No provision of this Agreement may be amended, modified, supplemented, changed, waived, discharged or terminated, except by mutual agreement of the Parties in a writing signed by or on behalf of each party hereto.
17. Successors and Assigns. Subject to the limitations set forth herein, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and assigns. This Agreement, or any right or interest hereunder, shall not be assignable by Consultant without the written consent of Client
18. Severability. If any provision of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable, but the extent of such invalidity or unenforceability does not destroy the basis of the bargain between the parties as contained herein, the remainder of this Agreement and the application of such provision or provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.
19. Governing Law. This Agreement and the obligations of the parties hereunder shall be interpreted, construed and enforced in accordance with the laws of the State of Maryland, without regard to principles of conflict of laws, as if this Agreement were made and performed entirely within the State of Maryland. Each Party agrees to submit to the exclusive jurisdiction and venue of any federal or state court located in Anne Arundel County, Maryland and hereby waives and agrees not to assert, by way of defense to any suit, claim or proceeding brought therein, that venue and jurisdiction are improper.
20. Counterparts. This Agreement may be executed in one or more counterparts, any one of which, if originally executed, shall be binding upon each of the parties signing thereon, and all of which taken together shall constitute one and the same instrument. One or more photostatic copies of this Agreement may be originally executed by the parties hereto, and such photostatic copies shall be deemed originals and shall be valid, binding and enforceable in accordance with their terms.
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21. No Waiver. No consent or waiver, express or implied, by any party to, or of any breach or default by any other party in, the performance of its obligations hereunder shall be deemed or construed to be a consent to or waiver of any other breach or default in the performance by such other party of the same or any other obligations hereunder. Failure on the part of a party to complain of any act of the other party or to declare a party in default, irrespective of how long such failure continues, shall not constitute a waiver of such party of its rights hereunder.
22. Authority. The parties hereto represent and warrant that they have full power, authority and legal right to execute and deliver, and to perform and observe the provisions of, this Agreement and to carry out the transactions contemplated hereby. The execution, delivery and performance by the parties of this Agreement have been duly authorized by all necessary legal action and the parties have obtained any necessary consent, approval of, notice to, or any action by, any person, firm, corporation or governmental entity or agency necessary or appropriate to consummate the transaction contemplated hereby.
23. Further Assurances. Each party agrees and covenants that it will at any time and from time to time, upon the request of the other, execute, acknowledge, deliver and/or perform any and all such further acts, deeds, assignments, transfers, conveyances and assurances as may be necessary or desirable to carry out the terms and provisions of this Agreement.
24. Dispute Resolution. The Consultant and Client agree that in the event a dispute arises under the terms of this agreement, the following procedures shall be utilized to resolve the dispute(s).
A. Collection Disputes. Should Client fail to pay any amount owing under this Agreement, and should Client fall more than thirty days in arrears, a “Collection Dispute” shall be deemed to have arisen. Consultant reserves the right to utilize the services of a collection agency or attorney to resolve any Collection Dispute and to recover any amount owing, plus interest. Consultant expressly reserves the right to pursue any and all available legal or equitable remedies to recover amounts owing under this Agreement. In the event that it becomes necessary to involve the services of an attorney or collection agent, the Client agrees to pay all costs of collection attempts including reasonable attorney’s fees and all costs or expenses associated with any Collection Disputes, including but not limited to interest and any court fees or costs. Each Party agrees to submit to the exclusive jurisdiction and venue of any federal or state court located in Anne Arundel County, Maryland for any Collection Dispute arising under this Agreement, and hereby waives and agrees not to assert, by way of defense to any suit, claim or proceeding brought therein, that venue and jurisdiction are improper. Each party further waives the right to trial by jury for any Collection Disputes.
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B. All Other Disputes. With the exception of the rights reserved and procedures set forth in this Agreement concerning Collection Disputes, should any other disputes arise under this Agreement, the Parties will submit to binding arbitration to address any controversy or claim arising out of, or relating to this Agreement. The arbitration shall be conducted according to the rules and procedures of the American Arbitration Association. The Arbitration shall be conducted in or near Anne Arundel County, Maryland. The Arbitration Award shall be binding upon the parties and shall be enforceable in any court of competent jurisdiction. As provided for below and with the exceptions noted below, both parties shall share the cost of the dispute resolution process up to and including the arbitration hearing although the costs incurred for the following items will not be shared by the Parties and shall instead be the direct responsibility of the party incurring the cost: (i) fees and expenses for personal attorneys, witnesses or specialists; and (ii) all expenses of any and all kinds related to each party’s travel to attend the arbitration. As part of the Arbitration Award, the arbitrator(s) shall allocate the fees and costs of the arbitration along with reasonable attorney’s fees and other reasonable costs and expenses to the prevailing party in any manner that the arbitrator(s) considers to be reasonable. Notwithstanding the above, the Consultants total liability to Client under this Agreement for damages, costs, and expenses of any kind and under any circumstances shall not exceed the amount of Fees actually received by Consultant from Client under this Agreement as of a date certain.
25. Third Party Beneficiaries. No person shall have any rights whatsoever under this Agreement unless such person is a party to this Agreement, and only in such capacities as such person is a party hereto.
26. Interpretation. This Agreement shall be construed in accordance with its fair meaning as if prepared by all parties hereto, and shall not be interpreted against either party on the basis that it was prepared by one party or the other. The captions, headings and sub captions used in this Agreement are for convenience only and do not in any way affect, limit, amplify and/or modify the terms and provisions thereof. Words used herein in the masculine gender shall include the neuter and feminine gender, words used herein in the neuter gender shall include the masculine and feminine, words used herein in the singular shall include the plural, and words used in the plural shall include the singular, wherever the context so reasonably requires.
(Signature page follows)
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above.
CLIENT:
ADiTx Therapeutics, Inc.
/s/ Amro Albanna
Amro Albanna
Chief Executive Officer
CONSULTANT:
Canyon Ridge Development LLC, d/b/a Mission Critical Solutions International
/s/ D. L. Hutchins
D. L. Hutchins
President
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Exhibit 10.8
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this “Agreement”) is dated as of July ___, 2018 between ADITX THERAPEUTICS, INC., a Delaware corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).
WHEREAS, the Company is conducting a private offering (the “Offering”) consisting of a up to a maximum of $400,000 (the “Maximum Offering”) of securities of the Company as more fully described in this Agreement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”); and
WHEREAS, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, such amount of securities of the Company as set forth on the signature page to this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Notes and Warrants (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Board of Directors” means the board of directors of the Company.
“Business Day” means any day except Saturday, Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.
“Closing Date” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities have been satisfied or waived.
“Commission” means the United States Securities and Exchange Commission.
“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed into.
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“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, rights, options, warrants 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.
“Company Counsel” means Sheppard, Mullin, Richter & Hampton LLP, with offices located at 30 Rockefeller Plaza, 39th Floor, New York, New York 10112.
“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.
“Discussion Time” shall have the meaning ascribed to such term in Section 3.2(f).
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers, consultants, advisors or directors of the Company pursuant to any stock or option plan duly adopted for such purpose by a majority of the members of the Board of Directors or a majority of the members of a committee of directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
“Final Closing” shall have the meaning ascribed to such term in Section 2.1.
“Form 1-A” shall have the meaning ascribed to such term in Section 3.1(e).
“GAAP” shall have the meaning ascribed to such term in Section 3.1(e).
“Initial Closing” shall have the meaning ascribed to such term in Section 2.1.
“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(a).
“Maximum Offering” shall have the meaning ascribed to such term in the preamble to this Agreement.
“Notes” means the promissory notes issued by the Company to the Purchasers hereunder, in the form attached hereto as Exhibit A.
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“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Principal Amount” means, as to each Purchaser, the amounts set forth below such Purchaser’s signature block on the signature pages hereto next to the heading “Principal Amount,” in United States Dollars, which shall equal such Purchaser’s Subscription Amount plus any original issue discount.
“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
“Purchaser Party” shall have the meaning ascribed to such term in Section 4.8.
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(e).
“Securities” means the Notes, the Warrants, and the Underlying Securities.
“Securities Act” shall have the meaning given in the preamble.
“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock).
“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for the Securities purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.
“Termination Date” shall have the meaning ascribed to such term in Section 2.1.
“Trading Day” means a day on which the principal Trading Market is open for trading.
“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market or any marketplace maintained by the OTC Markets Group, Inc.
“Transaction Documents” means this Agreement, the Notes, the Warrants, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.
“Underlying Securities” means the shares of Common Stock issued and issuable upon exercise of the Warrants.
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“Warrants” means the warrants issued by the Company to the Purchasers hereunder, in the form attached hereto as Exhibit B.
“Warrant Shares” means, as to each Purchaser, the amounts set forth below such Purchaser’s signature block on the signature pages hereto next to the heading “Warrant Shares,” which shall equal such Purchaser’s Subscription Amount.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing.
(a) Offering Period; Maximum. The Securities will be offered for sale until the earlier of (i) the closing on the Maximum Offering or (ii) July 30, 2018, subject to the right of the Company to extend the Termination Date for up to 30 additional days. (the “Termination Date”).
(b) Closings. The Company may hold an initial closing (“Initial Closing”) at any time after the receipt of accepted subscriptions prior to the Termination Date. After the Initial Closing, subsequent closings with respect to additional Securities may take place at any time prior to the Termination Date as determined by the Company, with respect to subscriptions accepted prior to the Termination Date (each such closing, together with the Initial Closing, being referred to as a “Closing”). The last Closing of the Offering, occurring on or prior to the Termination Date, shall be referred to as the “Final Closing.” Any subscription documents or funds received after the Final Closing will be returned, without interest or deduction. In the event that the any Closing does not occur prior to the Termination Date, all amounts paid by the Subscriber shall be returned to the Subscriber, without interest or deduction.
(c) Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, a Closing shall occur at the offices of Company Counsel or such other location as the parties shall mutually agree.
2.2 Deliveries.
(a) On the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company; and
(ii) a Note with a principal amount equal to such Purchaser’s Principal Amount, registered in the name of such Purchaser.
(iii) a Warrant to purchase such number of Warrant Shares equal to such Purchaser’s Subscription Amount, registered in the name of such Purchaser.
(b) On the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser; and
(ii) such Purchaser’s Subscription Amount by check or wire transfer to the account as specified in writing by the Company.
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2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein;
(ii) all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and
(iii) the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein;
(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;
(iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement; and
(iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth under the corresponding section of the disclosure schedules delivered to the Purchasers concurrently herewith (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser:
(a) Organization and Qualification. The Company is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
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(b) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection therewith other than in connection with the Required Approvals. Each Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(c) Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Underlying Securities, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.
(d) Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(d), which Schedule 3.1(d) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. Except as set forth on Schedule 3.1(d) and as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
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(e) SEC Reports; Financial Statements. The Company has made available to the Purchasers prior to the date hereof copies of its Offering Statement on Form 1-A, as may be amended, File No. 024-10825, originally filed with the Commission on March 30, 2018 (the “Form 1-A”).
3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate or similar action on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b) Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.
(c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on which it exercises any Notes it will be either: (i) an “accredited investor” as defined in Rule 501(a) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
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(e) General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.
(f) Short Sales and Confidentiality Prior To The Date Hereof. Other than consummating the transactions contemplated hereunder, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing from the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder until the date hereof (“Discussion Time”). Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).
(g) Pre-Existing Relationship. Such Purchaser acknowledges that prior to the Discussion Time, it had a pre-existing relationship with the Company, and it represents and warrants that prior to the Discussion Time and through the date of this Agreement, it neither learned about the Securities being offered pursuant to this Agreement nor is it purchasing the Securities being offered herein as a result of the Form 1-A.
ARTICLE IV.
COVENANTS
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement under the Securities Act or Rule 144 thereunder, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement.
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(b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:
[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE OR CONVERTIBLE]] [HAS/HAVE] [NOT] BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
(c) Each Purchaser, severally and not jointly with the other Purchasers, agrees that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a registration statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.
4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Securities pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.
4.3 Furnishing of Information. As long as any Purchaser owns Securities, if the Company is required to file reports pursuant to the Exchange Act, it will prepare and make publicly available such information as is required for the Purchasers to sell the Securities under Rule 144.
4.4 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities to the Purchasers in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.
4.5 Intentionally Omitted.
4.6 Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
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4.7 Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes.
4.8 Indemnification of Purchasers. Subject to the provisions of this Section 4.8, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.
4.9 Reservation of Securities. The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may then be required to fulfill its obligations in full under the Transaction Documents.
4.10 Equal Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Notes in amounts which are disproportionate to the respective principal amounts outstanding on the Notes at any applicable time. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.
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ARTICLE V.
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before May 31, 2018; provided, however, that such termination will not affect the right of any party to sue for any breach by the other party (or parties).
5.2 Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.
5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers holding at least 50% in interest of the Securities then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.
5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
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5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”
5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.
5.9 Governing Law; Venue. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, County of New York (Manhattan). Each party hereby irrevocably submits to the exclusive jurisdiction of such courts.
5.10 Survival. The representations and warranties of the parties hereto shall survive the Closing and the delivery of the Securities for the applicable statute of limitations.
5.11 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
5.13 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.
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5.14 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.
5.15 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
5.16 Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto.
5.17 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
| ADITX THERAPEUTICS, INC. | Address for Notice: | ||
| By: | 11161 Anderson Street | ||
| Name: Amro Albanna | Suit 105-10014 | ||
| Title: Chief Executive Officer | Loma Linda, CA 92354 | ||
| With a copy to (which shall not constitute notice): | |||
Sheppard, Mullin, Richter & Hampton LLP
30 Rockefeller Plaza, 39th Floor
New York, New York 10112
Attn: Richard A. Friedman, Esq.
[SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: ________________________________________________________
Signature of Authorized Signatory of Purchaser: __________________________________
Name of Authorized Signatory: ____________________________________________________
Title of Authorized Signatory: _____________________________________________________
Email Address of Authorized Signatory: _____________________________________________
Facsimile Number of Authorized Signatory: __________________________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as address for notice):
Subscription Amount: _________________
Warrant Shares: _________________
EIN/SS Number: __________________
[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]
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Schedule 3.1(d)
CAPITALIZATION
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EXHIBIT A
FORM OF NOTE
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EXHIBIT B
FORM OF WARRANT
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Exhibit 10.9
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS COMPANY, IS AVAILABLE.
ADITX THERAPEUTICS, INC.
PROMISSORY NOTE
| Dated: ____________ | ||
| Principal Amount | $________ | |
| Subscription Amount |
$________
No.
THIS PROMISSORY NOTE (this “Note”) is one of a duly authorized issue of a series of unsecured convertible promissory notes (each, a “Note” and collectively, the “Notes”) of ADITX THERAPEUTICS, INC., a Delaware corporation (the “Company”), and has been issued to the Holder (as defined below) in connection with the private placement of securities offered pursuant to the Transaction Documents (as defined in that certain Securities Purchase Agreement of the Company, dated as of July __, 2018 (the “Securities Purchase Agreement”).
FOR VALUE RECEIVED, the Company hereby promises to pay to the order of ________________ (the “Holder”), on the earlier date (the “Maturity Date”) of (i) ninety (90) days from the date hereof, and (ii) ten (10) business days following the closing of the Company’s initial public offering (the “Public Offering”), of its securities resulting in the receipt by the Company of gross proceeds of no less than $6,000,000, the principal sum of $________________ (the “Principal Amount”). The consideration received for this Note shall be equal to $__________ (the “Subscription Amount”) together with an original issue discount equal to $_________. If, on or prior to the Maturity Date, the Company consummates a transaction in which it raises aggregate gross proceeds of at least $6,000,000 and which results in the Company becoming a publicly traded company listed on the Nasdaq Stock Market or the New York Stock Exchange (NYSE) (an “Initial Public Offering”), at the Holder’s sole option, the Holder at any time while the Note is outstanding in lieu of a full cash payment of the Principal Amount by the Company to the Holder, the Holder may convert up to one hundred percent (100%) of the outstanding Principal Amount of this Note as of the consummation of such Initial Public Offering (the “Conversion Debt”) into the number of securities at a price per share (or, if units are sold, the price per unit of securities) issued and sold by the Company in such Initial Public Offering (the “Conversion Price”).
If the Company shall fail to make a payment of principal when due; or shall make an assignment for the benefit of creditors, file a petition in bankruptcy, be adjudicated insolvent or bankrupt, suffer an order for relief under any federal bankruptcy law, petition or apply to any tribunal for the appointment of a custodian, receiver or any trustee for the Company or any substantial part of its assets, or shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or if there shall have been filed any such petition or application, or any such proceeding shall have been commenced against the Company, which remains undismissed for a period of thirty (30) days or more; or if the Company, by any act or omission shall indicate consent to, approval of or acquiescence in any such petition, application or proceeding or the appointment of, a custodian, receiver or any trustee for all or any substantial part of its properties, or if the Company shall suffer such custodianship, receivership, or trusteeship to continue undischarged for a period of thirty (30) days or more, or the Company violates any term or provision of this Note and same remains uncured for a period of 30 days after written notice thereof by any Holder of this Note, then and in any such event (each such event, an “Event of Default”), the outstanding Principal Amount of this Note shall be and become immediately due and payable.
| 1. | Restrictions on Transfer. |
The Holder acknowledges that it has been advised by the Company that this Note has not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”), that the Note is being issued, on the basis of the statutory exemption provided by Section 4(a)(2) of the Securities Act relating to transactions by an issuer not involving any public offering, and that the Company’s reliance upon this statutory exemption is based in part upon the representations made by the Holder in the Securities Purchase Agreement. The Holder acknowledges that he has been informed by the Company of, or is otherwise familiar with, the nature of the limitations imposed by the Securities Act and the rules and regulations thereunder on the transfer of securities. In particular, the Holder agrees that no sale, assignment, hypothecation or transfer of the Note shall be valid or effective, and the Company shall not be required to give any effect to any such sale, assignment, hypothecation, transfer or other disposition, unless (i) the sale, assignment, hypothecation, transfer or other disposition of the Note is registered under the Securities Act, provided, that the Company has no obligation or intention to so register the Note in connection herewith, or (ii) the Note is sold, assigned, hypothecated, transferred or otherwise disposed of in accordance with all the requirements and limitations of Rule 144 under the Securities Act, or such sale, assignment, or transfer is otherwise exempt from registration under the Securities Act.
2. Covenants of Company. The Company covenants and agrees that, so long as this Note shall be outstanding, it will:
| a. | Promptly pay and discharge all lawful taxes, assessments and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become in default, as well as all lawful claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof, except where the failure to so pay would not have a material effect on the Company; provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings, and the Company shall set aside on its books adequate reserves with respect to any such tax, assessment, charge, levy or claim so contested. |
| b. | Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all material laws applicable to the Company as its counsel may advise; and |
| c. | At all times keep true and correct books, records and accounts. |
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3. Usury. In no event shall the amount of paid or agreed to be paid hereunder be deemed to exceed the highest lawful rate of interest permissible under applicable law. Any excess amount of deemed interest shall be null and void and shall not interfere with or affect the Company’s obligation to repay the Principal
Amount of the Note.
4. Mutilated, Destroyed, Lost or Stolen Notes. In case this Note shall become mutilated or defaced, or be destroyed, lost or stolen, the Company shall execute and deliver a new note of like principal amount in exchange and substitution for the mutilated or defaced Note, or in lieu of and in substitution for the destroyed, lost or stolen Note. In the case of a mutilated or defaced Note, the Holder shall surrender such Note to the Company for exchange. In the case of any destroyed, lost or stolen Note, the Holder shall furnish to the Company: (a) evidence to the Company’s satisfaction of the destruction, loss or theft of such Note and (b) such security or indemnity as may be reasonably required by the Company to hold the Company harmless with respect to the replacement of such Note.
5. Waiver of Demand, Presentment, Etc. The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereunder, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder.
6. Payment. Except as otherwise provided for herein, all payments with respect to this Note shall be made in lawful currency of the United States of America by check or wire transfer of immediately available funds, at the option of the Holder, at the principal office of the Holder or such other place or places or designated accounts as may be reasonably specified by the Holder in a written notice to the Company at least one (1) business day prior to payment. Payment shall be credited to the Principal Amount.
7. Assignment. The rights and obligations of the Company and the Holder of this Note shall be binding upon, and inure to the benefit of, the permitted successors, assigns, heirs, administrators and transferees of the parties hereto. This Note is not assignable by the Holder without the written consent of the Company.
8. Waiver and Amendment. Any provision of this Note, including, without limitation, the due date hereof, and the observance of any term hereof, may be amended, waived or modified (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the holders of greater than 50% of the face amount of all then outstanding Notes.
9. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or delivered by facsimile transmission, to the Company at the address or facsimile number set forth herein or to the Holder at its address or facsimile number set forth in the records of the Company. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given when personally delivered or when deposited in the mail in the manner set forth above and shall be deemed to have been received when delivered or, if notice is given by facsimile transmission, when delivered with confirmation of receipt.
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10. Governing Law; Jurisdiction; Waiver of Jury Trial. This Note shall be enforced, governed by and construed in accordance with the laws of the State of New York, without regard to the principles of conflicts of law. The Company hereby submits to the exclusive jurisdiction of the State of New York or United States federal courts located in the state, county and city of New York (Manhattan) with respect to any dispute arising under this Note. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE.
11. Severability. If one or more provisions of this Note are held to be unenforceable under applicable law, such provisions shall be excluded from this Note, and the balance of this Note shall be interpreted as if such provisions were so excluded and shall be enforceable in accordance with its terms.
12. Headings. Section headings in this Note are for convenience only, and shall not be used in the construction of this Note.
* * *
4
IN WITNESS WHEREOF, the Company has caused this Note to be executed in its corporate name by an appropriate officer of the Company.
| ADITX THERAPEUTICS, INC. | ||
| By | ||
| Name: | Amro Albanna | |
| Title: | Chief Executive Officer | |
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Exhibit 10.10
UNSECURED PROMISSORY NOTE
$[__]
April [__], 2018
FOR VALUE RECEIVED, the undersigned, ADITX THERAPEUTICS, INC., a Delaware corporation (together with its successors and assigns, the “Borrower”), hereby promises to pay to the order of [__], an individual (together with his successors and assigns, the “Lender”), at such place as the Lender may designate in writing to the Borrower, the aggregate principal sum of [__] ($[__]), with interest, upon the terms and subject to the conditions of this unsecured promissory note (the “Note”) as set forth below. The Lender and Borrower collectively shall be referred to as the “Parties.”
1. PAYMENT AND PREPAYMENT.
(a) REPAYMENT OF PRINCIPAL. The Borrower shall repay the principal amount of this Note in one lump sum on the earlier of (i) [__], 2018 (the “Maturity Date”) or (ii) an Event of Default (as defined hereinafter).
(b) PAYMENT OF INTEREST. The unpaid principal amount of this Note shall accrue interest (computed on the basis of a 365-day year) at the rate of four percent (4%) per annum. Borrower shall repay the interest owed on the Maturity Date.
(c) ADDITIONAL INTEREST. If payment of any amount due under this Note shall be overdue, such overdue amount shall continue to bear interest from and after the Maturity Date, to and including the date when paid in full.
(d) PREPAYMENT. Any amounts due under this Note may be prepaid in full. If Borrower prepays the full principal amount owed, Borrower shall also pay interest owed, calculated up to and including the date of prepayment.
(e) MANNER OF PAYMENT AND PREPAYMENT. Payments and prepayments under this Note shall be applied first to interest accrued but unpaid and then to principal. If the due date of any required payment under this Note is not a “business day” (for this purpose, any day other than a Saturday, Sunday or legal holiday, such required payment shall be due and payable on the immediately succeeding business day.
2. EVENTS OF DEFAULT. The occurrence and continuation of any one or more of the following events shall constitute an event of default under this Note (“Event of Default”):
(a) PAYMENT DEFAULT. The Borrower shall fail to make any required payment of principal of or interest on this Note.
(b) BANKRUPTCY DEFAULT. The Borrower shall (i) commence any case, proceeding or other action relating to seeking to have an order for relief entered with respect to it or its debts, or seeking reorganization, liquidation, dissolution, or other such relief with respect to it or its debts, or seeking appointment of a receiver or other similar official (each of the foregoing, a “Bankruptcy Action”); (ii) become the debtor named in any Bankruptcy Action which results in the entry of an order for relief or any such adjudication or appointment described in the immediately preceding clause (i); or (iii) make a general assignment for the benefit of its creditors.
In each and every Event of Default under clause (a) or (b) of this Section 2, the Lender may, without limiting any other rights it may have at law or in equity, by written notice to the Borrower, declare the unpaid principal of and interest on this Note due and payable, whereupon the same shall be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which the Borrower hereby expressly waives, and the Lender may proceed to enforce payment of such principal and interest or any part thereof in such manner as it may elect in its discretion. In each and every Event of Default, the unpaid principal of and interest on this Note shall be immediately due and payable without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives, and the Lender may proceed to enforce payment of such principal and interest or any part thereof in such manner as it may elect in its discretion.
3. NOTICES. All notices, requests, demands or communications required or permitted under this Note shall be given in writing to the Parties at their addresses as set forth at the beginning of this Note.
4. WAIVERS; RIGHTS AND REMEDIES.
(a) WAIVERS. No delay on the part of the Lender in exercising any right, power or privilege under this Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude the simultaneous or later exercise of any other right, power or privilege hereunder. The Borrower hereby waives to the extent not prohibited by applicable law any requirement of diligence or promptness on the part of the Lender to enforce its rights under this Note.
(b) RIGHTS AND REMEDIES. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Lender may otherwise have.
5. AMENDMENT. No amendment or other modification of this Note may be made without the written consent of both Parties.
6. GOVERNING LAW. This Note shall be governed by and construed in accordance with the laws of California, and both Parties agree that any dispute related to this Note shall be heard in the courts of San Bernardino County, California.
| BORROWER: | |
| ADITX THERAPEUTICS, INC. | |
| Amro Albanna, CEO |
Exhibit 10.11
UNSECURED PROMISSORY NOTE
$_______
[__], 2019
FOR VALUE RECEIVED, the undersigned, ADITX THERAPEUTICS, INC., a Delaware corporation (together with its successors and assigns, the “Borrower”), hereby promises to pay to the order of ________________, an individual (together with his successors and assigns, the “Lender”), at the Lender’s offices at ___________ (or such other place as the Lender may designate in writing to the Borrower), the aggregate principal sum of _______($____), with interest, upon the terms and subject to the conditions of this unsecured promissory note (the “Note”) as set forth below. The Lender and Borrower collectively shall be referred to as the “Parties.”
1. PAYMENT AND PREPAYMENT.
(a) REPAYMENT OF PRINCIPAL. The Borrower shall repay the principal amount of this Note in one lump sum on the earlier of (i) __________ (the “Maturity Date”) or (ii) an Event of Default (as defined hereinafter).
(b) PAYMENT OF INTEREST. The unpaid principal amount of this Note shall accrue interest (computed on the basis of a 365-day year) at the rate of four percent (4%) per annum. Borrower shall repay the interest owed on the Maturity Date.
(c) ADDITIONAL INTEREST. If payment of any amount due under this Note shall be overdue, such overdue amount shall continue to bear interest from and after the Maturity Date, to and including the date when paid in full.
(d) PREPAYMENT. Any amounts due under this Note may be prepaid in full. If Borrower prepays the full principal amount owed, Borrower shall also pay interest owed, calculated up to and including the date of prepayment.
(e) MANNER OF PAYMENT AND PREPAYMENT. Payments and prepayments under this Note shall be applied first to interest accrued but unpaid and then to principal. If the due date of any required payment under this Note is not a “business day” (for this purpose, any day other than a Saturday, Sunday or legal holiday, such required payment shall be due and payable on the immediately succeeding business day.
2. EVENTS OF DEFAULT. The occurrence and continuation of any one or more of the following events shall constitute an event of default under this Note (“Event of Default”):
(a) PAYMENT DEFAULT. The Borrower shall fail to make any required payment of principal of or interest on this Note.
(b) BANKRUPTCY DEFAULT. The Borrower shall (i) commence any case, proceeding or other action relating to seeking to have an order for relief entered with respect to it or its debts, or seeking reorganization, liquidation, dissolution, or other such relief with respect to it or its debts, or seeking appointment of a receiver or other similar official (each of the foregoing, a “Bankruptcy Action”); (ii) become the debtor named in any Bankruptcy Action which results in the entry of an order for relief or any such adjudication or appointment described in the immediately preceding clause (i); or (iii) make a general assignment for the benefit of its creditors.
In each and every Event of Default under clause (a) or (b) of this Section 2, the Lender may, without limiting any other rights it may have at law or in equity, by written notice to the Borrower, declare the unpaid principal of and interest on this Note due and payable, whereupon the same shall be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which the Borrower hereby expressly waives, and the Lender may proceed to enforce payment of such principal and interest or any part thereof in such manner as it may elect in its discretion. In each and every Event of Default, the unpaid principal of and interest on this Note shall be immediately due and payable without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives, and the Lender may proceed to enforce payment of such principal and interest or any part thereof in such manner as it may elect in its discretion.
3. NOTICES. All notices, requests, demands or communications required or permitted under this Note shall be given in writing to the Parties at their addresses as set forth at the beginning of this Note.
4. WAIVERS; RIGHTS AND REMEDIES.
(a) WAIVERS. No delay on the part of the Lender in exercising any right, power or privilege under this Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude the simultaneous or later exercise of any other right, power or privilege hereunder. The Borrower hereby waives to the extent not prohibited by applicable law any requirement of diligence or promptness on the part of the Lender to enforce its rights under this Note.
(b) RIGHTS AND REMEDIES. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Lender may otherwise have.
5. AMENDMENT. No amendment or other modification of this Note may be made without the written consent of both Parties.
6. GOVERNING LAW. This Note shall be governed by and construed in accordance with the laws of California, and both Parties agree that any dispute related to this Note shall be heard in the courts of San Bernardino County, California.
| BORROWER: | LENDER: | |
| ADITX THERAPEUTICS, INC. | ||
| Amro Albanna, CEO |
Exhibit 10.12
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this “Agreement”) is dated as of [_______], 2019 between Aditx Therapeutics, Inc., a Delaware corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).
WHEREAS, the Company is conducting a private offering of its securities (the “Offering”) consisting of up to a maximum of $1,000,000 (the “Maximum Offering”) pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”); and
WHEREAS, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, such amount of securities of the Company as set forth on the signature page to this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Notes (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Board of Directors” means the board of directors of the Company.
“Business Day” means any day except Saturday, Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.
“Closing Date” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities have been satisfied or waived.
“Commission” means the United States Securities and Exchange Commission.
“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed into.
“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, rights, options, warrants 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.
“Company Counsel” means Sheppard, Mullin, Richter & Hampton LLP, with offices located at 30 Rockefeller Plaza, New York, NY 10112.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers, consultants, advisors or directors of the Company pursuant to any stock or option plan duly adopted for such purpose by a majority of the members of the Board of Directors or a majority of the members of a committee of directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.
“Final Closing” shall have the meaning ascribed to such term in Section 2.1.
“GAAP” shall have the meaning ascribed to such term in Section 3.1(e).
“Initial Closing” shall have the meaning ascribed to such term in Section 2.1.
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“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“Material Adverse Effect” shall mean (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document.
“Maximum Offering” shall have the meaning ascribed to such term in the preamble to this Agreement.
“Notes” means the promissory notes issued by the Company to the Purchasers hereunder, in the form attached hereto as Exhibit A.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Principal Amount” means, as to each Purchaser, the amounts set forth below such Purchaser’s signature block on the signature pages hereto next to the heading “Principal Amount,” in United States Dollars, which shall equal such Purchaser’s Subscription Amount.
“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
“Purchaser Party” shall have the meaning ascribed to such term in Section 4.8.
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
“Securities” means the Notes and the Underlying Securities.
“Securities Act” shall have the meaning given in the preamble.
“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for the Securities purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.
“Termination Date” shall have the meaning ascribed to such term in Section 2.1.
“Trading Day” means a day on which the principal Trading Market is open for trading.
“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the New York Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market or any marketplace maintained by the OTC Markets Group, Inc.
“Transaction Documents” means this Agreement, the Notes, all exhibits and schedules hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.
“Underlying Securities” means units of securities issuable upon conversion of the Notes consisting of: (i) shares of Common Stock; and (ii) warrants to purchase Common Stock.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing.
(a) Offering Period; Maximum. The Securities will be offered for sale until the earlier of (i) the closing on the Maximum Offering or (ii) November 30, 2019, subject to the right of the Company to extend the Termination Date for up to 30 additional days. (the “Termination Date”).
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(b) Closings. The Company may hold an initial closing (“Initial Closing”) at any time after the receipt of accepted subscriptions prior to the Termination Date. After the Initial Closing, subsequent closings with respect to additional Securities may take place at any time prior to the Termination Date as determined by the Company, with respect to subscriptions accepted prior to the Termination Date (each such closing, together with the Initial Closing, being referred to as a “Closing”). The last Closing of the Offering, occurring on or prior to the Termination Date, shall be referred to as the “Final Closing.” Any subscription documents or funds received after the Final Closing will be returned, without interest or deduction. In the event that the any Closing does not occur prior to the Termination Date, all amounts paid by the Subscriber shall be returned to the Subscriber, without interest or deduction.
(c) Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, a Closing shall occur at the offices of Company Counsel or such other location as the parties shall mutually agree.
2.2 Deliveries.
(a) On the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company; and
(ii) a Note with a principal amount equal to such Purchaser’s Principal Amount, registered in the name of such Purchaser.
(b) On the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser; and
(ii) such Purchaser’s Subscription Amount by check or wire transfer to the account as specified in writing by the Company.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein;
(ii) all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and
(iii) the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein;
(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;
(iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement; and
(iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to each Purchaser:
(a) Organization and Qualification. The Company is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.
(b) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection therewith other than in connection with the Required Approvals. Each Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(c) Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Underlying Securities, if issued upon proper conversion of the Notes in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.
(d) Capitalization. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
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3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Each Purchaser: (i) if a natural person, represents that the Purchaser has the full power and authority to execute and deliver this Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof; (ii) if a corporation, partnership, or limited liability company, or association, joint stock company, trust, unincorporated organization or other entity, represents that such entity was not formed for the specific purpose of acquiring the Securities, such entity is duly organized, validly existing and in good standing under the laws of the state of its organization, the consummation of the transactions contemplated hereby is authorized by, and will not result in a violation of state law or its charter or other organizational documents, such entity has full power and authority to execute and deliver this Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof and to purchase and hold the Securities, the execution and delivery of this Agreement has been duly authorized by all necessary action, this Agreement has been duly executed and delivered on behalf of such entity and is a legal, valid and binding obligation of such entity; or (iii) if executing this Agreement in a representative or fiduciary capacity, represents that it has full power and authority to execute and deliver this Agreement in such capacity and on behalf of the subscribing individual, ward, partnership, trust, estate, corporation, or limited liability company or partnership, or other entity for whom such Purchaser is executing this Agreement, and such individual, partnership, ward, trust, estate, corporation, or limited liability company or partnership, or other entity has full right and power to perform pursuant to this Agreement and represents that this Agreement constitutes a legal, valid and binding obligation of such entity. The execution and delivery of this Agreement will not violate or be in conflict with any order, judgment, injunction, agreement or controlling document to which the Purchaser is a party or by which it is bound.
(b) Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.
(c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, and on each date on which it exercises any Notes it will be either: (i) an “accredited investor” as defined in Rule 501(a) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.
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ARTICLE IV.
COVENANTS
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement under the Securities Act or Rule 144 thereunder, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement.
(b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:
[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [CONVERTIBLE]] [HAS/HAVE] [NOT] BEEN REGISTERED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
(c) Each Purchaser, severally and not jointly with the other Purchasers, agrees that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a registration statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.
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4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Securities pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.
4.3 Furnishing of Information. As long as any Purchaser owns Securities, if the Company is required to file reports pursuant to the Exchange Act, it will prepare and make publicly available such information as is required for the Purchasers to sell the Securities under Rule 144.
4.4 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities to the Purchasers in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.
4.5 [Intentionally Omitted].
4.6 Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
4.7 Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes.
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4.8 Indemnification of Purchasers. Subject to the provisions of this Section 4.8, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance) . If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.
ARTICLE V.
MISCELLANEOUS
5.1 [Intentionally omitted].
5.2 Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.
5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.
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5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers holding at least 50% in interest of the Securities then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.
5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”
5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.
5.9 Governing Law; Venue. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflicts of law thereof.
5.10 Survival. The representations and warranties of the parties hereto shall survive the Closing and the delivery of the Securities for the applicable statute of limitations.
5.11 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e- mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
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5.13 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.
5.14 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.
5.15 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
5.16 Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto.
5.17 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
| ADITX THERAPEUTICS, INC. | Address for Notice: | ||
| By:__________________________________________ | 11161 Anderson Street | ||
| Name: Amro Albanna | Suite 105-10014 | ||
| Title: Chief Executive Officer | Loma Linda, CA 92354 | ||
| With a copy to (which shall not constitute notice): | |||
| Sheppard, Mullin, Richter & Hampton LLP | |||
| 30 Rockefeller Plaza | |||
| New York, NY 10112 | |||
| Attn: Richard Friedman | |||
[SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Subscription Amount: $____________________
If the Purchaser is an INDIVIDUAL, and if purchased as JOINT TENANTS, as TENANTS IN COMMON, or as COMMUNITY PROPERTY:
Purchaser:
| Print Name | Social Security Number | |||||
| Signature | Date | Mailing Address | ||||
| Co-Purchaser (if applicable): | ||||||
| Print Name | Social Security Number | |||||
| Signature | Date | Address (if different from above) | ||||
If the Purchaser is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY or TRUST:
| Name of Partnership, Corporation, | Federal Taxpayer Identification Number | ||||||
| Limited Liability Company or Trust | |||||||
| By: | |||||||
| Name: | |||||||
| Date | |||||||
| Title: | |||||||
| Business Address | |||||||
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EXHIBIT A
FORM OF NOTE
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Exhibit 10.13
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS COMPANY, IS AVAILABLE.
ADITX THERAPEUTICS, INC.
PROMISSORY NOTE
Dated: October 28, 2019 (the “Issuance Date”)
Principal Amount $[_________]
THIS PROMISSORY NOTE is one of a duly authorized issue of a series of unsecured convertible promissory notes (each, a “Note” and collectively, the “Notes”) of ADITX THERAPEUTICS, INC., a Delaware corporation (the “Company”), and has been issued to the Holder (as defined below) in connection with the private placement of securities offered pursuant to the Transaction Documents (as defined in that certain Securities Purchase Agreement of the Company, dated as of October 28, 2019, (the “Securities Purchase Agreement”)).
FOR VALUE RECEIVED, the Company hereby promises to pay to the order of (the “Holder”), on [_________], 2020 (the “Maturity Date”) the principal sum of $[_________] (the “Principal Amount”). This Note shall not bear any interest.
If, on or prior to the Maturity Date, the Company consummates a transaction in which it raises aggregate gross proceeds of at least $10,000,000 and which results in the Company’s common stock being listed on the Nasdaq Stock Market LLC or the New York Stock Exchange (NYSE) (a “Qualified Public Offering”), the Company will convert one hundred percent (100%) of the outstanding Principal Amount as of the consummation of such Qualified Public Offering (the “Conversion Debt”) into such number of the same class of securities (or units of securities if units are sold in such Qualified Public Offering) as is determined by dividing the Conversion Debt by $2.00 (the “Conversion Price”).
If the Company shall fail to make a payment of principal when due; or shall make an assignment for the benefit of creditors, file a petition in bankruptcy, be adjudicated insolvent or bankrupt, suffer an order for relief under any federal bankruptcy law, petition or apply to any tribunal for the appointment of a custodian, receiver or any trustee for the Company or any substantial part of its assets, or shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or if there shall have been filed any such petition or application, or any such proceeding shall have been commenced against the Company, which remains undismissed for a period of thirty (30) days or more; or if the Company, by any act or omission shall indicate consent to, approval of or acquiescence in any such petition, application or proceeding or the appointment of, a custodian, receiver or any trustee for all or any substantial part of its properties, or if the Company shall suffer such custodianship, receivership, or trusteeship to continue undischarged for a period of thirty (30) days or more, or the Company violates any term or provision of this Note and same remains uncured for a period of 30 days after written notice thereof by any Holder of this Note, then and in any such event (each such event, an “Event of Default”), the outstanding Principal Amount of this Note shall be and become immediately due and payable.
1. Prepayment. The Company may, without premium or penalty, at any time and from time to time, prepay all or any portion of the outstanding Principal Amount due under this Note.
2. Restrictions on Transfer.
The Holder acknowledges that it has been advised by the Company that this Note has not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”), that the Note is being issued, on the basis of the statutory exemption provided by Section 4(a)(2) of the Securities Act relating to transactions by an issuer not involving any public offering, and that the Company’s reliance upon this statutory exemption is based in part upon the representations made by the Holder in the Securities Purchase Agreement. As such, the Company shall not be required to give any effect to any sale, assignment, hypothecation, transfer or other disposition of this Note, unless (i) the sale, assignment, hypothecation, transfer or other disposition of the Note is registered under the Securities Act, provided, that the Company has no obligation or intention to so register the Note in connection herewith, or (ii) the Note is sold, assigned, hypothecated, transferred or otherwise disposed of in accordance with all the requirements and limitations of Rule 144 under the Securities Act, or such sale, assignment, or transfer is otherwise exempt from registration under the Securities Act.
3. Covenants of Company. The Company covenants and agrees that, so long as this Note shall be outstanding, it will:
a. Promptly pay and discharge all lawful taxes, assessments and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become in default, as well as all lawful claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof, except where the failure to so pay would not have a material effect on the Company; provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings, and the Company shall set aside on its books adequate reserves with respect to any such tax, assessment, charge, levy or claim so contested.
b. Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all material laws applicable to the Company as its counsel may advise; and
c. At all times keep true and correct books, records and accounts.
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4. Usury. In no event shall the amount of paid or agreed to be paid hereunder be deemed to exceed the highest lawful rate of interest permissible under applicable law. Any excess amount of deemed interest shall be null and void and shall not interfere with or affect the Company’s obligation to repay the Principal Amount of the Note.
5. Mutilated, Destroyed, Lost or Stolen Notes. In case this Note shall become mutilated or defaced, or be destroyed, lost or stolen, the Company shall execute and deliver a new note of like principal amount in exchange and substitution for the mutilated or defaced Note, or in lieu of and in substitution for the destroyed, lost or stolen Note. In the case of a mutilated or defaced Note, the Holder shall surrender such Note to the Company for exchange. In the case of any destroyed, lost or stolen Note, the Holder shall furnish to the Company: (a) evidence to the Company’s satisfaction of the destruction, loss or theft of such Note and (b) such security or indemnity as may be reasonably required by the Company to hold the Company harmless with respect to the replacement of such Note.
6. Waiver of Demand, Presentment, Etc. The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereunder, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder.
7. Payment. Except as otherwise provided for herein, all payments with respect to this Note shall be made in lawful currency of the United States of America by check or wire transfer of immediately available funds, at the option of the Holder, at the principal office of the Holder or such other place or places or designated accounts as may be reasonably specified by the Holder in a written notice to the Company at least one (1) business day prior to payment. Payment shall be credited to the Principal Amount.
8. Assignment. The rights and obligations of the Company shall be binding upon, and inure to the benefit of, its permitted successors, assigns, heirs, administrators and transferees of the parties hereto. This Note is not assignable by the Holder without the written consent of the Company.
9. Waiver and Amendment. Any provision of this Note, including, without limitation, the due date hereof, and the observance of any term hereof, may be amended, waived or modified (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the holders of greater than 50% of the face amount of all then outstanding Notes.
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10. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or delivered by facsimile transmission, to the Company at the address or facsimile number set forth herein or to the Holder at its address or facsimile number set forth in the records of the Company. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given when personally delivered or when deposited in the mail in the manner set forth above and shall be deemed to have been received when delivered or, if notice is given by facsimile transmission, when delivered with confirmation of receipt.
11. Governing Law; Jurisdiction; Waiver of Jury Trial. This Note shall be enforced, governed by and construed in accordance with the laws of the State of Delaware, without regard to the principles of conflicts of law. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE.
12. Severability. If one or more provisions of this Note are held to be unenforceable under applicable law, such provisions shall be excluded from this Note, and the balance of this Note shall be interpreted as if such provisions were so excluded and shall be enforceable in accordance with its terms.
13. Headings. Section headings in this Note are for convenience only, and shall not be used in the construction of this Note.
* * *
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IN WITNESS WHEREOF, the Company has caused this Note to be executed in its corporate name by an appropriate officer of the Company.
| ADITX THERAPEUTICS, INC. | ||
| By | ||
| Name: | Amro Albanna | |
| Title: | Chief Executive Officer | |
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Exhibit 10.14
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (this “Agreement”) is dated as of ______________ by and between Aditx Therapeutics, Inc., a Delaware corporation (the “Company”), and the purchaser identified on the signature pages hereto (the “Purchaser”).
WHEREAS, the Company desires to issue and sell to Purchaser, and Purchaser, desires to purchase from the Company, a promissory note (the “Offering”) with a principal amount as set forth on the signature pages hereto.
NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Note (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Board of Directors” means the board of directors of the Company.
“Business Day” means any day except Saturday, Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Closing” means the closing of the purchase and sale of the Note pursuant to Section 2.1.
“Closing Date” means the Business Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Purchase Price and (ii) the Company’s obligations to deliver the Note have been satisfied or waived.
“Company Counsel” means Sheppard, Mullin, Richter & Hampton LLP, with offices located at 30 Rockefeller Plaza, New York, NY 10112.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Material Adverse Effect” shall mean (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document.
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“Note” means the original issue discount promissory note issued by the Company to the Purchaser hereunder, in the form attached hereto as Exhibit A.
“Offering” shall have the meaning ascribed to such term in the preamble to this Agreement.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
“Purchaser Party” shall have the meaning ascribed to such term in Section 4.8.
“Purchase Price” means the aggregate amount to be paid for the Note purchased hereunder as specified below Purchaser’s name on the signature page of this Agreement and next to the heading “Purchase Price,” in United States dollars and in immediately available funds.
“Securities Act” means the Securities Act of 1933, as amended.
“Transaction Documents” means this Agreement, the Note, all exhibits and schedules hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, a Closing shall occur at the offices of Company Counsel or such other location as the parties hereto shall mutually agree.
2.2 Deliveries.
(a) On the Closing Date, the Company shall deliver or cause to be delivered to the Purchaser the following:
(i) this Agreement duly executed by the Company; and
(ii) the Note, registered in the name of such Purchaser, in the form set forth as Exhibit A.
(b) On the Closing Date, the Purchaser shall deliver or cause to be delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser; and
(ii) such Purchaser’s Purchase Price by check or wire transfer to the account as specified in writing by the Company.
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2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein;
(ii) all obligations, covenants and agreements of Purchaser required to be performed at or prior to the Closing Date shall have been performed; and
(iii) the delivery by the Purchaser of the items set forth in Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein;
(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;
(iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement; and
(iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby represents and warrants as of the date hereof and as of the Closing Date to the Purchaser as follows:
(a) Organization and Qualification. The Company is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company is not in violation or default of any of the provisions of its certificate of incorporation, bylaws or other organizational or charter documents.
(b) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection therewith other than in connection with the Required Approvals. Each Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
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(c) Issuance of the Note. The Notes are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be valid obligations of the Company.
(d) Capitalization. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Note. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
3.2 Representations and Warranties of the Purchasers. The Purchaser hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:
(a) Organization; Authority. Each Purchaser: (i) if a natural person, represents that the Purchaser has the full power and authority to execute and deliver this Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof; (ii) if a corporation, partnership, or limited liability company, or association, joint stock company, trust, unincorporated organization or other entity, represents that such entity was not formed for the specific purpose of acquiring the Note, such entity is duly organized, validly existing and in good standing under the laws of the state of its organization, the consummation of the transactions contemplated hereby is authorized by, and will not result in a violation of state law or its charter or other organizational documents, such entity has full power and authority to execute and deliver this Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof and to purchase and hold the Note, the execution and delivery of this Agreement has been duly authorized by all necessary action, this Agreement has been duly executed and delivered on behalf of such entity and is a legal, valid and binding obligation of such entity; or (iii) if executing this Agreement in a representative or fiduciary capacity, represents that it has full power and authority to execute and deliver this Agreement in such capacity and on behalf of the subscribing individual, ward, partnership, trust, estate, corporation, or limited liability company or partnership, or other entity for whom such Purchaser is executing this Agreement, and such individual, partnership, ward, trust, estate, corporation, or limited liability company or partnership, or other entity has full right and power to perform pursuant to this Agreement and represents that this Agreement constitutes a legal, valid and binding obligation of such entity. The execution and delivery of this Agreement will not violate or be in conflict with any order, judgment, injunction, agreement or controlling document to which the Purchaser is a party or by which it is bound.
(b) Purchaser Status. At the time the Purchaser was offered the Note, it was, and as of the date hereof it is (i) an “accredited investor” as defined in Rule 501(a) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.
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(c) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Note, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Note and, at the present time, is able to afford a complete loss of such investment.
ARTICLE IV.
COVENANTS
4.1 [Intentionally omitted].
4.2 Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that the Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
4.3 Use of Proceeds. The Company shall use the net proceeds from the sale of the Note hereunder for working capital purposes.
4.4 Indemnification of Purchaser. Subject to the provisions of this Section 4.8, the Company will indemnify and hold the Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.
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ARTICLE V.
MISCELLANEOUS
5.1 [Intentionally omitted].
5.2 Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Note to the Purchasers.
5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Business Day, (b) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Business Day or later than 5:30 p.m. (New York City time) on any Business Day, (c) the second Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers holding at least 50% in interest of the Notes then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.
5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Note, provided that such transferee agrees in writing to be bound, with respect to the transferred Note, by the provisions of the Transaction Documents that apply to the “Purchasers.”
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5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.
5.9 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflicts of law thereof.
5.10 Survival. The representations and warranties of the parties hereto shall survive the Closing and the delivery of the Note for the applicable statute of limitations.
5.11 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e- mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
5.13 Replacement of Note. If the Note purchase hereby is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new Note, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a Note under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Note.
5.14 Independent Nature of Purchasers’ Obligations and Rights. The obligations of the Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. The Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. The Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.
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5.15 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
5.16 Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto.
5.17 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Note Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
| ADITX THERAPEUTICS, INC. | Address for Notice: |
| By:__________________________________________ | 11161 Anderson Street |
| Name: Amro Albanna | Suite 105-10014 |
| Title: Chief Executive Officer | Loma Linda, CA 92354 |
| With a copy to (which shall not constitute notice): | |
| Sheppard, Mullin, Richter & Hampton LLP | |
| 30 Rockefeller Plaza | |
| New York, NY 10112 | |
| Attn: Richard Friedman |
[SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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IN WITNESS WHEREOF, the undersigned have caused this Note Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Principal Amount: $________________
Purchase Price: $________________
If the Purchaser is an INDIVIDUAL, and if
purchased as JOINT TENANTS, as TENANTS IN COMMON, or as
COMMUNITY PROPERTY:
Purchaser:
| Print Name | Social Security Number | |||
| Signature | Date | Mailing Address | ||
| Co-Purchaser (if applicable): | ||||
| Print Name | Social Security Number | |||
| Signature | Date | Address (if different from above) |
If the Purchaser is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY or TRUST:
| Name of Partnership, Corporation, | Federal Taxpayer Identification | ||||
| Limited Liability Company or Trust | Number | ||||
| By: | |||||
| Name: | Date | ||||
| Title: | |||||
| Business Address | |||||
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EXHIBIT A
FORM OF NOTE
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Exhibit 10.15
ADITX THERAPEUTICS, INC.
ORIGINAL ISSUE DISCOUNT
PROMISSORY NOTE
Dated: ____________
| Principal Amount | $ | |
| Funded Amount | $ | |
| Original Issue Discount | $ |
No.
THIS PROMISSORY NOTE (this “Note”) is made by ADITX THERAPEUTICS, INC., a Delaware corporation (the “Company”), and has been issued to the Holder (as defined below) in connection with that certain Securities Purchase Agreement of the Company, dated as of January __, 2020 (the “Securities Purchase Agreement”).
FOR VALUE RECEIVED, the Company hereby promises to pay to the order of __________ (the “Holder”), on the earlier date (the “Maturity Date”) of (i) ninety (90) days from the date hereof, and (ii) ten (10) business days following the closing of the Company’s initial public offering (the “Public Offering”), of its securities resulting in the receipt by the Company of gross proceeds of no less than $7,000,000, the principal sum of $50,000.00 (the “Principal Amount”) (or such lesser principal amount as may then be outstanding). The consideration for this Note shall be $[________] (the “Funded Amount”). For the avoidance of doubt, this Note carries an original issue discount (“OID”) of $[_______].
If the Company shall fail to make a payment of principal or interest when due; or shall make an assignment for the benefit of creditors, file a petition in bankruptcy, be adjudicated insolvent or bankrupt, suffer an order for relief under any federal bankruptcy law, petition or apply to any tribunal for the appointment of a custodian, receiver or any trustee for the Company or any substantial part of its assets, or shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or if there shall have been filed any such petition or application, or any such proceeding shall have been commenced against the Company, which remains undismissed for a period of thirty (30) days or more; or if the Company, by any act or omission shall indicate consent to, approval of or acquiescence in any such petition, application or proceeding or the appointment of, a custodian, receiver or any trustee for all or any substantial part of its properties, or if the Company shall suffer such custodianship, receivership, or trusteeship to continue undischarged for a period of thirty (30) days or more, or the Company violates any term or provision of this Note and same remains uncured for a period of 30 days after written notice thereof by any Holder of this Note, then and in any such event (each such event, an “Event of Default”), the outstanding principal amount of this Note, together with all accrued and unpaid interest thereon, shall be and become immediately due and payable, and shall bear interest of 18% per annum (“Default Interest Rate”) retroactive to the issuance of this Note.
1. Covenants of Company. The Company covenants and agrees that, so long as this Note shall be outstanding, it will:
| a. | Promptly pay and discharge all lawful taxes, assessments and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become in default, as well as all lawful claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof, except where the failure to so pay would not have a material effect on the Company; provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings, and the Company shall set aside on its books adequate reserves with respect to any such tax, assessment, charge, levy or claim so contested. |
| b. | Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all material laws applicable to the Company as its counsel may advise; and |
| c. | At all times keep true and correct books, records and accounts. |
2. Usury. In no event shall the amount of interest paid or agreed to be paid hereunder exceed the highest lawful rate permissible under applicable law. Any excess amount of deemed interest shall be null and void and shall not interfere with or affect the Company’s obligation to repay the principal of and interest on the Note.
3. Mutilated, Destroyed, Lost or Stolen Notes. In case this Note shall become mutilated or defaced, or be destroyed, lost or stolen, the Company shall execute and deliver a new note of like principal amount in exchange and substitution for the mutilated or defaced Note, or in lieu of and in substitution for the destroyed, lost or stolen Note. In the case of a mutilated or defaced Note, the Holder shall surrender such Note to the Company for exchange. In the case of any destroyed, lost or stolen Note, the Holder shall furnish to the Company: (a) evidence to the Company’s satisfaction of the destruction, loss or theft of such Note and (b) such security or indemnity as may be reasonably required by the Company to hold the Company harmless with respect to the replacement of such Note.
4. Waiver of Demand, Presentment, Etc. The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereunder, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder.
5. Payment. Except as otherwise provided for herein, all payments with respect to this Note shall be made in lawful currency of the United States of America by check or wire transfer of immediately available funds, at the option of the Holder, at the principal office of the Holder or such other place or places or designated accounts as may be reasonably specified by the Holder in a written notice to the Company at least one (1) business day prior to payment. Payment shall be credited first to the accrued interest then due and payable and the remainder applied to principal.
6. Assignment. The rights and obligations of the Company and the Holder of this Note shall be binding upon, and inure to the benefit of, the permitted successors, assigns, heirs, administrators and transferees of the parties hereto. This Note is not assignable by the Holder without the written consent of the Company.
7. Waiver and Amendment. Any provision of this Note, including, without limitation, the due date hereof, and the observance of any term hereof, may be amended, waived or modified (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the holders of greater than 50% of the face amount of all then outstanding Notes.
2
8. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or delivered by facsimile transmission, to the Company at the address or facsimile number set forth herein or to the Holder at its address or facsimile number set forth in the records of the Company. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given when personally delivered or when deposited in the mail in the manner set forth above and shall be deemed to have been received when delivered or, if notice is given by facsimile transmission, when delivered with confirmation of receipt.
9. Governing Law; Jurisdiction; Waiver of Jury Trial. This Note shall be enforced, governed by and construed in accordance with the laws of the State of Delaware, without regard to the principles of conflicts of law. The Company hereby submits to the exclusive jurisdiction of the State of New York or United States federal courts located in the state, county and city of New York (Manhattan) with respect to any dispute arising under this Note. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE.
10. Severability. If one or more provisions of this Note are held to be unenforceable under applicable law, such provisions shall be excluded from this Note, and the balance of this Note shall be interpreted as if such provisions were so excluded and shall be enforceable in accordance with its terms.
11. Headings. Section headings in this Note are for convenience only, and shall not be used in the construction of this Note.
* * *
3
IN WITNESS WHEREOF, the Company has caused this Note to be executed in its corporate name by an appropriate officer of the Company.
| ADITX THERAPEUTICS, INC. | ||
| By | ||
| Name: | Amro Albanna | |
| Title: | Chief Executive Officer | |
4
EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the use, in this Registration Statement on Form S-1, as amended, of our report dated February 19, 2020 related to the financial statements of Aditx Therapeutics, Inc. (the “Company”) as of December 31, 2019 and 2018, and for the years then ended, which includes an explanatory paragraph regarding the substantial doubt about the Company’s ability to continue as a going concern. We also consent to the reference to us in the “Experts” section of this Registration Statement.
| /s/ dbbmckennon |
Newport Beach, California
May 13, 2020