Item 1.01 Entry into a
Material Definitive Agreement.
On December 1, 2016, Majesco Entertainment Company
(the “
Company
”) entered into an Agreement and Plan of
Reorganization (the “
Agreement
”) with Majesco Acquisition Corp., a Nevada
corporation and wholly-owned subsidiary of the Company, PolarityTE,
Inc., a Nevada corporation (“
Polarity
”) and Dr. Denver Lough, the owner of 100%
of the issued and outstanding shares of capital stock of Polarity
(the “
Seller
”). The closing is subject to various
closing conditions, including, approval of stockholders of the
Company in accordance with Delaware law and NASDAQ Listing Rule
5635 and a minimum cash balance available to the
Company.
Polarity is the
owner of a novel regenerative medicine and tissue engineering
platform developed and patented by Denver Lough, MD, PhD. This
radical and proprietary technology employs a patient’s own
cells for the healing of full-thickness, functionally-polarized
tissues. If clinically successful, the PolarityTE platform will be
able to provide medical professionals with a truly new paradigm in
wound healing and reconstructive surgery by utilizing a
patient’s own tissue substrates for the regeneration of skin,
bone, muscle, cartilage, fat, blood vessels and nerves. It is
because PolarityTE uses a natural and biologically sound platform
technology, which is readily adaptable to a wide spectrum of organ
and tissue systems that Polarity and its world-renowned clinical
advisory board are poised to drastically change the field and
future of translational regenerative medicine.
Polarity’s launch
product which is being prepared for clinical trials is the first
ever truly autologous skin regeneration construct of its kind,
which can regrow full-thickness and functional polarized skin,
including all layers (dermis & epidermis), hair, and skin
appendages. The PolarityTE constructs will offer patients a new
option for wound healing—“where self regenerates
self”. In parallel with the clinical development of the
functionally-polarized skin regenerative product, the PolarityTE
platform provides a new and radical pipeline for expansion into
numerous other tissues, including bone, muscle, cartilage, fat,
blood vessels, nerves, solid organs and vascularized composite
structures under a direct interface with practicing medical
leaders, in order to provide patients and the market with truly
practical answers to difficult wound and tissue voids.
At closing, upon satisfaction of each of the
closing conditions, the
Seller will be issued 7,050
shares of the Company’s newly
authorized Series E Preferred Stock (the “
Preferred
Shares
”) convertible into
an aggregate of 7,050,000 shares of the Company’s common
stock (the “
Merger
Consideration
” and such
transaction, the “
Merger
”), expected to constitute approximately 50%
of the issued and outstanding common stock of the Company on a
fully diluted basis at closing and depending in part, upon the
Company’s expected cash balance at closing. Until converted,
each Preferred Share is entitled to two votes for every share of
common stock into which it is convertible on any matter submitted
for a vote of stockholders.
The
parties to the Agreement made representations, warranties and
covenants that are customary for transactions of this
nature.
The
Merger is expected to be accounted for as an acquisition of assets
rather than a business pursuant to Financial Accounting Standards
Board Accounting Standards Codification 805-50-30 “Business
Combinations”. Accordingly, assets acquired through a
transaction that is not a business combination shall be measured
based on the cash consideration paid plus either the fair value of
the non-cash consideration given or the fair value of the assets
acquired, whichever is more clearly evident.
Following the Merger, the Company will continue to
be a “smaller reporting company,” as defined in Item
10(f)(1) of Regulation S-K, as promulgated by the
SEC.
The
foregoing description is a summary only, does not purport to set
forth the complete terms of the Agreement and is qualified in its
entirety by reference to the Agreement filed as Exhibit 2.1 to this
Current Report on Form 8-K and is hereby incorporated by
reference.
Series E Preferred Stock
On or prior to the effective time of the Merger,
the Company will file a Certificate of Designations, Preferences
and Rights of the 0% Series E Convertible Preferred Stock (the
“
Certificate of
Designation
”) with the
Delaware Secretary of State pursuant to which the Company will
designate 7,050 shares of the Company’s authorized shares of
preferred stock as Series E Preferred Stock.
The Series E Preferred
Stock are convertible into shares of common stock based on a
conversion calculation equal to the stated value of such preferred
stock, plus all accrued and unpaid dividends, if any, on such
preferred stock, as of such date of determination, divided by the
conversion price. The stated value of each Series E
Preferred Stock is $1,000 and the initial conversion price is $1.00
per share, each subject to adjustment for stock splits, stock
dividends, recapitalizations, combinations, subdivisions or other
similar events.
The Series
E Preferred Stock, with respect to dividend rights and rights on
liquidation, winding-up and dissolution, in each case will rank
senior to the Company's common stock and all other securities of
the Company that do not expressly provide that such securities rank
on parity with or senior to the Series E Preferred Stock. Until
converted, each share of Series E Preferred Stock is entitled to
two votes for every share of common stock into which it is
convertible on any matter submitted for a vote of
stockholders.
The
foregoing description is a summary only, does not purport to set
forth the complete terms of the Certificate of Designation and is
qualified in its entirety by reference to the Certificate of
Designation filed as Exhibit 3.1 to this Current Report on Form 8-K
and is hereby incorporated by reference.
2017 Equity Incentive Plan
On December 1, 2016, the Company’s Board of
Directors (the “
Board
”) approved the Company’s 2017 Equity
Incentive Plan (the “
2017 Plan
”). The purpose of the 2017 Plan is to
promote the success of the Company and to increase stockholder
value by providing an additional means through the grant of awards
to attract, motivate, retain and reward selected employees,
consultants and other eligible persons. The 2017 Plan provides for
the grant of incentive stock options, nonqualified stock options,
restricted stock, restricted stock units, stock appreciation rights
and other types of stock-based awards to the Company’s
employees, officers, directors and consultants. The
Compensation Committee of the Board will administer the 2017 Plan,
including determining which eligible participants will receive
awards, the number of shares of common stock subject to the awards
and the terms and conditions of such awards. Up to 3,450,000 shares
of common stock are issuable pursuant to awards under the 2017
Plan. Unless earlier terminated by the Board, the 2017 Plan shall
terminate at the close of business on December 1,
2026.
Employment Agreements
On December 1, 2016, the Company entered into an
employment agreement with Dr. Denver Lough (the
“
Lough
Employment Agreement
”).
Pursuant to the terms of the Lough Employment Agreement, Dr. Lough
will serve as Chairman of the Board and as Chief Executive Officer
and Chief Scientific Officer of the Company for a term of one year
which shall be automatically renewed for successive one year
periods thereafter unless earlier terminated. Pursuant to the Lough
Employment Agreement, the Company shall pay Dr. Lough (i) a
one-time signing bonus of $100,000, (ii) an annual base salary of
$350,000, (iii) an annual discretionary bonus, as determined by the
Board, in an amount up to 100% of Dr. Lough’s then current
base salary and (iv) 10 year options (the
“
Lough
Options
”) to purchase up
to 1,000,000 shares of the Company’s common stock at an
exercise price of $3.15 per share (equal to 100% of the market
price as defined by NASDAQ (“
Fair Market
Value
”)) which Options
shall vest in 24 equal installments commencing on the one month
anniversary of the Lough Employment Agreement. The Lough Options
were granted pursuant to the 2017 Plan and the exercise of the
Lough Options and the 2017 Plan are subject to stockholder
approval. If Dr. Lough terminates the Lough Employment Agreement
for Good Reason (defined hereafter) or a Change of Control (as
defined in the Lough Employment Agreement) or the Company
terminates the Lough Employment Agreement without Cause (defined
hereafter), then Dr. Lough shall be entitled to receive (i) the sum
of his then base salary from the date of termination, (ii)
reasonable expenses incurred by Dr. Lough in connection with the
performance of his duties, (iii) accrued but unused vacation time
through the date of termination, (iv) the sum of this then annual
bonus and (v) all Share Awards (as defined in the Lough Employment
Agreement) earned and vested prior to the date of termination. In
addition, Dr. Lough shall have the right to Participation Payments
(as defined in the Lough Employment Agreement) from commercial
transactions associated with the Patents (as defined in the Lough
Employment Agreement) and intellectual property rights associated
with such Patents. If the Company terminates the Lough Employment
Agreement for Cause, the Company will have no further obligations
or liability to Dr. Lough except for the obligation to (i) pay Dr.
Lough his then annual salary through the date of termination, (ii)
unpaid annual bonus pursuant to the terms of the Lough Employment
Agreement, (iii) reasonable expenses incurred by Dr. Lough in
connection with the performance of his duties and (v) accrued but
unused vacation time through the date of termination.
“
Good
Reason
” means
the
occurrence of any of the following events without the
employee’s consent: (A) the assignment to the employee of
duties that are significantly different from, and/or that result in
a substantial diminution of, the duties that he assumed on the
effective date (including reporting to anyone other than solely and
directly to the Board); (B) the assignment to the employee of a
title that is different from and subordinate to the title that he
assumed on the effective date, provided, however, for the absence
of doubt following a Change of Control, should the employee be
required to serve in a diminished capacity in a division or unit of
another entity (including the acquiring entity), such event shall
constitute Good Reason regardless of the title of the Employee in
such acquiring company, division or unit; or (C) material breach by
the Company of the employment agreement.
“
Cause
” means
(a) the willful and continued
failure of the employee to perform substantially his duties and
responsibilities for the Company (other than any such failure
resulting from the employee’s death or Disability (as defined
in the employment agreement) after a written demand by the Board
for substantial performance is delivered to the employee by the
Company, which specifically identifies the manner in which the
Board believes that the employee has not substantially performed
his duties and responsibilities, which willful and continued
failure is not cured by the employee within 30 days following his
receipt of such written demand; (b) the conviction of, or plea of
guilty or
nolo contendere
to, a felony, or (c) fraud, dishonesty or gross misconduct which is
materially and demonstratively injurious to the
Company.
On December 1, 2016, the Company entered into an
employment agreement with Edward Swanson (the
“
Swanson Employment
Agreement
”
).
Pursuant to the terms of the Swanson Employment Agreement, Dr.
Swanson will serve as Chief Operating Officer of the Company for a
term of one year which shall be automatically renewed for
successive one year periods thereafter unless earlier terminated.
Pursuant to the Swanson Agreement, the Company shall pay Dr.
Swanson (i) a one-time signing bonus of $100,000, (ii) an annual
base salary of $300,000, (iii) an annual discretionary bonus, as
determined by the Board, in an amount up to 100% of Dr.
Swanson’s then current base salary and (iv) 10 year options
(the “
Swanson
Options
”) to purchase up
to 846,000 shares of the Company’s common stock pursuant to
the 2017 Plan at Fair Market Value which Swanson Options shall vest
in 24 equal installments commencing on the one month anniversary of
the Swanson Employment Agreement and are subject to stockholder
approval. If Dr. Swanson terminates the Swanson Employment
Agreement for Good Reason or a Change of Control (as defined in the
Swanson Employment Agreement) or the Company terminates the Swanson
Employment Agreement without Cause, then Dr. Swanson shall be
entitled to receive (i) the sum of his then base salary from the
date of termination, (ii) reasonable expenses incurred by Dr.
Swanson in connection with the performance of his duties, (iii)
accrued but unused vacation time through the date of termination,
(iv) the sum of this then annual bonus and (v) all Share Awards (as
defined in the Swanson Employment Agreement) earned and vested
prior to the date of termination. If the Company terminates the
Swanson Employment Agreement for Cause, the Company will have no
further obligations or liability to Dr. Swanson except for the
obligation to (i) pay Dr. Swanson his then annual salary through
the date of termination, (ii) unpaid annual bonus pursuant to the
terms of the Swanson Employment Agreement, (iii) reasonable
expenses incurred by Dr. Swanson in connection with the performance
of his duties and (v) accrued but unused vacation time through the
date of termination.
The
foregoing description is a summary only, does not purport to set
forth the complete terms of the Lough Employment Agreement, Swanson
Employment Agreement and the 2017 Plan, and is qualified in its
entirety by reference to the Lough Employment Agreement, Swanson
Employment Agreement and the 2017 Plan filed as Exhibit 10.1, 10.2
and 10.3, respectively to this Current Report on Form 8-K and is
hereby incorporated by reference.
Stockholders Agreement
On December 1, 2016, the Company entered into a
Stockholders Agreement (the “
Stockholders
Agreement
”) with Dr.
Lough, Dr. Swanson (together with Dr. Lough, the
“
Restricted
Stockholders
”), Polarity
and certain stockholders of the Company (the
“
Majesco
Stockholders
”). Pursuant
to the terms of the Stockholders Agreement, the Company and Majesco
Stockholders shall have the right to purchase from each Restricted
Stockholder all of the Restricted Stockholder’s Seller Stock
(as defined in the Stockholders Agreement) if such Restricted
Stockholder’s employment with the Company is terminated for
Cause or by the Restricted Stockholder without Good Reason at the
fair market value as determined pursuant to the terms of the
Stockholders Agreement. In addition, the Company shall have the
right to purchase from each Restricted Stockholder all of the
Restricted Stockholder’s Seller Stock if (i) such Restricted
Stockholder breaches any material provisions of such Restricted
Stockholder’s Employment Agreement or (ii) such Restricted
Stockholder beaches any material provision of the Agreement, at a
per share price of $0.001 per share. No Restricted Stockholder may
sell any shares of Seller Stock to any third party unless the
Company and the Majesco Stockholders are first offered the right to
participate in any such offering on terms and conditions not less
favorable to the Company and the Majesco Stockholders than those
applicable to the third party.
The
foregoing description is a summary only, does not purport to set
forth the complete terms of the Stockholders Agreement and is
qualified in its entirety by reference to the Stockholders
Agreement filed as Exhibit 10.4 to this Current Report on Form 8-K
and is hereby incorporated by reference.
Voting Agreement
On December 1, 2016, the Company entered into a
Voting Agreement (the “
Voting
Agreement
”) with Dr.
Lough, Dr. Swanson, Polarity and certain stockholders of the
Company (collectively, the “
Stockholders
”). Pursuant to the terms of the Voting
Agreement, the Stockholders agree to vote the Shares (defined
hereafter) at any annual or special meeting of stockholders of the
Company, or execute a written consent in lieu of such meeting to
vote: (i) in favor of: (1) approval of the Merger and the issuance
of the Preferred Shares and the Company’s common stock into
which such Preferred Shares are convertible in such amount that
exceeds 19.99% of the Company’s issued and outstanding common
stock and (2) approval of any proposal to adjourn of postpone the
stockholder’s meeting to a later date if there are not
sufficient votes for the approval of the Merger Consideration and
transactions contemplated by the Agreement; and (ii) against any
proposal which could be expected to result in a breach of any
obligation of the Company which could be expected to result in any
of the conditions of the Company’s obligations under the
Agreement not being fulfilled. All Shares that the Stockholders
purchase or acquire the right to vote or otherwise acquire
beneficial ownership after December 1, 2016 shall be subject to the
terms of the Voting Agreement. Stockholders shall not deposit any
of the Shares in a voting trust, or grant any proxies with respect
to the Shares except as provided for in the Voting Agreement.
“
Shares
” shall mean the Company’s common
stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and any additional capital stock of the Company
acquired by the Stockholders after December 1,
2016.
The
foregoing description is a summary only, does not purport to set
forth the complete terms of the Voting Agreement and is qualified
in its entirety by reference to the Voting Agreement filed as
Exhibit 10.5 to this Current Report on Form 8-K and is hereby
incorporated by reference.
Acquisition of Laboratory Equipment
Effective December
1, 2016, Majesco Acquisition II Corp. (“
Acq. Corp.
”), a wholly-owned
subsidiary of the Company, entered into a Warranty Bill of Sale of
Laboratory Equipment (“
Bill
of Sale
”) with Acq. Corp. and Q Therapeutics, Inc.
pursuant to which Acq Corp purchased certain laboratory equipment
for $80,000.
The
foregoing description is a summary only, does not purport to set
forth the complete terms of the Bill of Sale and is qualified in
its entirety by reference to the Bill of Sale filed as Exhibit 10.6
to this Current Report on Form 8-K and is hereby incorporated by
reference.
Lease of Office Space
On
December 1, 2016, the Company entered into a Lease (the
“
Lease
”) with
Paradigm Resources, L.C. (“
Paradigm
”), pursuant to which the
Company will lease 5,331 square feet of office and lab space in
Salt Lake City, Utah at a monthly lease rate of $12,439. The lease
will commence on January 1, 2017 and terminate on December 31,
2017.
The
foregoing description is a summary only, does not purport to set
forth the complete terms of the Lease and is qualified in its
entirety by reference to the Lease filed as Exhibit 10.7 to this
Current Report on Form 8-K and is hereby incorporated by
reference.
Certain
Risk Factors Relating to
Polarity
An investment in our common stock involves a high
degree of risk. Before deciding whether to invest in our common
stock, you should consider carefully the risks discussed under the
section captioned “Risk Factors” contained in our most
recent annual report on Form 10-K, our quarterly reports on Form
10-Q and any current reports on Form 8-K on file with the
Securities and Exchange Commission (the “SEC”), all of
which are incorporated herein by reference, and which may be
amended, supplemented or superseded from time to time by other
reports we file with the SEC.
There are numerous and varied risks, known and unknown, that may
prevent us from achieving our goals. If any of these risks actually
occur, our business, financial condition or results of operation
may be materially adversely affected. In such case, the trading
price of our common stock could decline and investors could lose
all or part of their investment.
Rapid technological change could cause Polarity’s platform,
PolarityTE, to become obsolete.
The
technologies underlying Polarity’s platform, PolarityTE, are
subject to rapid and profound technological change. Competition
intensifies as technical advances in each field are made and become
more widely known. Polarity can give no assurance that others will
not develop processes with significant advantages over the
processes that Polarity offers or is seeking to develop. Any such
occurrence could have a material and adverse effect on
Polarity’s business, results of operations and financial
condition.
Polarity’s revenues will depend upon adequate reimbursement
from public and private insurers and health systems.
Polarity’s
success will depend on the extent to which reimbursement for the
costs of its treatments will be available from third party payers,
such as public and private insurers and health
systems. Government and other third party payers attempt
to contain healthcare costs by limiting both coverage and the level
of reimbursement of new treatments. Therefore, significant
uncertainty usually exists as to the reimbursement status of new
healthcare treatments. If Polarity is not successful in obtaining
adequate reimbursement for its treatment from these third party
payers, the market's acceptance of Polarity’s treatment could
be adversely affected. Inadequate reimbursement levels
also likely would create downward price pressure on
Polarity’s treatment. Even if Polarity does
succeed in obtaining widespread reimbursement for its treatment,
future changes in reimbursement policies could have a negative
impact on Polarity’s business, financial condition and
results of operations.
To be commercially successful, Polarity must convince physicians
that its treatments are
safe and
effective alternatives to existing treatments and that
Polarity’s treatments should be used.
Polarity
believes physicians will only adopt its treatment if they
determine, based on experience, clinical data and published peer
reviewed journal articles, that the use of Polarity’s
treatment is a favorable alternative to conventional methods,
including skin grating. Physicians may be slow to change
their medical treatment practices for the following reasons, among
others:
|
|
●
Lack of evidence
supporting additional patient benefits and Polarity’s
treatments over conventional methods;
●
Perceived liability risks generally associated with the use of new
procedures; and
●
Limited availability of reimbursement from third party
payers.
|
In
addition, Polarity believes that recommendations for and support of
its treatments by influential physicians are essential for market
acceptance and adoption. If Polarity does not receive
this support or is unable to demonstrate favorable long-term
clinical data, physicians and hospitals may not use
Polarity’s treatment, which would significantly reduce
Polarity’s ability to achieve revenue and would prevent
Polarity from sustaining profitability.
Polarity’s ability to protect its intellectual property and
proprietary technology
through
patents and other means is uncertain and may be inadequate, which
could
have a
material and adverse effect on Polarity.
Polarity’s
success depends significantly on its ability to protect its
proprietary rights to the technologies used in it treatment and
PolarityTE platform. Polarity relies on patent
protection, as well as a combination of copyright, trade secret and
trademark laws and nondisclosure, confidentiality and other
contractual restrictions to protect its proprietary
technology. These legal means afford only limited
protection and may not adequately protect Polarity’s rights
or permit Polarity to gain or keep any competitive
advantage. In addition, Polarity’s pending patent
applications include claims to material aspects of Polarity’s
procedures that are not currently protected by issued
patents. The patent application process can be time
consuming and expensive. Polarity cannot ensure that any
of its pending patent applications will result in issued
patents. Competitors may be able to design around
Polarity’s patents or develop procedures that provide
outcomes that are comparable or even superior to Polarity’s.
Furthermore, the laws of foreign countries may not protect
Polarity’s intellectual property rights to the same extent as
do the laws of the United States.
The
failure to obtain and maintain patents and/or protect
Polarity’s intellectual property rights could have a material
and adverse effect on Polarity’s business, results of
operations, and financial condition. Whether a patent is
valid is a complex matter of science and law, and therefore
Polarity cannot be certain that, if challenged, its patents would
be upheld. If one or more of those patents are
invalidated, that could reduce or eliminate any competitive
advantage Polarity might otherwise have had.
In the event a competitor infringes upon
Polarity’s pending patent or other intellectual property
rights, enforcing those rights may be costly, uncertain, difficult
and time consuming. Even if successful, litigation to enforce or
defend Polarity’s intellectual property rights could be
expensive and time consuming and could divert Polarity’s
management's attention. Further, bringing litigation to enforce
Polarity’s patents subjects Polarity to the potential for
counterclaims. In the event that one or more of our patents are
challenged, a court or the United States Patent and Trademark
Office (“
USPTO
”) may invalidate the patent(s) or determine
that the patent(s) is not enforceable, which could harm
Polarity’s competitive position. If the USPTO ultimately
cancels or narrows the claim in any of Polarity’s patents
through these proceedings, it could prevent or hinder Polarity from
being able to enforce them against competitors. Such adverse
decisions could negatively impact Polarity’s future, expected
revenue.
Polarity may become subject to claims of infringement of
the
intellectual
property rights of others, which could prohibit Polarity from
developing
its
treatment, require Polarity to obtain licenses from third parties
or to develop
non-infringing
alternatives, and subject Polarity to substantial monetary
damages.
Third
parties could assert that Polarity’s procedures infringe
their patents or other intellectual property
rights. Whether a product infringes a patent or other
intellectual property involves complex legal and factual issues,
the determination of which is often
uncertain. Therefore, Polarity cannot be certain that it
has not infringed the intellectual property rights of
others. Because patent applications may take years to
issue, there also may be applications now pending of which Polarity
is unaware that may later result in issued patents that
Polarity’s procedure or processes infringe. There
also may be existing patents or pending patent applications of
which Polarity is unaware that its procedures or processes may
inadvertently infringe.
Any
infringement claim could cause Polarity to incur significant costs,
place significant strain on Polarity’s financial resources,
divert management's attention from Polarity’s business and
harm Polarity’s reputation. If the relevant
patents in such claim were upheld as valid and enforceable and
Polarity was found to infringe, Polarity could be prohibited from
utilizing any procedure that is found to infringe unless Polarity
obtains licenses to use the technology covered by the patent or
other intellectual property or is able to design around the patent
or other intellectual property. Polarity may be unable
to obtain such a license on terms acceptable to it, if at all, and
Polarity may not be able to redesign it’s processes to avoid
infringement. A court could also order Polarity to pay
compensatory damages for such infringement, plus prejudgment
interest and could, in addition, treble the compensatory damages
and award attorney fees. These damages could be substantial and
could harm Polarity’s reputation, business, financial
condition and operating results.
Polarity’s business is subject to continuing regulatory
compliance by the U.S. Food and Drug Administration (the
“FDA”) and other authorities, which is costly and
Polarity’s failure to comply could result in negative effects
on its business.
The FDA has specific regulations governing
tissue-based products, or HCT/Ps. The FDA has broad
post-market and regulatory and enforcement powers. The
FDA's regulation of HCT/Ps includes requirements for registration
and listing of products, donor screening and testing, processing
and distribution (“
Current Good Tissue
Practices
”), labeling,
record keeping and adverse-reaction reporting, and inspection and
enforcement.
Even
if pre-market clearance or approval is obtained, the approval or
clearance may place substantial restrictions on the indications for
which the product may be marketed or to whom it may be marketed,
may require warnings to accompany the product or impose additional
restrictions on the sale and/or use of the product. In
addition, regulatory approval is subject to continuing compliance
with regulatory standards, including the FDA's quality system
regulations.
If
Polarity fails to comply with the FDA regulations regarding its
tissue regeneration processes, the FDA could take enforcement
action, including, without limitation, any of the following
sanctions:
●
Untitled
letters, warning letters, fines, injunctions, and civil
penalties;
●
Operating
restrictions, partial suspension or total shutdown
of procedure;
●
Refusing
requests for clearance or approval of new procedures;
●
Withdrawing
or suspending current applications for approval or approvals
already granted; and
It
is likely that the FDA's regulation of HCT/Ps will continue to
evolve in the future. Complying with any such new
regulatory requirements may entail significant time delays and
expense, which could have a material adverse effect on
Polarity’s business.
Polarity faces significant uncertainty in the industry due to
government healthcare
reform.
There
have been and continue to be proposals by the Federal Government,
State Governments, regulators and third party payers to control
healthcare costs, and generally, to reform the healthcare system in
the United States. There are many programs and
requirements for which the details have not yet been fully
established or the consequences are not fully
understood. These proposals may affect aspects of
Polarity’s business. Polarity also cannot predict
what further reform proposals, if any, will be adopted, when they
will be adopted, or what impact they may have on
Polarity.
Oversight in the industry might affect the manner in which Polarity
may compete in the marketplace.
There
are laws and regulations that govern the means by which companies
in the healthcare industry may market their treatments to
healthcare professionals and may compete by discounting the prices
of their treatments, including for example, the federal
Anti-Kickback Statute, the federal False Claims Act, the federal
Health Insurance Portability and Accountability Act of 1996, state
law equivalents to these federal laws that are meant to protect
against fraud and abuse and analogous laws in foreign countries.
Violations of these laws are punishable by criminal and civil
sanctions, including, but not limited to, in some instances civil
and criminal penalties, damages, fines, exclusion from
participation in federal and state healthcare programs, including
Medicare and Medicaid. In addition, federal and state laws are also
sometimes open to interpretation, and from time to time Polarity
may find itself at a competitive disadvantage if Polarity’s
interpretation differs from that of our competitors.
Polarity may have significant liability exposure and its insurance
may not cover all potential claims.
Polarity
is exposed to liability and other claims in the event that its
treatment is alleged to have caused harm. Polarity may not be able
to obtain insurance for the potential liability on acceptable terms
with adequate coverage or at reasonable costs. Any potential
product liability claims could exceed the amount of
Polarity’s insurance coverage or may be excluded from
coverage under the terms of the policy. Polarity’s insurance
may not be renewed at a cost and level of coverage comparable to
that then in effect.
If the NASDAQ Stock Market determines that the Merger with Polarity
and the issuance of the Merger Consideration results in a change of
control of the Company, the Company may be required to submit a new
application under NASDAQ’s original listing standards and if
such application is not approved, the Company’s common stock
may be delisted from The NASDAQ Capital Market.
In connection with the Merger, the Company will issue 7,050 shares
of Series E Preferred Stock, which are convertible into an
aggregate of 7,050,000 shares of the Company’s common
stock. NASDAQ Rule 5110(a) provides that a Company
must apply for initial listing in connection with a transaction
whereby a company combines with a non-NASDAQ entity, resulting in a
change of control of such company and potentially allowing the
non-NASDAQ entity to effectively obtain NASDAQ
listing. In determining whether a change of control has
occurred, NASDAQ considers all relevant factors including, changes
in management, board of directors, voting power, ownership and
financial structure of the Company. If The NASDAQ Stock
Market determines that a change of control does in fact result from
the consummation of the Merger and the issuance of the Merger
Consideration and an original listing application has not been
approved prior to the consummation of Merger, the Company will be
in violation of NASDAQ Rule 5110(a) and the Company’s common
stock could be delisted from The NASDAQ Capital
Market.