SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): June 30, 2010
BACTERIN INTERNATIONAL
HOLDINGS, INC.
(Exact
Name of Registrant as Specified in Charter)
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Delaware
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333-158426
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20-5313323
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(State
or other jurisdiction
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(Commission
File Number)
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(IRS
Employer)
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of
incorporation)
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Identification
No.)
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600
Cruiser Lane
Belgrade,
Montana
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59714
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (406) 388-0480
K-Kitz,
Inc.
1630
Integrity Drive East, Columbus, Ohio
43209
(Former
Name or Former Address, if Changed Since Last Report)
Copies
to:
Greenberg
Traurig, LLP
The Tabor
Center
1200
Seventeenth Street, Suite 2400
Denver,
Colorado 80123
Tel.:
(303) 572-6586
Fax:
(303) 572-6540
Attn: C.
Ben Huber, Esq.
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4 (c) under the Exchange Act (17 CFR
240.13e-4(c))
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CURRENT
REPORT ON FORM 8-K
K-KITZ,
INC.
June
30, 2010
TABLE
OF CONTENTS
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Page
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Item
1.01
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Entry
into a Material Definitive Agreement
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1
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Item
2.01.
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Completion
of Acquisition or Disposition of Assets
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5
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Item
3.02.
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Unregistered
Sales of Equity Securities
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45
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Item
5.01.
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Changes
in Control of Registrant
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46
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Item
5.02.
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Departure
of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain
Officers
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46
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Item
5.03.
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Amendments
to Articles of Incorporation or Bylaws; Change in Fiscal
Year
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47
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Item
9.01.
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Financial
Statements and Exhibits
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47
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Items
1.01 Entry into a Material Definitive Agreement.
Summary
On June
30, 2010, we completed a reverse merger transaction (the “Reverse Merger”), in
which we caused Bacterin International, Inc., a Nevada corporation (“Bacterin”
or the “Company”), to be merged with and into KB Merger Sub, Inc., a Nevada
corporation and our newly-created, wholly-owned subsidiary (“Merger
Sub”). The reverse merger was consummated under Nevada corporate law
pursuant to an Agreement and Plan of Merger, dated as of June 30, 2010 (the
“Merger Agreement”), as discussed below. Concurrently with the
closing of the Reverse Merger, we also completed a private placement of common
stock and warrants to purchase common stock to accredited investors, and
received gross proceeds of approximately $7,508,000 at the closing of the
private placement.
As a
result of the Reverse Merger, we are now engaged, through Bacterin, in the
business of biomaterials research, development, and
commercialization. Bacterin is expanding its intellectual property
base and has successfully leveraged its technical expertise and knowledge of
biofilms into multiple product areas. Bacterin is well positioned for future
growth through established partnerships with major medical device manufacturers
and provider networks, as well as through its own in-house sales force and its
ongoing Bacterin product development of innovative tissue constructs and
bioactive coated devices. Revenues for Bacterin come from product
manufacturing, sales, distribution, licensing agreements and
grants.
Before
the Reverse Merger, our corporate name was K-Kitz, Inc., and our trading symbol
was KKTZ.OB. On June 29, 2010, we changed our corporate name to
“Bacterin International Holdings, Inc.” which name change became effective
for trading purposes on July 1, 2010. We intend to request a trading
symbol change to correspond with our name change at the appropriate time and in
accordance with FINRA policies that went into effect June 1, 2010. Accordingly,
our trading symbol will remain KKTZ.OB until such time as we move to another
market or otherwise can effect a trading symbol change through FINRA. As a result
of the Reverse Merger, consummated pursuant to the Merger Agreement, Bacterin
became our wholly-owned subsidiary, with the former stockholders of Bacterin
acquiring 28,257,287 shares of our common stock, representing approximately 96%
of our outstanding common stock prior to taking into account the issuance of any
shares pursuant to the private placement.
Concurrently
with the closing of the Reverse Merger, we completed an initial closing of a
private placement to selected qualified investors of shares of our common stock
at a purchase price of $1.60 per share and detachable warrants to purchase
one-quarter share of our common stock (at an exercise price of $2.50 per
share). In total, we sold 4,934,534 shares of our common stock and
warrants to purchase 1,233,634 shares of common stock as part of this initial
closing, and may sell up to an additional 6,268,472 shares of our common stock
and warrants to purchase 1,567,118 shares of common stock to investors that
participated in the initial closing, management and certain note holders until
July 30, 2010, when the offering period expires. We received gross
proceeds of $7,508,329 in consideration for the sale of the shares of common
stock and warrants, which consisted of (i) $4,026,000 in cash from investors in
the private placement and (ii) $3,482,329 from note holders in an earlier
Bacterin bridge financing who converted into the private placement at a discount
to the purchase price and received warrants with a discounted exercise price, as
described below.
In order
to fund Bacterin’s working capital and capital expenditures during the months
prior to the Reverse Merger and during the offering period, Bacterin and certain
placement agents conducted two bridge financings of approximately $5,250,000 in
aggregate principal amount of convertible notes and warrants, of which
$3,400,000 plus $82,329 in interest accrued thereon was converted into the
private placement (at a discount to the per share purchase price).
Concurrently
with the closing of the Reverse Merger and the private placement, we repurchased
4,319,404 shares of our common stock from one of our stockholders for aggregate
consideration of $100, as well as certain other good and valuable consideration,
and immediately thereafter cancelled those shares.
1
The
Reverse Merger
General
At the
closing of the Reverse Merger, the former stockholders of Bacterin received
shares of our common stock for all of the outstanding shares of common stock of
Bacterin held by them. As a result, at the closing of the Reverse
Merger, we issued an aggregate of 28,257,287 shares of our common stock to the
former stockholders of Bacterin. The shares issued to Bacterin’s
former stockholders represent approximately 96% of our outstanding shares of
common stock, exclusive of 4,934,534 shares of common stock issued in the
initial closing of the private placement, or approximately 82% of our
outstanding shares of common stock, inclusive of such shares issued in the
initial closing of the private placement. The consideration issued in
the Reverse Merger was determined as a result of arm’s-length negotiations
between us and Bacterin.
Immediately
prior to the closing of the Reverse Merger, the former stockholders of Bacterin
and the note holders who participated in an earlier bridge financing conducted
by Bacterin also held outstanding stock options and warrants to purchase shares
of common stock of Bacterin. Pursuant to the Merger Agreement, we
have agreed to issue shares of our common stock upon the exercise of these stock
options and warrants in lieu of shares of Bacterin’s common stock previously
issuable thereunder, and, based upon the ratio used to determine the number of
shares issuable to Bacterin stockholders in connection with the Reverse Merger,
we are obligated upon the exercise of those stock options and warrants to issue
4,213,196 shares and 4,879,075 shares of our common stock,
respectively.
To the
extent any of Bacterin’s former stockholders elect to exercise any dissenters’
rights in connection with the Reverse Merger, we will be obligated to purchase
any such dissenter’s shares of Bacterin common stock for “fair value” as
determined immediately prior to the Reverse Merger, all in accordance with
Nevada law. In addition, we will also be obligated to issue
additional shares of our common stock to the non-dissenting Bacterin
stockholders such that the non-dissenting stockholders would have held
approximately 96% of our outstanding shares of common stock immediately upon
consummation of the Reverse Merger, exclusive of any shares of our common stock
issued in the private placement. Certain of Bacterin’s former
stockholders, who held approximately 743,940 shares of Bacterin common stock in
the aggregate, provided proper notice to perfect their ability to exercise
dissenters’ rights (or 371,970 shares of our common stock that they will receive
in the Reverse Merger if they ultimately elect not to exercise such
rights).
Changes
Resulting from the Reverse Merger
We intend
to carry on Bacterin’s biomaterials business as our sole line of business. We
have relocated our executive offices to those of Bacterin at 600 Cruiser Lane,
Belgrade, Montana 59714. Our new telephone number is (406) 388-0480,
fax number is (406) 388-1354, and corporate website is www.bacterin.com. The
contents of our website are not part of this current report.
Our
pre-Reverse Merger stockholders will not be required to exchange their existing
K-Kitz, Inc., stock certificates for new certificates of Bacterin Holdings
International, Inc., since the OTC Bulletin Board will consider our existing
stock certificates as constituting “good delivery” in securities transactions
subsequent to the Reverse Merger. The Nasdaq Capital Market, where we intend to
apply to list our common stock for trading as soon as reasonably practicable,
will also consider the submission of existing stock certificates as “good
delivery.” We cannot be certain that we will receive approval to list our common
stock on the Nasdaq Capital Market.
Change
of Board Composition and Executive Officers
Prior to
the closing of the Reverse Merger and private placement, our board of directors
was composed only of Jennifer Jarvis and Michael Funtjar. On June 30, 2010,
concurrently with such transactions, Ms. Jarvis and Mr. Funtjar expanded the
size of the board of directors to five members, and appointed Guy S. Cook,
Mitchell Godfrey, and Kent Swanson to fill the vacancies created
thereby. The new directors then accepted the resignations of Ms.
Jarvis and Mr. Funtjar and appointed Ken Calligar and Daniel Frank to fill the
two vacancies created by their resignations. Upon their appointment,
the new directors further expanded the size of the board of directors to six
members, and appointed Gary Simon to fill the vacancy created
thereby.
2
Mr. Cook,
Mr. Godfrey and Mr. Swanson are all former Bacterin directors. Mr.
Swanson, Mr. Calligar, Mr. Frank and Mr. Simon are independent of management.
All directors will hold office until the next annual meeting of stockholders and
the election and qualification of their successors.
Prior to
the closing of the Reverse Merger and private placement, Ms. Jarvis was our
President, Chief Executive Officer, and Chief Financial Officer and Mr. Funtjar
was our Secretary and Chief Operating Officer. Ms. Jarvis and Mr.
Funtjar resigned from all of those offices effective June 30, 2010.
On June
30, 2010, our board of directors named the following persons as our new
executive officers: Guy S. Cook - Chairman of the Board, Chief Executive Officer
and President; Mitchell Godfrey - Secretary and Treasurer; and John P. Gandolfo
- - Interim Chief Financial Officer. These individuals held those same
positions with Bacterin, our wholly-owned subsidiary through which we conduct
our business, prior to the Reverse Merger and will continue to carry on in the
same capacities with Bacterin, as will Darrel Holmes - Executive Vice President
of Medical Devices and Jesus Hernandez - Executive Vice President of
Biologics. Mr. Gandolfo joined Bacterin as its interim Chief
Financial Officer, effective June 4, 2010, and filled this position full time
commencing on July 6, 2010. Officers are elected annually by our
board of directors and serve at the discretion of our board.
We have
assumed all of such officers’ current employment agreements (including
intellectual property ownership provisions and restrictive covenants relating to
confidential information) and they have agreed to such
assumption. See “Directors and Executive Officers - Employment
Agreements” for the terms of those agreements.
The
disclosure set forth under “Directors and Executive Officers” in Item 2.01 of
this current report is incorporated herein in its entirety by
reference.
Change
of Stockholder Control
Except as
described above under “Change of Board Composition and Executive Officers,” no
arrangements or understandings exist among our present or former controlling
stockholders with respect to the election of persons to our board of directors
and, to our knowledge, no other arrangements exist that might result in a change
of control of our company. Further, as a result of our repurchase of shares from
an existing stockholder and the issuance of 28,257,287 shares of common stock to
the former stockholders of Bacterin, a change of stockholder control has
occurred. Prior to the repurchase and the closing of the Reverse
Merger, Jennifer Jarvis beneficially owned 82% of our outstanding shares of
common stock. After these transactions, the former stockholders of Bacterin own
approximately 96% of our outstanding shares of common stock, exclusive of shares
of common stock acquired in the private placement through purchase or conversion
or approximately 82% of our outstanding shares of common stock, inclusive of
such shares of common stock acquired in the private placement through purchase
or conversion. We are continuing as a “smaller reporting company,” as defined
under the Securities Exchange Act of 1934, as amended, following the exchange
transaction.
The
disclosure set forth under “Security Ownership of Certain Beneficial Owners and
Management” in Item 2.01 of this current report is incorporated herein in its
entirety by reference.
Accounting
Treatment
In
accordance with Statement of Financial Accounting Standards No. 141, “Business
Combinations,” and the assumptions and adjustments described in the accompanying
notes to the unaudited pro forma combined condensed financial statements,
Bacterin is considered the accounting acquiror in the Reverse Merger. Because
Bacterin’s former stockholders as a group retained or received the larger
portion of the voting rights in the combined entity and Bacterin’s senior
management represents all of the senior management of the combined entity,
Bacterin was considered the acquiror for accounting purposes and will account
for the exchange transaction as a reverse acquisition. The acquisition will be
accounted for as the recapitalization of Bacterin since, at the time of the
acquisition, we were a company with minimal assets and liabilities.
Consequently, the assets and liabilities and the historical operations that will
be reflected in the consolidated financial statements will be those of Bacterin
and will be recorded at the historical cost basis of Bacterin.
3
Amendments
to Articles of Incorporation and Bylaws
In
connection with the Reverse Merger, our board of directors and stockholders have
approved and we filed on June 29, 2010, an amendment to our certificate of
incorporation with the Secretary of State of the State of Delaware to change our
name to Bacterin International Holdings, Inc.
Prior to
the Reverse Merger, we amended our by-laws to permit us to set the size of our
board of directors from between one and nine directors.
Bacterin
International Equity Incentive Plan
We
recently adopted the Bacterin International Equity Incentive Plan, which became
effective prior to the Reverse Merger, under which 6,000,000 shares of our
common stock are reserved for issuance as equity awards. The purpose
of this plan is two-fold. First, in connection with the Reverse
Merger, we are substituting each equity award granted under the Bacterin
International, Inc. 2004 Stock Incentive Plan, as most recently amended
effective April 1, 2009, with a substantially similar equity award granted under
our new plan (subject to proportionate adjustments to reflect the ratios used in
consummating the Reverse Merger). Accordingly, of the 6,000,000
shares of our common stock that are reserved for issuance as awards under this
plan, 4,213,196 have been or will be issued as substitute awards, leaving an
additional 1,786,804 shares for issuance thereunder, representing approximately
13.3%, 9.3% and 4%, respectively, of the fully-diluted shares of our common
stock immediately following the Reverse Merger and the private
placement. Second, the shares of stock remaining available for
issuance under this plan will be used for attracting and retaining employees,
management, directors and outside consultants, who will be granted awards at
fair market value from time to time under the guidance and approval of our
compensation committee or such other group as is vested by our board with the
power to administer the plan, and in accordance with the terms of such equity
incentive plan. See “Directors and Executive Officers - Incentive
Compensation Plans.”
The
Private Placement
Concurrently
with the closing of the Reverse Merger, we completed the sale of 4,934,534
shares of our common stock and warrants to purchase an additional 1,233,634
shares of our common stock in a private placement to accredited investors in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended, and Regulation D promulgated
thereunder. We sold each share and warrant for an aggregate price of
$1.60 per share pursuant to the terms of a subscription agreement executed and
delivered by each investor on or before the closing of the private
placement. Each warrant entitles the holder to purchase one-quarter
share of our common stock at an exercise price of $2.50 per share for a period
of five years from the date of the closing on their subscription. The
form of private placement subscription agreement is filed as Exhibit 10.1 to
this report. Certain Bacterin note holders also participated in the
private placement by converting certain debt into shares of our common stock and
warrants; however, the conversion of their debt was effected at a 10% discount
to the price per share at which investors purchased securities in such private
placement, being $1.44 per share, and the exercise price of the warrants they
received also carried a 10% discount to the exercise price of the warrants
received by new investors in such private placement, being $2.25 per
share.
We
received gross proceeds from the private placement of $7,508,329 from both
purchases of our common stock and warrants and conversions by existing
convertible note holders into such securities. Placement agents
received an aggregate of $322,080 in cash fees in connection with the private
placement and reimbursements of their out-of-pocket expenses. In
addition, the placement agents received 67,686 shares of our common stock and
warrants to purchase 251,625 shares of our common stock at an exercise price of
$1.60 per share.
After the
closing of the Reverse Merger and the private placement, we had outstanding
34,440,103 shares of common stock. In addition, we are obligated to
issue 4,213,196 shares of common stock upon the exercise of stock options held
by former holders of Bacterin options, 4,879,075 shares of common stock upon the
exercise of warrants held by former holders of Bacterin warrants, and 1,485,259
shares of common stock upon the exercise of warrants received by investors,
including converting note holders and placement agents in our private
placement.
Following
the initial closing, the private placement will remain open until July 30, 2010,
subject to the earlier termination at the election of us and the placement
agent. During this time period, we may close on additional
subscriptions and bridge note conversions under the private placement; provided,
however, that the only persons who may participate in the private placement
pursuant to any subsequent closings after the initial closing are (i) investors
or note holders who participated in the initial closing, (ii) members of our
management, and (iii) holders of our convertible bridge notes, regardless if
they participated in the initial closing, so long as the amount raised in the
private placement then meets the conditions for it to constitute a “Qualified
Offering” under the terms of such notes.
4
Lock-Up
Agreements
All
shares of common stock issued in the Reverse Merger to the former holders of
shares in Bacterin will be considered “restricted securities” under U.S. federal
securities laws and may not be resold pursuant to Rule 144 for a period of one
year after the filing of this report. Each of the former Bacterin
stockholders who served as directors or executive officers of Bacterin as of the
closing of the Reverse Merger or who have joined as members of our Board of
Directors concurrently with the consummation of the Reverse Merger
(collectively, “Management”), have executed one-year a lock-up agreement with us
which provide that their shares, including any shares that are now owned or are
subsequently acquired by them, will not be, directly or indirectly, publicly
sold, subject to a contract for sale or otherwise transferred for a period of 12
months following the Reverse Merger and the private placement; provided,
however, that (a) the restrictions set forth in such lock-up agreement will not
apply to any securities acquired by Management in the private placement and (b)
Guy Cook is permitted to hypothecate, pledge and grant a security interest in up
to 5,000,000 of his existing shares received from us in connection with the
Reverse Merger as collateral for borrowed funds used to acquire securities in
the private placement and, if such collateral is executed against, shall be
permitted to assign and transfer such shares to the secured party free of any
restrictions set forth therein.
Registration
Rights
We have
agreed to use our best efforts to file a shelf registration statement on Form
S-1 with the U.S. Securities and Exchange Commission (“SEC”) covering the resale
of all shares of common stock and all shares of common stock underlying the
warrants issued in connection with the private placement (as well as up to
1,177,196 shares of our common stock held by certain of our stockholders at the
time of the closing of the Reverse Merger and the shares underlying the
placement agents’ warrants) on or before the date which is 90 days after the
closing date and to use our best efforts to have such shelf registration
statement declared effective by the SEC as soon as practicable thereafter, but
in any event not later than 150 days after the closing date (or 180 days after
the closing date in the event of a full review of the registration statement by
the SEC). We are also obligated to respond to any SEC comments within
a stipulated period of time after receiving any such comments and to maintain
the effectiveness of the shelf registration statement from the effective date
through the earlier of (a) the date on which all the investors in the private
placement have completed the sales or distribution described in the registration
statement relating thereto or, if earlier, until all securities covered by the
registration rights agreement may be sold by the investors in the private
placement under Rule 144(b)(1), and (b) the date that is 18 months following the
private placement closing date. In the event the shelf registration
statement is not filed with, or declared effective by, the SEC on or prior to
the dates set forth above, or we fail to timely satisfy our reporting
requirements, each investor in the private placement will receive cash
liquidated damages equal to 1% of the purchase price for the shares of common
stock and warrants acquired in the private placement for each month (or portion
thereof) that the registration statement is not so filed or effective, or has
failed to timely file required reports, provided that the aggregate payment as a
result of the registration default will in no event exceed 12% of the purchase
price for the shares of common stock and warrants.
Item 2.01. Completion of Acquisition or
Disposition of Assets.
Information
concerning the principal terms of the Reverse Merger and our business is set
forth below.
The
Reverse Merger
On June
30, 2010, we entered into the Merger Agreement with Bacterin and closed the
Reverse Merger. At such time, Bacterin became our wholly-owned
subsidiary and we discontinued our prior business of distributing emergency
preparedness kits.
Pursuant
to the Merger Agreement, at closing, the former stockholders of Bacterin
received an aggregate of 28,257,287 shares of our common stock, representing
approximately 96% of our outstanding shares of common stock, exclusive of shares
of common stock sold in the concurrent private placement, or approximately 82%
inclusive of such shares. Immediately prior to the closing of the
exchange transaction, Bacterin had outstanding a total of approximately
56,514,573 shares of common stock, plus stock options to purchase 8,777,492
shares of common stock and warrants to purchase 10,164,739 shares of common
stock. In exchange for the shares we issued to the former Bacterin
stockholders, we acquired 100% of the outstanding shares of common stock of
Bacterin. The consideration issued in the Reverse Merger was determined as a
result of arm’s-length negotiations between the parties.
5
Pursuant
to the Merger Agreement, we also agreed to issue shares of our common stock upon
the exercise of Bacterin’s stock options and warrants in lieu of shares of
Bacterin common stock previously issuable thereunder, and, based upon the ratio
used to determine the number of shares issuable to Bacterin stockholders in
connection with the Reverse Merger, we are obligated upon the exercise of those
stock options and warrants to issue 4,213,196 shares and 4,879,075 shares of our
common stock, respectively.
To the
extent any of Bacterin’s former stockholders elect to exercise any dissenters’
rights in connection with the Reverse Merger, we will be obligated to purchase
any such dissenter’s shares of Bacterin common stock for “fair value” as
determined immediately prior to the Reverse Merger, all in accordance with
Nevada law. In addition, we will also be obligated to issue
additional shares of our common stock to the non-dissenting Bacterin
stockholders such that the non-dissenting stockholders would have held
approximately 96% of our outstanding shares of common stock immediately upon
consummation of the Reverse Merger, exclusive of any shares of our common stock
issued in the private placement. Certain of Bacterin’s former
stockholders, who held approximately 743,940 shares of Bacterin common stock in
the aggregate, provided proper notice to perfect their ability to exercise
dissenters’ rights (or 371,970 shares of our common stock that they will receive
in the Reverse Merger if they ultimately elect not to exercise such
rights).
Following
the Reverse Merger, we succeeded to the biomaterials research, development, and
commercialization business of Bacterin as our sole line of business, which will
be conducted through our new, wholly-owned subsidiary, Bacterin International,
Inc. See “Description of Business” below. Prior to the
Reverse Merger, there were no material relationships between us and Bacterin,
between Bacterin and our respective affiliates, directors or officers, or
between any associates of Bacterin or our respective officers or directors. All
of our pre-Reverse Merger liabilities were settled prior to
closing.
Description
of Our Company and Predecessor
We were
incorporated in the State of Delaware on August 8, 2006. We were
formed to design, assemble, market and sell emergency preparedness kits and
supplies to school systems, municipalities, businesses and other
customers. On November 12, 2009, we completed our initial public
offering of 1,000,000 shares of common stock to the public pursuant to a
registration statement on Form S-1 that we filed with the SEC and was declared
effective on September 29, 2009.
Description
of Business
Unless
the context otherwise requires, “we,” “our,” “us” and similar expressions used
in this Description of Business section refer to Bacterin prior to the closing
of the Reverse Merger on June 30, 2010, and Bacterin International Holdings,
Inc., f/k/a K-Kitz, Inc., as successor to the business of Bacterin,
following the closing of the Reverse Merger transaction.
Overview
of Our Business
We
develop, manufacture and market biologics products to domestic and international
markets through our biologics division and are a leader in the field of
biomaterials research, device development and commercialization. Our
proprietary methods optimize the growth factors in human allografts to create
the ideal stem cell scaffold and promote bone and other tissue
growth. These products are used in a variety of applications
including enhancing fusion in spine surgery, relief of back pain with a facet
joint stabilization, promotion of bone growth in foot and ankle surgery,
promotion of skull healing following neurosurgery and cartilage regeneration in
knee and other joint surgeries.
6
Our
medical devices division develops medical devices intended for use in several
diverse clinical areas including orthopedic, plastic, and cardiovascular
surgery. Our background and expertise is in the research, testing, and
development of coatings for medical devices, particularly antimicrobial-based
coatings. Such coatings contain active agents and provide our
products with several potential advantages over traditional medical devices.
They offer a means of protecting the surface of a medical device from
contamination by pathogenic organisms, thereby minimizing the potential for
infection. Other coatings can serve as a reserve for local delivery
of active agents, enhancing a variety of biological functions such as bone
growth and pain management.
In
addition to the manufacture and sales of coated medical devices, the medical
devices division works with our biologics division to produce and distribute
OsteoSelect® DBM putty, an osteoinductive product used by surgeons as a bone
void filler in the extremities and pelvis. DBM putty is considered a
combination product by regulatory agencies – both a tissue and a medical
device.
The
medical devices division also develops custom surgical instrument kits for use
with allografts processed by our biologics division. These kits offer
state-of-the-art instrumentation that is designed based upon the needs and
inputs of surgeons who desire to use the most minimally invasive techniques. The
instrumentation is intended to be an optimal delivery system for the proper
placement of our proprietary allografts. Objectives of allograft use
include pain relief, aid in the regeneration of tissue, and to provide a
scaffold for bone fusion in spinal and sports medicine procedures.
The
medical devices division actively develops intellectual property associated with
our devices and coating platforms, for the purposes of protecting our
Bacterin-branded devices and for use in alliance projects.
The
manufacturing and operations of the biologics and medical devices divisions are
organized separately while products from both are marketed through several
channels including private label arrangements, independent distributors, joint
development projects and our direct sales network, which we began to implement
in the last half of 2009. The focus of our efforts and the use of the
proceeds from prior financings and the private placement have been used, and
will continue to be used, to, among other things, expand this direct sales
network and our production capacity. To date, we have established 13
regions with a regional vice-president in charge of all activities within the
region and have hired and trained 24 sales representatives. Our goal is to have
four to five sales representatives in each region.
Our
headquarters, laboratory and manufacturing facilities are located at 600 Cruiser
Lane, Belgrade, Montana 59714. Our telephone number is (406) 388-0480
and our fax number is (406) 388-0422. We also maintain an office at
8310 S. Valley Highway, No. 300, Englewood, Colorado 80112, and have sales
employees located across the United States.
We began
operations in 1998 as a sole proprietorship founded by Guy Cook, our President
and Chief Executive Officer, as a spinout of the internationally acclaimed
Center for Biofilm Engineering at Montana State University (the
“CBE”). Mr. Cook is an expert in microbial testing methods and has
been recognized by the U.S. Food and Drug Administration (“FDA”), industry, and
academia for his contributions to the development of bioactive
coatings. This sole proprietorship was eventually incorporated as
“Bacterin, Inc.” in the state of Montana in January 2000 to further Mr. Cook’s
work. In March 2004, Bacterin, Inc.’s stockholders completed the
terms of a share exchange agreement with a company called Oil & Gas Seekers,
Inc., a Nevada corporation (“OGS”), which subsequently changed its name to
“Bacterin International, Inc.”, to effectively become a publicly-traded
corporation. As a result of this transaction, the stockholders of
Bacterin, Inc., became stockholders of us, and Bacterin, Inc., became our
wholly-owned subsidiary. At the end of 2004, management concluded that this
transaction was problematic and did not deliver the expected
result. Based on this determination, we entered into an agreement in
2005 to amend the terms of the exchange transaction with the former majority
stockholder of OGS. In May 2005, we merged Bacterin, Inc., up and
into us.
Leveraging
off the “state of the art” research and development activities ongoing at the
CBE in biofilm technology, we began as a biomaterials testing laboratory and
have systematically expanded our strategic vision towards the development of
Bacterin-labeled medical devices. Our revenues were historically
derived from testing services and milestone payments from collaborative product
development agreements with various “blue chip” medical
manufacturers. Today, however, we generate revenue from a number of
revenue sources including the following: license fees and royalties from
collaborative product development efforts with medical device manufacturers;
sales from products developed and manufactured by us under our own label;
products manufactured by us under private labels for other device distributing
companies; and contract revenue from analytical testing and development services
provided to medical device manufacturer clients, which tailor our coating
process to the client’s specific product/medical application.
7
During
2008, we reached an important transition point in our history. Most
of our business endeavors prior to that time had been devoted to developing our
products with revenue generated from a variety of limited sources, including
testing, government grants and unsubstantial product sales. In 2008,
however, revenue from product sales either under our name or “private label”
became our primary source of revenue.
On June
18, 2010, we were contacted by a scientific advisor of a major participant in
the medical device industry to inquire about what a potential buy-out price
might be for us. This individual has recommended that the
industry participant should consider acquiring us. In response
to his inquiry, we informed him that we believed $600 million was an
appropriate buy-out price. There have been no further discussions
since such time. This offer and our response does not suggest, and no
one should infer therefrom, that we are being or will be acquired, or that $600
million is a reasonable valuation of our company.
Industry
and Market Overview
The
orthopedic biomaterials market consists of materials that are organic, inorganic
or synthetic in nature. These materials are implanted or applied in or near the
indicated bone to facilitate healing, encourage bone tissue augmentation,
compensate in areas where bone tissue is depleted and restore structure to allow
for repair. Orthopedic biomaterials are capable of producing specific biological
action or regenerative responses that are beyond what is observed in normal
healing. These materials are often used as substitutes to autograft materials,
which are taken from a harvest site in the patient to patch or repair the
wounded or unhealthy site.
Bone is a
biologically active tissue and may or may not regenerate depending on the
condition of the patient. The damage may be significant enough that a
scaffold to help regenerate the surgical site may be necessary. In
2009, the orthopedic biomaterials market was valued at almost $3.5 billion. This
market is expected to grow at a CAGR of 8.9% by 2016. (Idata Research Inc.
2010, U.S. Market for Orthopedic Biomaterials).
Products
and Services
We have
developed and currently manufacture and sell several human tissue-based
products, primarily allografts, into the medical marketplace through our
biologics division. In addition, we also manufacture and sell,
directly under our own name, indirectly through distributors and pursuant to
private label arrangements, various coating and surgical drain products through
our medical devices division.
Biologics
Division
Our
biologics products include OsteoSponge®, OsteoSponge® SC, OsteoWrap®,
OsteoLock®, BacFast® and OsteoSelect®, as well as certain other allograft
products which are briefly described below:
|
|
·
|
OsteoSponge®
is a form of demineralized bone matrix made from 100% human bone. Derived
from trabecular (cancellous) bone, OsteoSponge® provides a natural
scaffold for cellular in-growth and exposes bone-forming proteins to the
healing environment. The malleable properties of OsteoSponge®
enable it to conform to, and fill, most defects. Upon
compressing the allograft, OsteoSponge® springs back to completely fill
the void. Its unique mechanical and biological properties make
OsteoSponge® an ideal bone graft for use in various orthopedic practices
including spine, neurology, cranial/maxillofacial, trauma,
plastic/reconstruction and general procedures where new bone growth is
needed.
|
|
|
·
|
OsteoSponge®
SC is a form of OsteoSponge® designed to be used in joint
surgery. Bacterin has shown, in goat studies, the ability to
re-generate cartilage in joint repair and believes that this product has
the potential to significantly change the standard of care in human joint
surgery. We have received permission from the FDA to market
this product as a subchondral bone void filler and are currently marketing
it as such. Surgeons are using the product and we are beginning
trials to establish the ability to market it as a cartilage re-generation
scaffold. These trials are likely to take two years and we will
likely publish preliminary results of the study at six months and one
year. There can be no assurance that these trials will be
successful or lead to any FDA action. Part of the proceeds of
the private placement will be used to fund this clinical
trial.
|
8
|
|
·
|
OsteoWrap® is
100% human cortical bone demineralized through a proprietary process to
make the graft flexible while maintaining allograft
integrity. This product has various applications in orthopedic,
neurological, trauma, oral/maxillofacial and reconstructive
procedures. OsteoWrap® can wrap around non-union fractures to
assist with fusion, can act as a biologic plate or can be used in
conjunction with a hardware plate system. Additionally, this
product provides the surgeon with superior handling characteristics as the
allograft can be easily sized using surgical scissors or a scalpel, and
will withhold sutures or staples for
fixation.
|
|
|
·
|
OsteoLock®
and BacFast® are facet stabilization dowels made from human
bone. The shape of our facet stabilization dowel is engineered
to maximize osteoconductivity and surface area contact, as well as provide
stability to prevent migration from the surgical site. BacFast®
HD, having the same design as OsteoLock®, is optimized through our
proprietary demineralization technology. This technology
increases the surface area of the outer collagen matrix of the graft while
exposing native bone morphogenic proteins (BMPs) and growth
factors. Because of the hyper-demineralization technology,
BacFast® HD has osteoinductive properties, as well as being
osteoconductive. OsteoLock® and BacFast® can be used to augment
spinal procedures, or as a stand-alone procedure for mild spinal
conditions. While this product is currently in production and
use, Bacterin is initiating clinical studies to further support its
effectiveness and some of the proceeds of the private placement will be
used to fund these clinical trials. There can be no assurance
of the success of these trials.
|
|
|
·
|
OsteoSelect® DBM
putty is engineered with the surgeon in mind. With outstanding
handling characteristics, OsteoSelect® can be easily molded into any shape
and compressed into bony voids. Taking the design a step further, Bacterin
has validated a low-dose, low-temperature gamma sterilization process to
provide maximum osteoinductive potential while still affording device
level sterility. Every production batch of OsteoSelect® is
tested for its bone growth characteristics allowing us to make that unique
marketing claim.
|
In
addition, we make and sell (i) sports allografts which are processed
specifically for anterior and posterior cruciate ligament repairs, anterior
cruciate ligament reconstruction and meniscal repair, (ii) milled allografts
which are comprised of cortical bone milled to desired shapes and dimensions,
also called milled spinal allografts, and (iii) traditional allografts for
multi-disciplinary applications including orthopedics, neurology, podiatry,
oral/maxillofacial, genitourinary and plastic/reconstructive.
We are
hoping to be able to expand our product definition for certain of our products
to claim cartilage regeneration capability. Over the past few months,
approximately 15 patients thus far have undergone knee, foot or ankle surgery
for the purposes of the trial to make such claims. We plan to have
200 patients in the trial by year end. Thus far, the first patients
were operated on 6 months ago and, in all cases, no adverse events were
reported. We are 5 to 7 months away from reaching an anecdotal
threshold at which point we hope that our findings can be presented to the
sports medicine and orthopedic repair community.
Medical
Device Products
Our
medical devices division researches, tests and develops coatings for medical
devices, particularly antimicrobial-based coatings. Such coatings
contain active agents and provide our products with several potential advantages
over traditional medical devices. They offer a means of protecting the surface
of a medical device from contamination by pathogenic organisms, thereby
minimizing the potential for infection. Other coatings can serve as a
reserve for local delivery of active agents, enhancing a variety of biological
functions such as bone growth and pain management. This division produces and
distributes OsteoSelect® DBM putty, an osteoinductive product used by surgeons
as a bone void filler in the extremities and pelvis. DBM putty is
considered a combination product by regulatory agencies – both a tissue and a
medical device.
Our
medical devices division also develops custom surgical instrument kits for use
with allografts processed by our biologics division. These kits offer
state-of-the-art instrumentation that is designed based upon the needs and
inputs of surgeons who desire to use the most minimally invasive techniques. The
instrumentation is intended to be an optimal delivery system for the proper
placement of our proprietary allografts. Objectives of allograft use
include pain relief, aid in the regeneration of tissue, and to provide a
scaffold for bone fusion in spinal and sports medicine procedures. We
currently sell a surgical drain series called Via™, which is used to drain
exudate from a surgical site. Building upon the Via™ platform,
Bacterin plans on releasing a second generation product called the Elutia®
surgical drains which will be performance enhanced via an antimicrobial coating
to help reduce the incidence of surgical site infection.
9
Our wound
drain product is gaining attention at the VA Hospitals. At the end of
last month, we received notice that the Brook Army Medical Hospital in Texas, a
level 1 trauma facility, will begin using our wound drain product system
wide. This hospital currently reports that over fifty percent (50%)
of post operative infections occur due to an uncoated wound drain that it is
currently using. We are hopeful that over the next several months,
our wound drain product will be distributed throughout the VA Hospital
system. Our wound drain products sell into hospitals for $40 and cost
us approximately $6 to produce. We believe that the ultimate size of
the market for wound drains is $80 million per year. We continue to
build our pipeline of products for antimicrobial coated medical devices with one
approval expected in Q3 2010, and another by Q2 2011. These product
revenues are not reflected in our current sales forecasts.
Technology
and Intellectual Property
Patents
Our
patent efforts have been, and will continue to be, primarily focused in two key
areas:
|
|
·
|
The
delivery of bioactive agents impregnated into or onto metals, polymers or
tissues which, when activated by bodily fluids, release the agent into the
surrounding environment; and
|
|
|
·
|
The
development of innovative and novel, engineered tissue implants or
constructs which employ acellular tissue and processes, and enhanced
demineralized bone matrix products.
|
The
following table summarizes our current patent portfolio, including patents
covering technology licensed by us for use or inclusion in certain of our
products:
|
Title
|
Business
Purpose
|
First
Inventor
|
Serial
or Patent
Number
|
Date
Filed
or Granted
|
Status
|
|
1.
Pending U.S. Applications
|
|||||
|
MEDICAL
DEVICE INCLUDING A BIOACTIVE IN A NON-IONIC AND AN IONIC FORM AND METHODS
OF PREPARATION THEREOF
|
This
application arose out of a now defunct project. We retained rights as the
technology may prove useful in the future. The patent describes the
modification of elution profiles via active agent equilibration; it is
potentially applicable to many coated products.
|
Mike
Johnson
|
11/864,360
|
9/28/2007
|
Undergoing
further examination
|
|
ANTIMICROBIAL
COATING FOR INHIBITION OF BACTERIAL ADHESION AND BIOFILM
FORMATION
|
This
application relates to the coating used for the Elutia® wound drain and for the
Bard BioBloc coating on their HemoStar hemodialysis catheter. The efficacy
period can be varied according to the desired outcome; the coating has
shown in vitro efficacy for between 7 and 21 days.
|
Guy
Cook
|
10/891,885
|
7/15/2004
|
Non-final
Office Action mailed 9/15/09; response submitted
12/15/09
|
|
PROCESS
FOR DEMINERALIZATION OF BONE MATRIX WITH PRESERVATION OF NATURAL GROWTH
FACTORS
|
This
application is intended to protect OsteoSponge®, a core product produced
by our Biologics division. OsteoSponge® is a novel form of
demineralized bone matrix which provides a natural scaffold for cellular
growth and exposes bone growth inducing proteins to the healing
environment.
|
Nancy
J. Shelby
|
12/130,384
|
5/30/2008
|
First
examination: November 2010 (estimated)
|
|
2.
Pending Foreign Applications
|
|||||
|
MEDICAL
DEVICE INCLUDING A BIOACTIVE IN A NON-IONIC AND AN IONIC FORM AND METHODS
OF PREPARATION THEREOF
|
This
application arose out of a now defunct project. We retained rights as the
technology may prove useful in the future. The patent describes the
modification of elution profiles via active agent equilibration and is
potentially applicable to many coated products.
|
Mike
Johnson
|
PCT/US2007/079924
|
9/28/2007
|
Preliminary
Report on Patentability generated 3/13/09
|
10
|
Title
|
Business
Purpose
|
First
Inventor
|
Serial
or Patent
Number
|
Date
Filed
or Granted
|
Status
|
|
2.
Pending Foreign Applications
|
|||||
|
ANTIMICROBIAL
COATING FOR INHIBITION OF BACTERIAL ADHESION AND BIOFILM
FORMATION
|
This
application relates to the coating used for the Elutia® wound drain and for the
Bard BioBloc coating on their HemoStar hemodialysis catheter. The efficacy
period can be varied according to the desired outcome; the coating has
shown in vitro efficacy for between 7 and 21 days.
|
Guy
Cook
|
PCT/US2005/015162
|
4/28/2005
|
Entered
National Phase in: Europe, Australia, Canada, Japan
|
|
PROCESS
FOR DEMINERALIZATION OF BONE MATRIX WITH PRESERVATION OF NATURAL GROWTH
FACTORS
|
This
application is intended to protect OsteoSponge®, a core product produced
by our Biologics division. OsteoSponge® is a novel form of
demineralized bone matrix which provides a natural scaffold for cellular
growth and exposes bone growth inducing proteins to the healing
environment.
|
Nancy
J. Shelby
|
PCT/US2008/006942
|
6/2/2008
|
Entered
national Phase in: Europe, Canada, Mexico, Korea
|
|
AN
ELASTOMERIC ARTICLE INCORPORATED WITH A BROAD SPECTRUM
ANTIMICROBIAL
|
This
application was generated as a means of protecting the technology used for
a forthcoming product. We have observed long term (over 30 days) in vitro
efficacy with this technology.
|
Benjamin
P. Luchsinger
|
PCT/US2009/005103
|
9/11/2009
|
Awaiting
International Search Report (this application will enter the US through
PCT)
|
|
3.
In-Licensed Intellectual Property
|
|||||
|
SWOLLEN
DEMINERALIZED BONE PARTICLES, FLOWABLE OSTEOGENIC COMPOSITION CONTAINING
SAME AND USE OF THE COMPOSITION IN THE REPAIR OF OSSEOUS
DEFECTS
|
This
patent protects OsteoSelect®, Bacterin’s DBM putty.
OsteoSelect® has
exceptional handling characteristics and can easily be molded into any
shape and compressed into bony voids. Bacterin employs a low-dose,
low-temperature sterilization process to provide maximum osteoinductive
potential while maintaining device-level sterility.
|
Simon
Bogdansky
|
5,284,655
|
2/8/1994
|
Granted
|
|
FLOWABLE
DEMINERALIZED BONE PWDER COMPOSITION AND ITS USE IN BONE
REPAIR
|
This
patent protects OsteoSelect®, Bacterin’s DBM putty.
OsteoSelect® has
exceptional handling characteristics and can easily be molded into any
shape and compressed into bony voids. Bacterin employs a low-dose,
low-temperature sterilization process to provide maximum osteoinductive
potential while maintaining device-level sterility.
|
Robert
K. O’Leary
|
5,290,558
|
3/1/1994
|
Granted
|
Management
believes our patent filings and patent position will facilitate growth and
enhance our proprietary core competencies, enabling us to protect and expand
revenue growth and stockholder value in the future. We expect that
additional patent applications will be filed and prosecuted as inventions are
discovered, technological improvements and processes are developed and specific
applications are identified. The status of individual patents and patent
jurisdiction is maintained in our internal records. We anticipate,
however, that there may be instances in which we enter into collaborative
research and development agreements with medical device companies under such
terms that the medical device company may or will retain a right to make future
patent filings arising from such cooperative development agreement. In such
instances, we will attempt to protect our overall patent use rights by
agreements which limit the right of the collaborative party to an exclusive
right only as it pertains to the field of use, as defined by the applicable
project’s scope of work. In this manner, we anticipate that we will receive
future benefit and use of such intellectual property outside the field of use,
as defined by any given scope of work. There can be no assurance that
we will be able to obtain final approval of any patents.
Trademarks
We
believe in the superiority of our technology and products. As a
result, we have invested in the development and protection of the names of our
products in order to drive consumer awareness and loyalty to the
brand. To protect this investment, we have registered, and continue
to seek registration, of these trademarks and continuously monitor and
aggressively pursue users of names and marks that potentially infringe upon our
registered trademarks. We currently own registered trademarks to the
following brand names of certain of our products: OsteoSponge®,
OsteoWrap®, OsteoLock®, BacFast®, OsteoSelect®, and Elutia®. We
recently sued Allosource for infringing our OsteoSponge® trademark by marketing
their competitive allograft product under the name “AlloSponge.” See
“Description of Business - Legal Proceedings.”
11
Trade
Secrets
To
safeguard our proprietary knowledge and technology, we rely heavily upon trade
secret protection and non-disclosure/confidentiality agreements with employees,
consultants and third party collaboration partners with access to our
confidential information. There can be no assurance, however, that these
measures will adequately protect against the unauthorized disclosure or use of
confidential information, or that third parties will not be able to
independently develop similar technology. Additionally, there can be no
assurance that any agreements concerning confidentiality and non-disclosure will
not be breached, or if breached, that we will have an adequate remedy to protect
us against losses. Although we believe our proprietary technology has value,
because of rapid technological changes in the medical industry, we also believe
that proprietary protection is of less significance than factors such as the
intrinsic knowledge and experience of our management, advisory board,
consultants and personnel and their ability to identify unmet market needs and
to create, invent, develop and market innovative and differentiated new medical
devices.
Donor
Procurement
We
implemented our biologics division, among other reasons, to secure and process
our own tissue, which posed initial challenges and associated operational
disadvantages. At the time we embarked on this plan, we lacked donor
sources, manufacturing capabilities, and distribution channels. We
also lacked the vertical integration of an in-house tissue processing laboratory
and were thus constrained by sub-contracting tissue processing to outside
processors. These same sub-contractors are essentially suppliers of their own
tissue to the marketplace and are hence ultimately our
competitors. We have since successfully secured rights of first
refusal of human tissue with multiple recovery agencies. Concurrent with this
initiative, we also sought to secure future allograft production capability by
constructing our own tissue processing facility. We have now begun
efforts to expand our network for donor tissue in anticipation of increased
production and believe that this effort, along with our current network of
procurement agencies, will be sufficient to supply enough donors to meet the
forecasted revenue volume through 2011 and beyond. We expect to be
able to continue to build the network for donor tissue as the needs
arise.
Sales
and Marketing
We are
committed to building our direct sales channel into the primary method of
distributing our products. We have promoted three regional vice presidents to
the role of executive vice-president to lead the North, South and West thirds of
the United States and established 13 regions with a regional vice president in
charge of all activities within the region. We have hired and trained
24 sales representatives toward a near term goal of establishing four to five
sales representatives in each region. While we expect that the cost of this
initiative will likely result in a net loss from operations in 2010, it is our
expectation that this investment in the direct sales network will lead to higher
revenue in 2010 and beyond, as well as profitability in 2011 and
beyond. No assurance can be given that these efforts will be
successful.
After 7
months of testing by Broadlane, Inc., the largest operator of healthcare supply
chains in the United States, and its clients, we were accepted in May 2010 as an
authorized vendor in its group purchasing program, which enables Broadlane’s
customers to purchase products from us. Broadlane manages
approximately $10 billion in contract volume with over 6,000 medical facilities
and 33,000 physician practices in its network. In June 2010,
Broadlane issued a newsletter to its entire network showcasing and introducing
Bacterin to all of its hospitals, independent delivery networks, ambulatory care
and surgery centers. As a result of this contract, our sales force
can now proceed to sell our products to this expansive network of
doctors. During the first month of our contract with Broadlane, we
anticipate that five percent (5%) of our revenues will be attributed to new
sales out of the Broadlane network. We have already received our
first order from Tenet Hospitals, which runs over 40 hospitals, and Advocates in
Illinois, which manages approximately 25 hospitals. We expect to have
our best month ever in June 2010 and our best quarter ever in the second quarter
of 2010.
We also
market our products through “private label” agreements whereby we package our
products under another company’s name and they are responsible for the sale and
distribution of the product. Additionally, we market our products
through independent distributors who then sell to their customer
base. In both of these channels, we provide our customer with a
discount off our list price. We have experienced a decline in revenue
from these channels and expect that these channels will continue to represent a
smaller portion of our overall revenue as our direct distribution channel
grows.
12
Within
the medical devices division, our marketing strategy is to develop product
development alliances with multinational medical device companies at the same
time as we develop our own new products in fields or applications outside of the
rights of our collaborative partners. We have implemented this
strategy and are pursuing contract opportunities with other medical device
companies.
We also
have a physician compensation program that compensates physicians as employees
for referring our products to other surgeons and medical care providers with
whom they do not have a disqualifying “financial relationship” under applicable
laws. Physician employees, at our direction, refer us to other
physicians and are paid a commission on all revenue generated by the referred
physicians’ use of our products. Although we have been advised by
counsel that this program complies with the Stark laws and applicable
anti-kickback regulations, there can be no assurance that there will not be
additional regulations adopted which could have an impact on this
program. We have also established procedures that are designed to
prevent abuses involving these physician employees and others with whom they
have financial relationships.
Summary
Financial Targets
The
following table sets forth certain of our summary financial targets for the
years ending December 31, 2010 through December 31, 2012, which give pro forma
effect to our receipt of gross proceeds of $4,026,000 from the private placement
and the conversion of $3,482,329 in outstanding principal owed under certain
convertible bridge notes into shares of our common stock, as described
herein. These targets are based on our current business plan and
incorporate estimates and assumptions regarding circumstances and events that
have not yet taken place and which are subject to various uncertainties inherent
in formulating these targets. Although management believes that the
assumptions used to create these targets are reasonable, they are necessarily
speculative, and we cannot guarantee that these targets will be
met. See “Risk Factors” for a discussion of risks and uncertainties
that could have a material impact on our ability to achieve the targeted results
set forth below. Actual results will likely vary significantly from
those set forth in the table and variations may be material and
adverse.
|
2010
|
2011
|
2012
|
||||||||||
|
Revenue
|
$ | 20,550,729 | $ | 67,391,153 | $ | 124,197,777 | ||||||
|
Cost
of Goods Sold
|
4,160,411 | 13,651,082 | 25,036,930 | |||||||||
|
Gross
Profit
|
16,390,317 | 53,740,071 | 99,160,847 | |||||||||
|
Expenses
|
21,702,013 | 39,845,754 | 56,145,501 | |||||||||
|
Net
Income Before Tax
|
(5,311,696 | ) | 13,894,317 | 43,015,346 | ||||||||
|
Income
Taxes
|
- | - | (17,206,138 | ) | ||||||||
|
Net
Income
|
$ | (5,311,696 | ) | $ | 13,894,317 | $ | 25,809,208 | |||||
|
Earnings
per Share
|
$ | (0.13 | ) | $ | 0.31 | $ | 0.57 | |||||
|
EBITDA
|
(2,686,448 | ) | 15,203,804 | 44,923,934 | ||||||||
|
EBITDA
per share
|
$ | 0.06 | $ | 0.34 | $ | 1.00 | ||||||
|
Fully
Diluted Shares
|
41,373,020 | 45,017,632 | 45,017,632 | |||||||||
Growth
Strategy
After
multiple years of product development, we believe that our technology has been
largely market tested, and since 2009, we have been transitioning our focus to
appropriately market and distribute our products. We have spent
months preparing the business to capitalize on our core markets, as well as new
market opportunities. In particular, we have diversified our supply
of donor tissue, expanded our production capabilities, developed the
infrastructure of what we believe will grow into a formidable sales force,
refined the message to our market and started gathering proof points on how to
scale our revenue in these markets.
13
We began
implementing a direct sales network in July 2009. As of December 31,
2009, we had 7 regional vice presidents and 21 sales
representatives. Currently, we have 3 executive vice presidents, 7
regional vice presidents, and 24 sales representatives. Our goal is
to grow this sales force to 3 executive vice presidents, 13-15 regional vice
presidents, and 52 sales representatives. We strive to hire sales
representatives with deep industry experience and pre-existing
contacts. In addition, we plan to utilize small independent sales
representatives with entrenched physician relationships. We expect
revenue to move towards 50% by employed sales representatives and 50% by
independent sales representatives.
We are
working on developing and implementing a high-level, national effort to present
our products as a value proposition to hospital chains, insurers and other
purchasing organizations. To this end, we have already entered into
agreements with Banner Hospitals, the Hospital for Special Surgery, Broadlane (a
purchasing organization for 1,200 hospitals and other medical facilities), and
Access Mediquip (a national purchasing organization for ambulatory surgery
centers). We anticipate that these agreements will pave the way for
our sales representatives to call on physicians, as the hospital process will
already be approved.
Competition
Because
the orthopedic biomaterials market overlaps with a number of medical fields –
spine, trauma, joint reconstruction, sports medicine, pharmaceuticals and
biotechnology – fragmentation is to be expected. However, there is one clear
leader in the market: Medtronic held 27.1% of the market in
2009. Medtronic’s lead is based on the strength of their Infuse®
growth factor product. However, the growth potential of this product
has been affected by some negative media attention regarding off-label usage and
adverse events with specific indications.
Beyond
Medtronic, the orthopedic biomaterials market is comprised of a great number of
players, each offering a multitude of products. It is expected that several new
products will emerge over the coming years. These assumptions are based on the
advance of technology and the clinical promise of regenerative therapies such as
stem cells and bone marrow concentration.
Specific
competitors in the orthopedic biomaterials markets are: Medtronic , DePuy,
Synthes, Arthrex, Smith & Nephew, Nuvasive, OrthoFix, Biomet,
Osteotech, Orthovita, MTF, Stryker, RTI, AlloSource, Lifenet
Health, Integra, ConMed/Linvatec, Wright, Exactech, ArthroCare, Harvest,
and Arteriocyte. (Idata Research Inc. 2010, U.S. Market for Orthopedic
Biomaterials).
Government
Regulation
We
produce human allografts that are regulated and comply with all the criteria
under both 361 and 351 of the Public Health Service Act. Compliance
is determined by the FDA during the inspection of our facility. To
date, we have successfully completed all of our FDA inspections. We
are registered with the FDA as a manufacturer of human cellular and tissue
products (HCT/Ps) as well as medical devices. We are an accredited
member of the American Association of Tissue Banks in good
standing. We meet all licensing requirements for the distribution of
HCT/Ps in the States of Florida, California, Maryland and New
York. We cannot predict the impact of future regulations on either us
or our customers.
Human
Tissue
Our human
tissue products, which are sold through our biologics division, have been
regulated by the FDA since 1993. In May 2005, three new, comprehensive
regulations went into effect that address manufacturing activities associated
with HCT/Ps. The first requires that companies that produce and distribute
HCT/Ps register with the FDA. The second provides criteria that must be met for
donors to be eligible to donate tissues and is referred to as the “Donor
Eligibility” rule. The third rule governs the processing and distribution of the
tissues and is often referred to as the “Current Good Tissue Practices” rule.
Together, they are designed to ensure that sound, high quality practices are
followed to reduce the risk of tissue contamination and of communicable disease
transmission to recipients. Our HCT/P products such as OsteoSponge®
are regulated by the Center for Biologics Evaluation and
Research. Our OsteoSponge® and OsteoWrap® products are regulated as a
HCT/P as determined by the Tissue Reference Group and regulated solely under
Section 361 of the Public Health Service Act and 21 CFR Part 1271.
14
Medical
Devices
Because
our medical devices incorporate coating technologies, they are subject to
regulation by the FDA. These medical devices require the approval of
the FDA prior to sale within the United States. The manufacturers and
licensees who use our coating technology in their medical devices will have the
burden of demonstrating the safety and efficacy of the medical devices, a burden
which we will assist such manufacturers and licensees in demonstrating to the
extent our coating technologies are at issue. Sales of medical
devices using our coating technology in the European Union will require the CE
Mark certification and sales of such medical devices in Canada will require
approval from the Medical Device Bureau of Canada.
Within
the United States, the FDA process requires that a pre-market notification (a
“510(k) Submission”) be made to the FDA to demonstrate that the medical device
is safe and effective and is substantially equivalent to a legally marketed
device that is not subject to pre-market approval. Applicants must
compare the device to one or more similar devices that are commercially
available in the U.S. (known as the “predicate device”), and make and support a
claim of substantial equivalency to such predicate device. Support
for such claims must include descriptive data and, when necessary, performance
data. In some cases, data from clinical trials must also be submitted
in support of a 510(k) Submission. The FDA must then issue an order
finding substantial equivalency before the devices may be commercially
distributed in the U.S. This process can take anywhere from three
months to two or three years, and can be extremely expensive. The
Center for Devices and Radiological Health regulates medical devices, including
our OsteoSelect® DBM putty.
ISO
Certification
In March
2010, we announced that we had received certification from the International
Organization for Standardization (“ISO”) for fulfilling the requirements of ISO
13485:2003. The Geneva based International Organization for
Standardization is the world’s largest developer and publisher of International
Standards. ISO 13485:2003 specifies requirements for a quality
management system. To obtain ISO 13485:2003 certification, an organization must
demonstrate its ability to provide medical devices that consistently meet
applicable customer and regulatory requirements. The primary objective of ISO
13485:2003 is to facilitate harmonized medical device regulatory requirements
for quality management systems. All requirements of ISO 13485:2003 are specific
to organizations providing medical devices, regardless of the type or size of
the organization. The certification assures our customers and
partners of our commitment to quality, and in the quality of our innovative
products and processes. Additionally, we believe that the ISO
13485:2003 certification offers new markets and business opportunities for our
products in the global marketplace.
Employees
As of
June 30, 2010, we had 80 full-time employees, of whom 31 were in product
development, 38 in sales and marketing, and 11 in administrative. In
addition, we make use of a varying number of temporary employees and outsourced
services to manage normal business cycles. None of these employees is
covered by a collective bargaining agreement and our management considers
relations with employees and services partners to be good.
Facilities
We lease
approximately 16,000 square feet in a building located at 600 Cruiser Lane,
Belgrade, Montana 59714. In addition to our corporate headquarters,
this space also includes a clean room, fully equipped diagnostics laboratory,
microbiology laboratory and testing laboratory. We lease the building
under a ten-year operating lease which runs through October 2013 and has a
monthly lease payment of $10,000. The lease also has a ten-year
renewal option.
In
November 2007, we purchased a 14,000 square foot facility at 664 Cruiser Lane,
Belgrade, Montana 59714. This building is an FDA registered facility
with 5 “Class 1,000” clean rooms and currently houses our medical device
coatings operations. The validated manufacturing areas and laboratory
facilities located in this facility provide processing and testing space to
manufacture medical devices pursuant to FDA, GMP regulations, and ISO
13485:2003. We expect this facility to meet all of our regulatory
requirements for the manufacture of future Bacterin-label products, including
our surgical drains (Via™ and Elutia®), as well as production requirements for
coated medical devices from our medical device partners. The facility
is registered with the FDA for device design, device manufacture, and contract
manufacture, as well as for screening, testing, storing, and distributing
biological tissues.
15
We also
lease office space in Englewood, Colorado, where certain of our administrative
and sales functions are housed.
Legal
Proceedings
In
November 2009, we were served a complaint in connection with the following court
action filed in Utah state court: Yanaki and Activatek v. Cook and
Bacterin International, Inc., case number 090912772. This
action involves the plaintiff’s attempt to sell shares of our common stock to a
third party in a private sale and claims, as its primary allegation, tortuous
interference with the sales contract. We believe this lawsuit is
without merit and we are conducting a vigorous defense.
We
initiated an arbitration proceeding in Bozeman, Montana to collect a large
account receivable from OrthoPro, LLC under a Private Label Distribution
Agreement. OrthoPro has made a counterclaim in that arbitration
which, in our judgment, is without merit. We plan to vigorously
pursue the recovery of all amounts owed and to defend against the
counterclaim.
As a
result of our policy to aggressively defend our intellectual property rights, we
recently filed and served a complaint in a lawsuit styled Bacterin International, Inc. v.
Allosource in the Federal District Court for the District of
Colorado. Our complaint is based on Allosource’s infringement of our
OsteoSponge® trademark through Allosource’s use of the name
“AlloSponge.” Allosource has generally denied all allegations and has
filed a counterclaim to cancel the federal registration for
OsteoSponge®. We believe the counterclaim has no merit and we intend
to aggressively pursue our infringement claims.
We have
recently received notice from legal counsel for minSURG International, Inc.
(“minSURG”) of minSURG’s recently issued U.S. Patent No. 7,708,761, entitled
“Spinal Plug for a Minimally Invasive Facet Joint Fusion System” (the “minSURG
Patent”) alleging infringement or inducement of infringement by us of the
minSURG Patent. We are early into the process of evaluating the validity of the
minSURG Patent and its relevance to our dowel products and their use in
minimally invasive facet surgeries. Regardless of the outcome of this
analysis, we do not anticipate this notice to have a material impact on our
overall sales or operating results.
Risk
Factors
Our
business involves significant risks and uncertainties, many of which are beyond
our control, and any investment in our common stock involves a high degree of
risk. Discussed below are many of the material risk factors faced by us that may
have an impact on our future results.
Risks
Related to Our Business and Our Industry
Our
products are relatively new and long-term results are incomplete, thus, the
future of our business still remains uncertain.
Many of
our current products are relatively new and have been in use for a relatively
short period of time. See “Description of Business - Products and
Services.” The results of the use of these products will be monitored
for many years. While preliminary results have been good, there can
be no assurance that some of these products will perform well over longer
periods of time. Future product issues may expose us to legal
actions, removal of regulatory approvals or products being pulled from
use. If we become subject to product or general liability or errors
and omissions claims, they could be time-consuming and costly. The U.S. Food and
Drug Administration (the “FDA”) and foreign regulatory authorities may impose
significant restrictions on the use or marketing of our products or impose
additional requirements. Later discovery of previously unknown
problems with any of these products or their manufacture may result in further
restrictions, including withdrawal of the product from the
market. Any such restrictions or withdrawals could materially affect
our ability to execute our business plan. In addition, governmental
authorities could seize our inventory of products, or force us to recall any
product already in the market if we fail to comply with FDA or other
governmental regulations.
Many
competitive products exist and more will be developed, and we may not be able to
successfully compete because we are smaller and have fewer financial
resources.
16
Our
business is in a very competitive and evolving field. Rapid new
developments in this field have occurred over the past few years, and are
expected to continue to occur. Other companies already have competing
products available or about to be available or may develop products to compete
with ours. Many of these products may have short regulatory
timeframes and our competitors, many with more substantial development
resources, may be able to develop competing products that are equal to or better
than ours. This may make our products obsolete or undesirable by
comparison and reduce our revenue. Our success will depend, in large
part, on our ability to maintain a competitive position concerning our
intellectual property, and to develop new technologies and new applications for
our technologies. Many of our competitors have substantially greater
financial and technical resources, as well as greater production and marketing
capabilities, than us.
The
medical community and the general public may perceive synthetic materials and
growth factors as safer, which could have a material adverse effect on our
business.
Members
of the medical community and the general public may perceive synthetic materials
and growth factors as safer than allograft-based bone tissue
products. Our products may be incapable of competing successfully
with synthetic bone graft substitutes and growth factors developed and
commercialized by others, which could have a material adverse effect on our
business, financial condition and results of operations.
We
are highly dependent on the availability of human donors; any disruptions could
cause our customers to seek alternative providers or technologies.
We are
highly dependent on our ability to obtain donor cadavers as the raw material for
many of our products. The availability of acceptable donors is
relatively limited and we compete with many other companies for this limited
availability. The availability of donors is also impacted by
regulatory changes, general public opinion of the donor process and our
reputation for our handling of the donor process. In addition, due to
seasonal changes in the mortality rates, some scarce tissues are at times in
short supply. Any disruption in the supply of this crucial raw
material could have significant consequences for our revenue, operating results
and continued operations. See “Description of Business - Donor
Procurement.”
We
will need to continue to innovate and develop new products to be desirable to
our customers.
The
markets for our products and services are characterized by rapid technological
change, frequent new introductions, changes in customers’ demands and evolving
industry standards. Accordingly, we will need to continue to innovate
and develop additional products. These efforts can be costly, subject
to long development and regulatory delays and may not result in products
approved for sale. These costs may hurt operating results and may
require additional capital. If additional capital is not available,
we may be forced to curtail development activities. In addition, any
failure on our behalf to react to changing market conditions could create an
opportunity for other market participants to capture a critical share of the
market within a short period of time.
Our
success will depend on our ability to engage and retain qualified technical
personnel who are difficult to attract.
Our
success will depend on our ability to attract and retain qualified technical
personnel to assist in research and development, testing, product
implementation, low-scale production and technical
support. Competition for qualified technical personnel is intense,
and we may encounter difficulty in engaging and retaining qualified personnel
needed to implement our growth plan. The demand for such personnel is
high and the supply of qualified technical personnel is limited. A
significant increase in the wages paid by competing employers could result in a
reduction of our technical work force and increases in the wage rates that we
must pay or both. If either of these events were to occur, our cost
structure could increase and our growth potential could be
impaired.
Loss
of key members of our management who we need to succeed could adversely affect
our business.
We are
highly dependent on the services of Guy Cook, our President and Chief Executive
Officer, and other key members of our management team and the loss of his or any
of their services could have an adverse effect on our future
operations. See “Management.” We do not currently maintain
a key-man life insurance policy insuring the life of Mr. Cook or any other
member of our management team.
We
are highly dependent on the continued availability of our facilities and would
be harmed if they were unavailable for any prolonged period of
time.
17
Any
failure in the physical infrastructure of our facilities or services could lead
to significant costs and disruptions that could reduce our revenues and harm our
business reputation and financial results. We are highly reliant on
our Belgrade, Montana facilities. See “Description of Business -
Facilities.” Any natural or man-made event that impacts our ability
to utilize these facilities could have a significant impact on our operating
results, reputation and ability to continue operations. The
regulatory process for approval of facilities is time-consuming and our ability
to rebuild facilities would take a considerable amount of time and expense and
cause a significant disruption in service to our customers. Further,
the FDA or some other regulatory agency could identify deficiencies in future
inspections of our facilities or our supplies that could disrupt our business,
reducing profitability. We carry business interruption insurance to
help in these instances, but it may not cover all costs or our standing in the
market.
We
will be required to invest in facilities and equipment on a continuing basis,
which will put pressure on us to finance these investments.
We have
invested, and intend to continue to invest, in facilities and state-of-the-art
equipment in order to increase, expand or update our capabilities and
facilities. See “Description of Business -
Facilities.” Changes in technology or sales growth beyond currently
established production capabilities, which we anticipate, will require further
investment. However, there can be no assurance that we will generate
sufficient funds from operations to maintain our existing facilities and
equipment or to finance any required capital investments or that other sources
of funding will be available. Additionally, there can be no guarantee
that any future expansion will not negatively affect earnings.
Future
revenue will depend on our ability to develop new sales channels and there can
be no assurance that these efforts will result in significant
sales.
We are in
the process of developing sales channels for our products but there can be no
assurance that these channels can be developed or that we will be successful in
selling our products. We currently sell our products through direct
sales by our employees, through distributor relationships and through “private
label” arrangements with other companies. We are engaging in a major
initiative to build and further expand our direct sales force. See
“Description of Business - Sales and Marketing.” This effort will
have significant costs that will be incurred prior to the generation of revenue
sufficient to cover these costs. The costs incurred for these efforts
may impact our operating results and there can be no assurance of their
effectiveness. Many of our competitors have well-developed sales
channels and it may be difficult for us to break through these competitors to
take market share. If we are unable to develop these sales channels,
we may not be able to grow revenue or maintain our current level of revenue
generation.
Our
physician compensation program could be adversely impacted by new regulation,
which could impact our current competitive strengths.
Our
physician compensation program compensates physicians as employees for referring
our products to other surgeons and medical care providers with whom they do not
have a disqualifying “financial relationship” under applicable
laws. Physician employees, at our direction, refer us to other
physicians and are paid a commission on all revenue generated by the referred
physicians’ use of our products. This program was vetted by counsel
for compliance with the Stark laws and anti-kickback
regulations. However, there can be no assurance that there will not
be additional regulations adopted which could have an impact on this
program. We have also established procedures that are designed to
prevent abuses involving these physician employees and others with whom they
have financial relationships.
18
There
may be fluctuations in our operating results, which will impact our stock
price.
Significant
annual and quarterly fluctuations in our results of operations may be caused by,
among other factors, our volume of revenues, the timing of new product or
service announcements, releases by us and our competitors in the marketplace of
new products or services, and general economic conditions. There can
be no assurance that the level of revenues and profits, if any, achieved by us
in any particular fiscal period will not be significantly lower than in other
comparable fiscal periods. Our expense levels are based, in part, on
our expectations as to future revenues. As a result, if future
revenues are below expectations, net income or loss may be disproportionately
affected by a reduction in revenues, as any corresponding reduction in expenses
may not be proportionate to the reduction in revenues.
We
are dependent on the ability of our licensees and development partners for
obtaining regulatory approvals and market acceptance of their products, for
which we may have no control.
A large
part of our success will depend on our ability, or that of our licensees, to
obtain timely regulatory approval for products employing our
technology. Moreover, our success will also depend on whether, and
how quickly, our licensees gain market acceptance of products incorporating our
technology, compared to competitors using competing technologies.
Negative
publicity concerning methods of human tissue recovery and screening of donor
tissue in the industry in which we operate may reduce demand for our allografts
and impact the supply of available donor tissue.
Media
reports or other negative publicity concerning both improper methods of tissue
recovery from donors and disease transmission from donated tissue may limit
widespread acceptance of our allografts. Unfavorable reports of
improper or illegal tissue recovery practices, both in the United States and
internationally, as well as incidents of improperly processed tissue leading to
transmission of disease, may broadly affect the rate of future tissue donation
and market acceptance of allograft technologies. Potential patients
may not be able to distinguish our allografts, technologies and the tissue
recovery and the processing procedures from those of our competitors or others
engaged in tissue recovery. In addition, families of potential donors
may become reluctant to agree to donate tissue to for-profit tissue
processors.
Our
revenues will depend upon prompt and adequate reimbursement from public and
private insurers and national health systems.
Political,
economic and regulatory influences are subjecting the healthcare industry in the
United States to fundamental change. The ability of hospitals to pay
fees for allograft bone tissue products depends in part on the extent to which
reimbursement for the costs of such materials and related treatments will
continue to be available from governmental health administration authorities,
private health coverage insurers and other organizations. We may have
difficulty gaining market acceptance for our products if government and
third-party payors do not provide adequate coverage and
reimbursement. Major third-party payors of hospital services and
hospital outpatient services, including Medicare, Medicaid and private
healthcare insurers, annually revise their payment methodologies, which can
result in stricter standards for reimbursement of hospital charges for certain
medical procedures or the elimination of reimbursement. Further,
Medicare, Medicaid and private healthcare insurer cutbacks could create downward
price pressure on our products.
Our
operating results will be harmed if we are unable to effectively manage and
sustain our future growth.
We might
not be able to manage our future growth efficiently or
profitably. Our business is unproven on a large scale and actual
revenue and operating margins, or revenue and margin growth, may be less than
expected. If we are unable to scale our production capabilities
efficiently, we may fail to achieve expected operating margins, which would have
a material and adverse effect on our operating results. Growth may
also stress our ability to adequately manage our operations, quality of
products, safety and regulatory compliance. If growth significantly
decreases our reserves, we may be required to obtain additional financing, which
may increase our indebtedness or result in dilution to our
stockholders. Further, there can be no assurance that we would be
able to obtain any additional financing.
19
Future
business combinations may be difficult to integrate and cause our attention to
be diverted.
We may
pursue various business combinations with other companies or acquisitions of
additional product lines. There can be no assurance that such
acquisitions will be available at all, or on terms acceptable to
us. These may require additional financing which may increase our
indebtedness or outstanding shares, resulting in dilution to
stockholders. The inability to obtain such future financing may
inhibit our growth and operating results. Integration of acquisitions or
additional products can be time consuming, difficult and expensive and may
significantly impact operating results. We may sell some or all of
our product lines to other companies or may agree to combine with another
company. Selling some of our product lines may inhibit our
ability to generate positive operating results going forward.
Acquisitions
that we consummate could disrupt our business and harm our financial
condition.
In the
future, we may evaluate potential strategic acquisitions of complementary
businesses, products or technologies. We may not be able to identify
appropriate acquisition candidates or successfully negotiate, finance or
integrate any businesses, products or technologies that we
acquire. Furthermore, the integration of any acquisition may divert
management’s time and resources from our core business. While we,
from time to time, evaluate potential acquisitions of businesses, products and
technologies, and anticipate continuing to make these evaluations, we have no
present understandings, commitments or agreements with respect to any
acquisitions.
We
may be subject to future product liability litigation that could be expensive
and may not be adequate in a catastrophic situation.
Although
we are not currently subject to any product liability proceedings, we may incur
material liabilities relating to product liability claims in the future,
including product liability claims arising out of the usage of our
products.
We
may implement a product recall or voluntary market withdrawal due to product
defects or product enhancements and modifications, which would significantly
increase our costs.
The
manufacturing and marketing of our biologic products, medical devices and
coating technologies involves an inherent risk that our products may prove to be
defective. In that event, we may voluntarily implement a recall or
market withdrawal or may be required to do so by a regulatory
authority. A recall of one of our products, or a similar product
manufactured by another manufacturer, could impair sales of the products we
market as a result of confusion concerning the scope of the recall or as a
result of the damage to our reputation for quality and safety.
Risks
Related to the Regulatory Environment in which We Operate
U.S.
governmental regulation could restrict the use of our products or our
procurement of tissue.
In the
United States, the procurement and transplantation of allograft bone tissue is
subject to federal law pursuant to the National Organ Transplant Act (“NOTA”), a
criminal statute which prohibits the purchase and sale of human organs used in
human transplantation, including bone and related tissue, for “valuable
consideration.” NOTA permits reasonable payments associated with the removal,
transportation, processing, preservation, quality control, implantation and
storage of human bone tissue. We provide services in all of these areas in the
United States, with the exception of removal and implantation, and receive
payments for all such services. We make payments to certain of our clients and
tissue banks for their services related to recovering allograft bone tissue on
our behalf. If NOTA is interpreted or enforced in a manner which prevents us
from receiving payment for services we render or which prevents us from paying
tissue banks or certain of our clients for the services they render for us, our
business could be materially and adversely affected.
We are
engaged through our marketing employees, independent sales agents and sales
representatives in ongoing efforts designed to educate the medical community as
to the benefits of our products, and we intend to continue our educational
activities. Although we believe that NOTA permits payments in connection with
these educational efforts as reasonable payments associated with the processing,
transportation and implantation of our products, payments in connection with
such education efforts are not exempt from NOTA’s restrictions and our inability
to make such payments in connection with our education efforts may prevent us
from paying our sales representatives for their education efforts and could
adversely affect our business and prospects. No federal agency or court has
determined whether NOTA is, or will be, applicable to every allograft bone
tissue-based material which our processing technologies may generate. Assuming
that NOTA applies to our processing of allograft bone tissue, we believe that we
comply with NOTA, but there can be no assurance that more restrictive
interpretations of, or amendments to, NOTA will not be adopted in the future
which would call into question one or more aspects of our method of
operations.
20
Our
business is subject to continuing regulatory compliance by the FDA and other
authorities.
As a
manufacturer and marketer of medical devices, we are subject to extensive
regulation by the FDA and the Center for Medicare Services of the U.S.
Department of Health and Human Services and other federal governmental agencies
and, in some jurisdictions, by state and foreign governmental
authorities. These regulations govern the introduction of new medical
devices, the observance of certain standards with respect to the design,
manufacture, testing, labeling, promotion and sales of the devices, the
maintenance of certain records, the ability to track devices, the reporting of
potential product defects, the import and export of devices and other
matters. We are facing an increasing amount of scrutiny and
compliance costs as more states are implementing regulations governing medical
devices, pharmaceuticals and/or biologics which affect many of our
products.
Medical
devices that incorporate coatings technology are subject to FDA regulation and
compliance. Generally, any medical device manufacturer that wishes to
incorporate our coatings technology into its products will be responsible for
obtaining FDA approval for the medical devices it intends to market; we will
assist in the 510(k) filing submitted by licensees. The FDA process
can take several months to several years in the United States. The
time required to obtain approval for international sales may be longer or
shorter, depending on the laws of the particular country. There can
be no assurance that our licensees will be able to obtain FDA or international
approval on a timely basis. The FDA may also require the more
extensive PMA process for certain products. Approval or clearance may
place substantial restrictions on the indications for which the product may be
marketed or to whom it may be marketed, warnings that may be required to
accompany the product or additional restrictions placed on the sale and/or use
of the product. Changes in regulations or adoption of new regulations
could also cause delays in obtaining product approval. In addition,
regulatory approval is subject to continuing compliance with regulatory
standards, and product approval is subject to withdrawal if a licensee fails to
comply with standards, or if an unforeseen event should occur concerning a
product. Significant delays in obtaining product approval could have
a significantly detrimental impact on our business. See “Description
of Business - Government Regulation.”
Human
tissues intended for transplantation have been regulated by the FDA since 1993.
In May 2005, three new comprehensive regulations went into effect that address
manufacturing activities associated with human cells, tissues and cellular and
tissue-based products (HCT/Ps). The first requires that companies that produce
and distribute HCT/Ps register with the FDA. The second provides criteria that
must be met for donors to be eligible to donate tissues and is referred to as
the “Donor Eligibility” rule. The third rule governs the processing and
distribution of the tissues and is often referred to as the “Current Good Tissue
Practices” rule. Together they are designed to ensure that sound, high quality
practices are followed to reduce the risk of tissue contamination and of
communicable disease transmission to recipients. See “Description of
Business - Government Regulation.”
The “Good
Tissue Practices” rule covers all stages of allograft processing, from
procurement of tissue to distribution of final allografts. These
regulations increased regulatory scrutiny within the industry in which we
operate and have lead to increased enforcement action which affects the conduct
of our business. In addition, these regulations can increase the cost
of tissue recovery activities.
Other
regulatory entities include state agencies with statutes covering tissue
banking. Regulations issued by Florida, New York, California and
Maryland will be particularly relevant to our business. Most states
do not currently have tissue banking regulations. However, recent
incidents of allograft related infections in the industry may stimulate the
development of regulation in other states. It is possible that others
may make allegations against us or against donor recovery groups or tissue banks
about non-compliance with applicable FDA regulations or other relevant statutes
or regulations. Allegations like these could cause regulators or
other authorities to take investigative or other action, or could cause negative
publicity for our business and the industry in which we operate.
Our
products may be subject to regulation in the EU as well should we enter that
market. In the European Union (“EU”), regulations, if applicable,
differ from one EU member state to the next. Because of the absence
of a harmonized regulatory framework and the proposed regulation for advanced
therapy medicinal products in the EU, as well as for other countries, the
approval process for human derived cell or tissue based medical products may be
extensive, lengthy, expensive and unpredictable. Among others, some
of our products may be subject to European Union member states’ regulations that
govern the donation, procurement, testing, coding, traceability, processing,
preservation, storage, and distribution of human tissues and cells and cellular
or tissue-based products. Some EU member states have their own tissue
banking regulations.
21
Clinical
trials can be long, expensive and ultimately uncertain.
Clinical
trials are required to develop products, gain market acceptance and obtain
510(k) certifications from the FDA. We have several clinical trials
planned and will likely undertake future trials. These trials often
take two years to execute and are subject to factors within and outside of our
control. The outcome of these trials is uncertain and may have a
significant impact on the success of our current and future products and future
profits.
The
commencement or completion of any of our clinical trials may be delayed or
halted for numerous reasons, including, but not limited to, a regulatory body
placing clinical trials on hold, patients not enrolling in clinical trials at
the rate we expect, patients experiencing adverse side effects, third party
contractors failing to perform in accordance with our anticipated schedule or
consistent with good clinical practices, inclusive or negative interim trial
results or our inability to obtain sufficient quantities of raw materials to
produce our products. Our development costs will increase if we have
material delays in our clinical trials or if we need to perform more or larger
clinical trials than planned. If this occurs, our financial results
and the commercial prospects for our products will be harmed and our prospects
for profitability will be harmed.
Product
pricing (and, therefore, profitability) is subject to regulatory
control.
The
pricing and profitability of our products may become subject to control by the
government and other third-party payors. The continuing efforts of
governmental and other third-party payors to contain or reduce the cost of
healthcare through various means may adversely affect our ability to
successfully commercialize our products. In most foreign markets, the
pricing and/or profitability of certain diagnostics and prescription
pharmaceuticals are subject to governmental control. In the United
States, we expect that there will continue to be federal and state proposals to
implement similar governmental control. Changes in prices, including
any mandated pricing, could impact our revenue and financial
performance. See “Description of Business - Government
Regulation.”
Risks
Related to Our Intellectual Property
Our
success will depend on our ability to protect our intellectual property
rights.
Our
success will depend, to a large extent, on our ability to successfully obtain
and maintain patents, prevent misappropriation or infringement of intellectual
property, maintain trade secret protection, and conduct operations without
violating or infringing on the intellectual property rights of third
parties. See “Description of Business - Technology and Intellectual
Property.” There can be no assurance that our patented and
patent-pending technology will provide us with a competitive advantage, that we
will be able to develop or acquire additional technology that is patentable, or
that third parties will not develop and offer technologies which are similar to
ours. Moreover, we can provide no assurance that confidentiality
agreements, trade secrecy agreements or similar agreements intended to protect
unpatented technology will provide the intended
protection. Intellectual property litigation is extremely expensive
and time-consuming, and it is often difficult, if not impossible, to predict the
outcome of such litigation. A failure by us to protect our
intellectual property could have a materially adverse effect on our business and
operating results and our ability to successfully compete in this
industry.
We
may not be able to obtain or protect our proprietary rights relating to our
products.
We may
not be able to obtain, maintain and protect certain proprietary rights necessary
for the development and commercialization of our products or product
candidates. Our
commercial success will depend in part on obtaining and maintaining patent
protection on our products and successfully defending these patents against
third-party challenges. Our ability to commercialize our products
will also depend in part on the patent positions of third parties, including
those of our competitors. The patent positions of pharmaceutical and
biotechnology companies can be highly uncertain and involve complex legal and
factual questions. Accordingly, we cannot predict with certainty the
scope and breadth of patent claims that may be afforded to other companies’
patents. We could incur substantial costs in litigation if we are
required to defend against patent suits brought by third parties, or if we
initiate suits to protect our patent rights.
22
Future
protection for our proprietary rights is uncertain.
The
degree of future protection for our proprietary rights is uncertain. We cannot
ensure that:
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|
·
|
we
were the first to make the inventions covered by each of our patent
applications;
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·
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we
were the first to file patent applications for these
inventions;
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·
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others
will not independently develop similar or alternative technologies or
duplicate any of our technologies;
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·
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any
of our pending patent applications will result in issued
patents;
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·
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any
of our issued patents or those of our licensors will be valid and
enforceable;
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·
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any
patents issued to us or our collaborators will provide a basis for
commercially viable products or will provide us with any competitive
advantages or will not be challenged by third
parties;
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·
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we
will develop additional proprietary technologies that are patentable;
or
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·
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the
patents of others will not have a material adverse effect on our business
rights and measures we rely on to protect the intellectual property
underlying our products may not be adequate to prevent third parties from
using our technology, all of which could harm our ability to compete in
the market.
|
Our
success depends on our ability to avoid infringing on the intellectual property
rights of third parties.
Our
commercial success depends in part on our ability and the ability of our
collaborators to avoid infringing patents and proprietary rights of third
parties. Third parties may accuse us or our collaborators of
employing their proprietary technology in our products, or in the materials or
processes used to research or develop our products, without
authorization. Any legal action against our collaborators or us
claiming damages and/or seeking to stop our commercial activities relating to
the affected products, materials and processes could, in addition to subjecting
us to potential liability for damages, require our collaborators or us to obtain
a license to continue to utilize the affected materials or processes or to
manufacture or market the affected products. We cannot predict
whether we or our collaborators would prevail in any of these actions or whether
any license required under any of these patents would be made available on
commercially reasonable terms, if at all. If we are unable to obtain
such a license, we or our collaborators may be unable to continue to utilize the
affected materials or processes or manufacture or market the affected products
or we may be obligated by a court to pay substantial royalties and/or other
damages to the patent holder. Even if we are able to obtain such a
license, the terms of such a license could substantially reduce the commercial
value of the affected product or products and impair our prospects for
profitability. Accordingly, we cannot predict whether or to what
extent the commercial value of the affected product or products or our prospects
for profitability may be harmed as a result of any of the liabilities discussed
above. Furthermore, infringement and other intellectual property
claims, with or without merit, can be expensive and time-consuming to litigate
and can divert management’s attention from our core business. We may
be unable to obtain and enforce intellectual property rights to adequately
protect our products and related intellectual property.
Others
may claim an ownership interest in our intellectual property.
A
third-party may claim an ownership interest in one or more of our patents or
intellectual property. While we believe we own 100% of the right,
title and interest in the patents for which we have applied and our other
intellectual property, including that which we license from third parties, we
cannot guarantee that a third-party will not, at some time, assert a claim or an
interest in any of such patents or intellectual property. We are
presently unaware of any claims or assertions by third-parties with respect to
its patents or intellectual property, except that, as a defense to a lawsuit we
brought against Allograft for infringement of our OsteoSponge® trademark,
Allograft has counterclaimed in an attempt to invalidate such mark. A
successful challenge or claim by a third party to our patents or intellectual
property could have a significant adverse effect on our prospects.
The
result of litigation may result in financial loss and/or impact our ability to
sell our products going forward.
We will
vigorously defend any future intellectual property litigation that may arise but
there can be no assurance that we will prevail in these matters. An
unfavorable judgment may result in a financial burden on us. An
unfavorable judgment may also result in restrictions on our ability to sell
certain products and therefore may impact future operating results.
23
Because we became public through a
reverse merger, we may not be able to attract the attention of major brokerage
firms.
Additional
risks are associated with our becoming public through a reverse merger. For
example, security analysts of major brokerage firms may not provide coverage of
us since there is no incentive to brokerage firms to recommend the purchase of
our common stock. We cannot assure you that brokerage firms will want to conduct
any public offerings on our behalf in the future.
If
we do not timely file and have declared effective the registration statement
required pursuant to our private placement, we will be required to pay
liquidated damages.
As part
of our private placement, we entered into a registration rights agreement. Under
this agreement, we are obligated to file a registration statement providing for
the resale of the shares of common stock acquired in the private placement and
underlying the warrants. Pursuant to the agreement, we agreed to file and have
declared effective the registration statement by a certain date. If we do not
meet this timeline, we must pay liquidated damages in the amount equal to 1% of
the aggregate investment amount per month, subject to a maximum limit of 12% of
the aggregate investment amount.
If
and when our registration statement becomes effective, a significant number of
shares of common stock will be eligible for sale, which could depress the market
price of our common stock.
Following
the effective date of the registration statement, a significant number of our
shares of common stock will become eligible for sale in the public market, which
could harm the market price of the stock. Further, shares may be offered from
time to time in the open market pursuant to Rule 144, and these sales may have a
depressive effect as well. In general, a person who has held restricted shares
for a period of six months may, upon filing a notification with the SEC on Form
144, sell our common stock into the market, subject to certain
limitations.
To
the extent any of Bacterin’s former stockholders elect to exercise any
dissenters rights in connection with the Reverse Merger, we are obligated to
issue additional shares of our common stock to the non-dissenting Bacterin
stockholders.
To the
extent any of Bacterin’s former stockholders elect to exercise any dissenters’
rights in connection with the Reverse Merger, we are obligated to purchase any
such dissenter’s shares of Bacterin common stock for “fair value” as determined
immediately prior to the Reverse Merger, all in accordance with Nevada
law. In addition, we would also be obligated to issue additional
shares of our common stock to the non-dissenting Bacterin stockholders such that
the non-dissenting stockholders would have held approximately 96% of our
outstanding shares of common stock immediately upon consummation of the Reverse
Merger, exclusive of any shares of our common stock issued in the private
placement. Certain of Bacterin’s former stockholders, who held
approximately 743,940 shares of Bacterin common stock in the aggregate, provided
proper notice to perfect their ability to exercise dissenters’ rights (or
371,970 shares of our common stock that they will receive in the Reverse Merger
if they ultimately elect not to exercise such rights).
There
has been no active public trading market for our common stock.
There is
currently no active public market for our common stock. An active trading market
may not develop or, if developed, may not be sustained. The lack of an active
market may impair your ability to sell your shares of common stock at the time
you wish to sell them or at a price that you consider reasonable. The lack of an
active market may also reduce the market value and increase the volatility of
your shares of common stock. An inactive market may also impair our ability to
raise capital by selling shares of common stock and may impair our ability to
acquire other companies or assets by using shares of our common stock as
consideration.
The
market price of our common stock has been and will likely continue to be highly
volatile, as is the stock market in general, and the market for OTC Bulletin
Board quoted stocks, in particular. Some of the factors that may materially
affect the market price of our common stock are beyond our control, such as
changes in financial estimates by industry and securities analysts, conditions
or trends in the industry in which we operate or sales of our common stock.
These factors may materially adversely affect the market price of our common
stock, regardless of our performance. In addition, the public stock markets have
experienced extreme price and trading volume volatility. This volatility has
significantly affected the market prices of securities of many companies for
reasons frequently unrelated to the operating performance of the specific
companies. These broad market fluctuations may adversely affect the market price
of our common stock.
24
Our
stockholders may experience significant dilution if future equity offerings are
used to fund operations or acquire complementary businesses.
If our
future operations or acquisitions are financed through the issuance of equity
securities, our stockholders could experience significant dilution. In addition,
securities issued in connection with future financing activities or potential
acquisitions may have rights and preferences senior to the rights and
preferences of our common stock. We also have established an equity incentive
plan for our management and employees. We expect to grant options to purchase
shares of our common stock to our directors, employees and consultants and we
will grant additional options in the future. The issuance of shares of our
common stock upon the exercise of these options may result in dilution to our
stockholders.
Our
current management can exert significant influence over us and make decisions
that are not in the best interests of all stockholders.
Our
executive officers and directors beneficially own as a group approximately
43.12% of our outstanding shares of common stock. As a result, these
stockholders will be able to assert significant influence over all matters
requiring stockholder approval, including the election and removal of directors
and any change in control. In particular, this concentration of ownership of our
outstanding shares of common stock could have the effect of delaying or
preventing a change in control, or otherwise discouraging or preventing a
potential acquirer from attempting to obtain control. This, in turn, could have
a negative effect on the market price of our common stock. It could also prevent
our stockholders from realizing a premium over the market prices for their
shares of common stock. Moreover, the interests of the owners of this
concentration of ownership may not always coincide with our interests or the
interests of other stockholders and, accordingly, could cause us to enter into
transactions or agreements that we would not otherwise consider.
Our
common stock is considered “penny stock” and may be difficult to
sell.
The SEC
has adopted Rule 3a51-1, which establishes the definition of a "penny stock" for
the purposes relevant to us, as any equity security that has a market price of
less than $5.00 per share or with an exercise price of less than $5.00 per
share, subject to certain exceptions. The market price of our common
stock is less than $5.00 per share and therefore may be designated as a “penny
stock” according to SEC rules. For any transaction involving a penny
stock, unless exempt, Rule 15g-9 requires:
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·
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that
a broker or dealer approve a person's account for transactions in penny
stocks; and
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·
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that
the broker or dealer receives from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
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In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
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·
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obtain
financial information and investment experience objectives of the person;
and
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·
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make
a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
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The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the SEC relating to the penny stock market,
which, in highlight form:
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·
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sets
forth the basis on which the broker or dealer made the suitability
determination; and
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·
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that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
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25
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have
to be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.
Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules. This may make it more difficult for investors to
dispose of our Common Stock and cause a decline in the market value of our
stock. In addition, since the Common Stock is currently traded on the
OTC Bulletin Board, investors may find it difficult to obtain accurate
quotations of the Common Stock and may experience a lack of buyers to purchase
such stock or a lack of market makers to support the stock price.
We
currently intend to retain our future earnings to support operations and to
finance expansion and, therefore, we do not anticipate paying any cash dividends
on our common stock in the foreseeable future.
We
intend to apply for trading our common stock on Nasdaq, although we may not
satisfy its eligibility criteria for listing or will ever be listed on
Nasdaq.
We intend
to apply to list our common stock for trading on the Nasdaq Capital Market as
soon as reasonable practicable. No assurance can be given that we
will satisfy the eligibility criteria or other initial listing requirements, or
that our shares of common stock will ever be listed on Nasdaq or another
national securities exchange.
We
could issue “blank check” preferred stock without stockholder approval with the
effect of diluting then current stockholder interests 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
certificate of incorporation provides for the authorization to issue up to
5,000,000 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 a
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.
Cautionary
Language Regarding Forward-Looking Statements and Industry Data
This
current report contains “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995 that involve risks and
uncertainties, many of which are beyond our control. Our actual results could
differ materially and adversely from those anticipated in such forward-looking
statements as a result of certain factors, including those set forth above and
elsewhere in this report. Important factors that may cause actual results to
differ from these forward-looking statements include, but are not limited to,
for example:
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adverse
economic conditions,
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inability
to raise sufficient additional capital to operate our
business,
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unexpected
costs, lower than expected sales and revenues, and operating
deficits,
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adverse
results of any legal proceedings,
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Inability
to enter into acceptable relationships with one or more of our suppliers
for key biomaterial supplies and the failure of such suppliers to deliver
acceptable quality and quantity of such supplies on a cost-effective
basis,
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26
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the
volatility of our operating results and financial
condition,
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inability
to attract or retain qualified senior management personnel, including
sales and marketing personnel
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Inability
to achieve anticipated product sales, and
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other
specific risks that may be referred to in this current
report.
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All
statements, other than statements of historical facts, included in this current
report regarding our strategy, future operations, financial position, estimated
revenue or losses, projected costs, prospects and plans and objectives of
management are forward-looking statements. When used in this current report, the
words “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,”
“project,” “plan” and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
such identifying words. All forward-looking statements speak only as of the date
of this report. We undertake no obligation to update any forward-looking
statements or other information contained herein. Stockholders and potential
investors should not place undue reliance on these forward-looking statements.
Although we believe that our plans, intentions and expectations reflected in or
suggested by the forward-looking statements in this report are reasonable, we
cannot assure stockholders and potential investors that these plans, intentions
or expectations will be achieved. We disclose important factors that could cause
our actual results to differ materially from expectations under “Risk Factors”
and elsewhere in this current report. These cautionary statements qualify all
forward-looking statements attributable to us or persons acting on our
behalf.
Information
regarding market and industry statistics contained in this current report is
included based on information available to us that we believe is accurate. It is
generally based on academic and other publications that are not produced for
purposes of securities offerings or economic analysis. Forecasts and other
forward-looking information obtained from these sources are subject to the same
qualifications and the additional uncertainties accompanying any estimates of
future market size, revenue and market acceptance of products and
services. Except as required by U.S. federal securities laws, we have
no obligation to update forward-looking information to reflect actual results or
changes in assumptions or other factors that could affect those statements. See
“Risk Factors” for a more detailed discussion of risks and uncertainties that
may have an impact on our future results.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
You
should read the following discussion of our financial condition and results of
operations in conjunction with our financial statements and related notes set
forth in Item 9.01 of this report. Unless the context otherwise
requires, “we,” “our,” “us” and similar expressions used in this Management’s
Discussion and Analysis of Financial Condition and Results of Operation section
refer to Bacterin prior to the closing of the Reverse Merger on June 30, 2010,
and Bacterin International Holdings, Inc., f/k/a K-Kitz, Inc., as successor to
the business of Bacterin, following the closing of the Reverse Merger
transaction.
Overview
We
develop, manufacture and market biologics products to domestic and international
markets through our biologics division and are a leader in the field
of biomaterials research, device development and
commercialization. Our proprietary methods optimize the growth
factors in human allografts to create the ideal stem cell scaffold and promote
bone and other tissue growth. These products are used in a variety of
applications including enhancing fusion in spine surgery, relief of back pain
with a facet joint stabilization, promotion of bone growth in foot and ankle
surgery, promotion of skull healing following neurosurgery and cartilage
regeneration in knee and other joint surgeries.
Our
medical devices division develops medical devices intended for use in several
diverse clinical areas including orthopedic, plastic, and cardiovascular
surgery. Our background and expertise is in the research, testing, and
development of coatings for medical devices, particularly antimicrobial-based
coatings. Such coatings contain active agents and provide our
products with several potential advantages over traditional medical devices.
They offer a means of protecting the surface of a medical device from
contamination by pathogenic organisms, thereby minimizing the potential for
infection. Other coatings can serve as a reserve for local delivery
of active agents, enhancing a variety of biological functions such as bone
growth and pain management.
27
The
manufacturing and operations of the biologics and device divisions are organized
separately while products from both are marketed through several channels
including private label arrangements, independent distributors, joint
development projects and our direct sales network which we began to implement in
the last half of 2009. To date, we have established 13 regions with a
regional vice-president in charge of all activities within the region and have
hired and trained 24 sales representatives. Our customers are located
worldwide, with approximately 91% of our sales being derived from customers
located in the United States. Our headquarters, laboratory and
manufacturing facilities are located in Belgrade, Montana.
Revenue
Model
We
generate revenue from a variety of sources, including the following: license
fees and royalties from collaborative product development efforts with medical
device manufacturers; sales from products developed and manufactured by us under
our own label; products manufactured by us under private labels for other device
distributing companies; and contract revenue from analytical testing and
development services provided to medical device manufacturer clients, which
tailor our coating process to the client’s specific product/medical
application. In order for us to recognize revenue from these sources,
the following criteria generally must be met:
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we
have entered into a legally binding agreement with the customer for the
product or services;
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the
products or services have been delivered by
us;
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our
fee for providing the products or services is fixed and determinable;
and
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·
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our
fee is actually collectible.
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We record
revenue net of any applicable sales, use, or excise taxes. If our
arrangement with the customer includes a right of acceptance or a right to
cancel, revenue is recognized when our products or services are accepted or when
the right to cancel has expired. We sell to certain customers
under consignment arrangements. Under these arrangements, revenue is
recorded on the date of sale. Revenue for research and development
services provided by us is recognized based upon our meeting certain performance
standards, such as incurring qualifying costs, as set forth in the specific
arrangement governing the provision of such services.
Results
of Operations
Comparison
of Three Months Ended March 31, 2010 and 2009
The
following table sets forth key components of our results of operations during
the three months ended March 31, 2010 and 2009, both in dollars and as a
percentage of our revenue. The acquisition of Bacterin International
Holdings, Inc. f/k/a K-Kitz, Inc. by Bacterin through the Reverse Merger
occurred after March 31, 2010. The combined presentation below refers
to that of Bacterin International Holdings, Inc. f/k/a K-Kitz, Inc. and
Bacterin.
28
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Unaudited Three Months Ended March
31,
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2010
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2009
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%
of
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%
of
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Amount
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Revenue
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Amount
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Revenue
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Revenues
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Tissue
sales
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$ | 2,707,124 | 98.93 | % | $ | 1,984,676 | 94.58 | % | ||||||||
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Royalties and
other
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29,309 | 1.07 | % | 113,765 | 5.42 | % | ||||||||||
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Total
Revenue
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2,736,433 | 100.00 | % | 2,098,441 | 100.00 | % | ||||||||||
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Cost
of tissue sales
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604,622 | 22.10 | % | 483,640 | 23.05 | % | ||||||||||
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Gross
Profit
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2,131,811 | 77.90 | % | 1,614,801 | 76.95 | % | ||||||||||
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Operating
Expenses
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General and
administrative
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816,700 | 29.85 | % | 405,145 | 19.31 | % | ||||||||||
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Selling and
marketing
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701,879 | 25.65 | % | 224,312 | 10.69 | % | ||||||||||
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Depreciation
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152,502 | 5.57 | % | 163,575 | 7.80 | % | ||||||||||
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Compensation
expense
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1,483,871 | 54.23 | % | 720,446 | 34.33 | % | ||||||||||
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Total Operating
Expenses
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3,154,952 | 115.29 | % | 1,513,478 | 72.12 | % | ||||||||||
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Income
from Operations
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(1,023,141 | ) | -37.39 | % | 101,323 | 4.83 | % | |||||||||
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Other
Income (Expense)
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||||||||||||||||
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Interest
expense
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(625,797 | ) | -22.87 | % | (96,161 | ) | -4.58 | % | ||||||||
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Other
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5,924 | 0.22 | % | 10,868 | 0.52 | % | ||||||||||
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Total
Other Income (Expense)
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(619,873 | ) | -22.65 | % | (85,293 | ) | -4.06 | % | ||||||||
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Net
Income Before Benefit (Provision)
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||||||||||||||||
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for Income
Taxes
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(1,643,014 | ) | -60.04 | % | 16,030 | 0.76 | % | |||||||||
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Benefit
(Provision) for Income Taxes
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||||||||||||||||
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Current
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- | 0.00 | % | - | 0.00 | % | ||||||||||
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Deferred
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- | 0.00 | % | - | 0.00 | % | ||||||||||
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Net
Income
|
$ | (1,643,014 | ) | -60.04 | % | $ | 16,030 | 0.76 | % | |||||||
Total
revenue for the three months ended March 31, 2010 increased by 30.4% to
$2,736,433 compared to $2,098,441 in the three months ended March 31,
2009. The increase related primarily to the implementation of a
direct sales force effort in July 2009. Prior to that time, we
utilized a distributor model with a limited direct sales force.
Costs
of Revenue
Costs of
revenue consist primarily of tissue and device manufacturing
costs. Costs of revenue increased by 25.0%, or $120,982, to $604,622
for the three months ended March 31, 2010, from $483,640 for the three months
ended March 31, 2009. Cost of revenue increase was the result of
increased sales and a write-off of approximately $64,000 of
obsolete inventory. Our gross profit margin increased
slightly to 77.9% for the three months ended March 31, 2010 compared to 76.95%
for the three months ended March 31, 2009.
Operating
Expenses
Operating
expenses include general and administrative expenses, selling and marketing
expenses, depreciation, and compensation costs, including incentive
compensation and non cash stock based compensation. Operating expenses
increased 108.5%,
or $1,641,474,
to $3,154,952
for the three months ended March 31, 2010 from $1,513,478
for the three months ended March 31, 2009.
29
General
and Administrative
General
and administrative expenses consist principally of employee related costs and
corporate expenses for legal, accounting and other professional fees
as well as occupancy costs. General and administrative expenses increased
101.6%%, or $411,555 to $816,700, for the three months ended March 31, 2010
compared to the three months ended March 31, 2009. The increase is largely
associated with one-time legal and professional fees incurred throughout the
transactions described in this report.
Selling
and Marketing
Selling
and marketing expenses exclude sales based compensation expense and primarily
consist of costs for trade shows, sales conventions and meetings, travel
expenses, advertising and other sales and marketing related
costs. Selling and marketing expenses increased 212.9%, or $477,567,
to $701,879 for the three months ended March 31,2010 from $224,312 for the first
quarter of 2009. As a percentage of revenue, selling and marketing
expenses increased to 25.65% in the first quarter of 2010 from 10.69% in the
comparable period of the prior year. The increases were primarily the
result of increased travel costs associated with the larger sales force and a
substantial increase in marketing and advertising activities in
2010.
Depreciation
Depreciation
expense consists of depreciation of long-lived property and equipment.
Depreciation expenses decreased 6.8%, to $152,502 for the three months ended
March 31, 2010 from $163,575 for the three months ended March 31, 2009.
This decrease was a result of certain assets becoming fully
depreciated.
Compensation
expense
Compensation
expense consists of payroll and related expenses and includes non-cash based
stock compensation expense. Compensation expense increased 106% or
$763,425, to $1,483,871 for the three months ended March 31,2010 from $720,446
in the comparable period of the prior year. This increase was
primarily due to our implementation of a direct sales effort in 2009 which
substantially increased the sales force headcount. In addition, we
granted more stock options to employees than the prior year. As a
percentage of revenues, compensation expense in the first quarter of 2010 was
54.23% of revenues compared to 34.33% in the prior year.
Interest
Expense
Interest
expense is from our notes payable and convertible debt instruments.
Interest expense for the three months ended March 31, 2010 increased 550.8%
to $625,797 as
compared to $96,161 for the three months ended March 31, 2009. This
increase was a direct result of the interest expense associated with the
increase in convertible notes payable.
Comparison
of Twelve Months Ended December 31, 2009 and December 31, 2008
The
following table sets forth key components of our results of operations during
the twelve months ended December 31, 2009 and 2008, both in actual dollars and
as a percentage of our revenue. The acquisition of Bacterin
International Holdings, Inc. f/k/a K-Kitz, Inc. by Bacterin through the Reverse
Merger occurred after March 31, 2010. The combined presentation below
refers to that of Bacterin International Holdings, Inc. f/k/a K-Kitz, Inc. and
Bacterin.
30
|
Twelve Months Ended December
31,
|
||||||||||||||||
|
2009
|
2008
|
|||||||||||||||
|
%
of
|
%
of
|
|||||||||||||||
|
Amount
|
Revenue
|
Amount
|
Revenue
|
|||||||||||||
|
Revenues
|
||||||||||||||||
|
Tissue
sales
|
$ | 7,101,357 | 96.05 | % | $ | 8,031,611 | 97.80 | % | ||||||||
|
Royalties and
other
|
292,136 | 3.95 | % | 180,848 | 2.20 | % | ||||||||||
|
Total
Revenue
|
7,393,493 | 100.00 | % | 8,212,459 | 100.00 | % | ||||||||||
|
Cost
of tissue sales
|
2,318,142 | 31.35 | % | 1,522,658 | 18.54 | % | ||||||||||
|
Gross
Profit
|
5,075,351 | 68.65 | % | 6,689,801 | 81.46 | % | ||||||||||
|
Operating
Expenses
|
||||||||||||||||
|
General and
administrative
|
2,218,162 | 30.00 | % | 2,053,797 | 25.01 | % | ||||||||||
|
Selling and
marketing
|
1,281,932 | 17.34 | % | 429,170 | 5.23 | % | ||||||||||
|
Depreciation
|
661,847 | 8.95 | % | 646,846 | 7.88 | % | ||||||||||
|
Research and
development
|
- | 0.00 | % | 288,091 | 3.51 | % | ||||||||||
|
Compensation
expense
|
4,535,964 | 61.35 | % | 2,157,450 | 26.27 | % | ||||||||||
|
Total Operating
Expenses
|
8,697,905 | 117.64 | % | 5,575,354 | 67.89 | % | ||||||||||
|
Income
from Operations
|
(3,622,554 | ) | -49.00 | % | 1,114,447 | 13.57 | % | |||||||||
|
Other
Income (Expense)
|
||||||||||||||||
|
Interest
expense
|
(513,934 | ) | -6.95 | % | (1,374,360 | ) | -16.74 | % | ||||||||
|
Other
|
10,746 | 0.15 | % | 20,601 | 0.25 | % | ||||||||||
|
Total
Other Income (Expense)
|
(503,188 | ) | -6.81 | % | (1,353,759 | ) | -16.48 | % | ||||||||
|
Net
Income Before Benefit (Provision)
|
||||||||||||||||
|
for Income
Taxes
|
(4,125,742 | ) | -55.80 | % | (239,312 | ) | -2.91 | % | ||||||||
|
Benefit
(Provision) for Income Taxes
|
||||||||||||||||
|
Current
|
- | 0.00 | % | - | 0.00 | % | ||||||||||
|
Deferred
|
- | 0.00 | % | - | 0.00 | % | ||||||||||
|
Net
Income
|
$ | (4,125,742 | ) | -55.80 | % | $ | (239,312 | ) | -2.91 | % | ||||||
Revenue
in 2009 and 2008 was comprised solely of tissue and device
sales. Total revenue decreased by 11.3% year-over-year at $7,393,493
in 2009, compared to $8,212,459 in 2008. The decrease was largely the result of
transitioning the sales model from a distributorship model with a limited direct
sales force to a direct sales force model. In addition, during 2009,
we terminated an agreement with a distributor customer with annual sales of
approximately $3,000,000 as part of our transition to a direct sales force
model.
Our
largest single customer accounted for 12% and 37% of total consolidated revenues
for the years ended 2009 and 2008, respectively. Our relationship
with the customer is governed by a contract between the two parties which
identifies prices for the services to be rendered and payments to be made by the
customer to us. The contract expires in February 2011.
Costs
of Revenue
Costs of
revenue consist primarily of tissue and device manufacturing
costs. Costs of revenue increased by 52.2%%, or $795,484, to
$2,318,142 for the year ended December 31, 2009, from $1,522,658 for the year
ended December 31, 2008. Cost of revenue increase was the result
of increased costs associated with our higher sales and a product mix shift
which resulted in higher sales of products with higher costs.
31
Operating
Expenses
Operating
expenses include general and administrative expenses, selling and marketing
expenses, depreciation, research and development expenses, and compensation
costs, including incentive compensation. Operating expenses increased
56.0%, or $3,122,151 for the year ended December 31, 2009 compared to the
year ended December 31, 2008.
General
and Administrative
General
and administrative expenses consist principally of employee related costs and
corporate expenses for legal, accounting and other professional fees
as well as occupancy costs. General and administrative expenses increased
8%, or $164,365 to $2,218,162, for the twelve months ended December 31, 2009
compared to 2008. The increase is largely associated with increased legal
and professional fees incurred between the two periods. As a
percentage of revenues, general and administrative expenses were 30.0% in 2009
compared to 25.01% in 2008.
Selling
and Marketing
Selling
and marketing expenses exclude sales based compensation expense and primarily
consist of costs for trade shows, sales conventions and meetings, travel
expenses, advertising and other sales and marketing related costs. Selling
and marketing expenses increased 198.7%, or $852,762, to $1,281,932 for the
twelve months ended December 31, 2009 from $429,170 for 2008. As a
percentage of revenue, selling and marketing expenses increased to 17.34% in
2009 from 5.23% in the prior year. The increases were primarily the
result of increased travel costs associated with the larger sales force and a
substantial increase in marketing and advertising activities in 2009 as part of
our switch to a direct sales force model from a distributorship
model.
Depreciation
Depreciation
expense consists of depreciation of long-lived property and equipment.
Depreciation expense remained relatively unchanged increasing to $661,847 in
2009 from $646,846 in 2008.
Research and
Development
Research
and development expenses consist primarily of costs for product research and
development and department related expenses. Research and development
expenses were $288,091 in 2008. In 2009, we did not incur any
research and development expenses as we focused our efforts on the
implementation of our direct sales force model.
Compensation
expense
Compensation
expense consists of payroll and related expenses and includes non-cash stock
compensation expense. Compensation expense increased 110.2% or
$2,378,514, to $4,535,964 for 2009 from $2,157,450 in the comparable year period
for 2008. This increase was primarily due to our implementation of a
direct sales effort in 2009 which substantially increased the sales force
headcount. In addition, we granted more stock options to employees in
2009 than in the prior year. As a percentage of revenues,
compensation expense in 2009 was 61.35% compared to 26.27% in the prior
year.
Interest
Expense
Interest
expense is from our promissory notes and convertible debt
instruments. Interest expense for the year ended December 31, 2009
decreased 62.61%, or $860,426, as compared to the year ended December 31,
2008. This decrease was a result of lower debt balances during the
year.
Liquidity
and Capital Resources
Since our
inception, we have historically financed our operations through operating cash
flows, as well as the private placement of equity securities and debt, and other
debt transactions. Most recently, on June 30, 2010, we raised
approximately $7,508,329 through a private placement of equity securities and
conversion of a portion of a bridge loan financing. At December 31,
2009, we had $1,368,573 of cash and cash equivalents and accounts
receivables. In the
first quarter of 2010, we received proceeds of $2,695,000 in connection with
an unsecured convertible bridge loan financing. In
addition, we have access to credit lines secured by certain of our accounts
receivable balances.
32
Net cash
used in operating activities for the year ended December 31, 2009 was
$3,671,596. This was primarily related to cash used to fund our
operations as well as an increase of accounts receivable of approximately
$739,000 and an increase in our inventory balance of approximately
$851,000. For the twelve months ended December 31, 2008, net cash
provided by operating activities was $502,008 due to a lower net loss compared
to 2009.
Net cash
provided by financing activities was $3,436,991 and $545,169 for the years ended
December 31, 2009 and 2008, respectively. The net cash provided from
financing activities during 2009 was $1,950,000 from the sale and issuance of
common stock and $1,000,000 from releases on certain restrictions on
cash. The cash receipts were partially offset from the payment of
notes payable in the amount of $942,562. Net cash provided from
financing in 2008 included $1,000,000 in proceeds from notes payable, $2,340,000
from issuance of convertible notes payable and $1,278,514 from the sale and
issuance of common stock. The cash inflows were partially offset by
the payments of $3,073,345 for long-term debt, stockholder notes and capital
leases.
Off
Balance Sheet Arrangements
We do not
have any off balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity or capital
expenditures or capital resources that are material to an investor in our
shares.
Cash
Requirements
We
believe that our cash on hand from our recent private placement of equity
securities and from operations will be sufficient to meet our anticipated cash
requirements through December 31, 2010. If we do not meet our
revenue objectives over that period, we may need to sell additional equity
securities, which could result in dilution to our stockholders, or seek
additional loans. The incurrence of indebtedness would result in
increased debt service obligations and could require us to agree to operating
and financial covenants that would restrict our operations. Financing may not be
available in amounts or on terms acceptable to us, if at all. Any
failure by us to raise additional funds on terms favorable to us, or at all,
could limit our ability to expand our business operations and could harm our
overall business prospects.
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth information regarding the beneficial ownership of our
common stock as of June 30, 2010, by (a) each person who is known by us to
beneficially own 5% or more of our common stock, (b) each of our directors and
executive officers, and (c) all of our directors and executive officers as a
group.
|
Name (1)
|
Number of
Shares
Beneficially
Owned (2)
|
Percentage of
Shares
Beneficially
Owned
(3)
|
||||||
|
5% or
Greater Stockholder:
|
||||||||
|
Guy
S. Cook
|
13,180,189 | (4) | 38.11 | % | ||||
|
Executive
Officers and Directors:
|
||||||||
|
Guy
S. Cook
|
13,180,189 | 38.11 | % | |||||
|
Mitchell
Godfrey
|
810,248 | (5) | 2.34 | % | ||||
|
Kent
Swanson
|
408,716 | (6) | 1.18 | % | ||||
|
Ken
Calligar
|
50,000 | * | % | |||||
|
Gary
Simon
|
117,188 | (7) | * | % | ||||
|
Daniel
Frank
|
85.938 | (8) | * | % | ||||
|
John
P. Gandolfo
|
0 | * | % | |||||
|
Jesus
Hernandez
|
535,680 | (9) | 1.53 | % | ||||
|
Darrel
Holmes
|
99,556 | (10) | * | % | ||||
|
All
executive officers and directors as a group (9 persons)
|
15,287,514 | 43.12 | % | |||||
|
|
________________
|
|
|
*
Less than 1% of outstanding shares of common
stock.
|
33
|
(1)
|
The
address of each person is c/o Bacterin International, Inc., 600 Cruiser
Lane, Belgrade Montana 59714.
|
|
|
|
(2)
|
Unless
otherwise indicated, includes shares owned by a spouse, minor children and
relatives sharing the same home, as well as entities owned or controlled
by the named person. Also includes shares if the named person has the
right to acquire those shares within 60 days after June 30, 2010, by the
exercise or conversion of any warrant, stock option or convertible
preferred stock. Unless otherwise noted, shares are owned of record and
beneficially by the named person.
|
|
|
(3)
|
The
calculation in this column is based upon 34,440,103 shares of common stock
outstanding on June 30, 2010. The shares of common stock underlying
warrants and stock options are deemed outstanding for purposes of
computing the percentage of the person holding them, but are not deemed
outstanding for the purpose of computing the percentage of any other
person.
|
|
|
(4)
|
Includes
(a) 19,200 shares of our common stock issuable to Sue Cook, Mr. Cook’s
spouse and our head of human resources, upon the exercise of stock options
previously granted by Bacterin under its 2004 Stock Incentive Plan, (b)
484,375 shares of common stock acquired in the private placement that
occurred concurrently with the Reverse Merger, and (c) warrants to
purchase 121,094 shares of our common stock which were also acquired in
such private placement.
|
|
(5)
|
Includes
144,000 shares of our common stock issuable to Mr. Godfrey upon the
exercise of stock options previously granted by Bacterin under its 2004
Stock Incentive Plan.
|
|
|
|
(6)
|
Includes
67,049 shares of our common stock issuable to Mr. Swanson upon the
exercise of warrants previously issued to Mr. Swanson in connection with
his conversion of certain debt.
|
|
(7)
|
Includes
(a) 93,750 shares of common stock acquired in the private placement that
occurred concurrently with the Reverse Merger, and (b) warrants to
purchase 23,438 shares of our common stock which were also acquired in
such private placement, all of which are held indirectly through an entity
that Mr. Simon controls.
|
|
|
(8)
|
Includes
(a) 68,750 shares of common stock acquired in the private placement that
occurred concurrently with the Reverse Merger, and (b) warrants to
purchase 17,188 shares of our common stock which were also acquired in
such private placement.
|
|
|
(9)
|
Represents
shares of our common stock issuable to Mr. Hernandez upon the exercise of
stock options previously granted by Bacterin under its 2004 Stock
Incentive Plan.
|
|
|
(10)
|
Includes
89,556 shares of our common stock issuable to Mr. Holmes upon the exercise
of stock options previously granted by Bacterin under its 2004 Stock
Incentive Plan.
|
34
Directors
and Executive Officers
Executive
Officers and Directors
The
names, ages and positions of our executive officers and directors as of June 30,
2010, are as follows:
|
Name
|
Age
|
Position
|
||
|
Guy
Cook
|
45
|
Chairman
of the Board, Chief Executive Officer, President and Chief Scientific
Officer
|
||
|
Mitchell
T. Godfrey
|
64
|
Director,
Secretary and Treasurer
|
||
|
Kent
Swanson
|
65
|
Director
|
||
|
Ken
Calligar
|
53
|
Director
|
||
|
Daniel
Frank
|
53
|
Director
|
||
|
Gary
Simon
|
49
|
Director
|
||
|
John
P. Gandolfo
|
49
|
Interim
Chief Financial Officer
|
||
|
Jesus
Hernandez
|
54
|
Vice
President of Biologics
|
||
|
Darrel
Holmes
|
57
|
Vice
President of Medical
Devices
|
The
principal occupations for the past five years (and, in some instances, for prior
years) of each of our executive officers and directors are as
follows. All of such persons joined our company in the same positions
that they held in Bacterin at the closing of the Reverse Merger on June 30,
2010.
Guy Cook, Chairman of the Board,
Chief Executive Officer, President and Chief Scientific Officer, is
considered an international expert in biofilm science and its application. He is
widely published and has been invited to speak at many prominent biofilm
conferences, including the “Anti-Infective Materials” Seminar in Tokyo and the
FDA-CDRH Antimicrobial Device Efficacy Testing Seminar. Mr. Cook started his
career as a product specialist in the Image Analysis Department for Laboratory
Equipment Company in Chicago. He later became President of Delta Resources in
Crystal Lake, Illinois, which specialized in developing customized image
analysis solutions for the academic community. In 1996, he moved to Montana and
worked as a Confocal Microscopist for the Center for Biofilm Engineering at the
Montana State University where he developed several proprietary testing models
for the medical device industry. Mr. Cook attended the University of Indiana and
received Bachelor of Science degrees in Finance and Economics.
Mitchell T. Godfrey, Director,
Secretary and Treasurer, has been involved over the past 25 years in a
number of private enterprises, including consulting for and participation in
firms in the manufacturing, medical devices, nuclear, service and animal health
industries. Mr. Godfrey graduated from the University of Utah in 1968
with Bachelor of Science degrees in psychology and mathematics. He served as a
Lieutenant in the U.S. Navy for a period of four years in the
1960s. Upon his return from overseas duty, he served as a director of
the Utah Vietnam Agent Orange Program. He currently is the Chairman of the
Montana based Crow Creek Falls Conservation Group and has been actively involved
in many other organizations. Mr. Godfrey joined us in October 2003 as
our Chief Financial Officer until December 2007, when his primary responsibility
was changed to investor relations.
Kent Swanson, Director, was
with Accenture for over 32 years, retiring from the firm in 2001 as a Senior
Partner. He held global leadership and management positions in a wide
range of industries and geographies. From 2001 to 2008, he was the
Board Chair of ALN Medical Management; providing outsourced services for
clinic-based physician practices. Also from 2001 to 2008, he was
Board Chair for Boys Hope Girls Hope of Colorado, a charitable organization
providing a home and scholarshiped education for disadvantaged children with
significant capabilities and promise. From 2002 to 2009, he was a
Board member, Audit Committee member and Compensation Committee Chair for MPC
Computers. Mr. Swanson graduated with distinction from the University
of Minnesota earning an M.S. in Business and received an M.B.A. from the
University of Chicago in 1969.
Ken Calligar, Director, has
over 25 years of executive level experience in the financial
industry. In July 2008, he founded Convertible Capital, an
investment banking firm, specializing in highly tailored capital raising and
advisory work, where he serves as the managing director. Prior to
Convertible Capital, from May 2005 to July 2008, he was a managing director with
Jefferies & Co. where he ran the equity-linked Capital Markets
Group. He has also held managing positions in convertible
securities groups at H&Q, Chase, Painewebber, and UBS. Ken has
solid experience in deal structuring, M&A, and raising capital in both
equity and debt markets.
35
Daniel Frank, Director, joined
Fidelity Investments in 1979 as an analyst, worked with Peter Lynch on the
Magellan Fund and in 1982 was given sole portfolio responsibility for the
Fidelity Special Situations Fund which he launched and grew to over $800
million. Danny left Fidelity after 14 years in 1996, ranked by
Barrons as one of the top 100 portfolio managers. Danny then became
Managing Director of the Soros Chatterjee Fund where he invested in public and
private health care companies. He was also managing director of ACI
Capital and, most recently, the managing director of Cerberus Capital management
responsible for running a $300 million healthcare fund. Danny has
severed on several public and private healthcare company boards including
I-Stat, Aton Pharmaceuticals from 2006 to 2010, Reva Medical from 2006 to
present, Molecular Insight Pharmaceuticals from 2003 to present, and Biosphere
Medical (as board observer) from 2008 to 2010.
Gary Simon, Director, is a
managing member of UVE Partners, LLC, which he co-founded in
2000. UVE Partners is a fund focused on realizing long term
appreciation from investments in listed small and micro cap companies with
capitalizations of $500 million, or less. Prior to UVE Partners, Gary
was Senior Vice President of Barington Capital Group, a full-service investment
banking firm. During the 1990s he served as Chief Financial Officer
of Concord Camera Corp and Multi-Media Tutorial Services, both NASDAQ traded
companies. Gary began his career at Ernst & Young where he served as a
Senior Manager in the Corporate Finance Group, providing mergers and
acquisitions advisory services to small and medium sized companies and as a
Senior Accountant providing auditing and advisory services to emerging growth
companies. Gary received his MBA in finance from New York
University.
John P. Gandolfo, Chief Financial
Officer, joined Bacterin as its interim Chief Financial Officer on a
part-time basis, effective June 4, 2010, and filled this position full time
commencing on July 6, 2010. Mr. Gandolfo has 25 years of experience
as chief financial officer of rapidly growing private and publicly held
companies with a primary focus in the life sciences, healthcare and medical
device areas. Mr. Gandolfo has had direct responsibility over capital
raising, including four public offerings, financial management, mergers and
acquisition transactions and SEC reporting throughout his professional
career. Prior to joining Bacterin, Mr. Gandolfo served as the Chief
Financial Officer for Progenitor Cell Therapy LLC, a leading manufacturer of
stem cell therapies. Prior to joining Progenitor, Mr. Gandolfo served
as the Chief Financial Officer for Power Medical Interventions, Inc., a publicly
held developer and manufacturer of computerized surgical stapling and cutter
systems, from January 2007 to January 2009. Prior to joining PMI,
Mr. Gandolfo was the Chief Financial Officer of Bioject Medical
Technologies, Inc., a publicly held supplier of needle-free drug delivery
systems to the pharmaceutical and biotechnology industries, from September 2001
to May 2006, and served on the Bioject’s Board of Directors from September 2006
through May 2007. Prior to joining Bioject, Mr. Gandolfo was the Chief
Financial Officer of Capital Access Network, Inc., a privately held
specialty finance company, from 2000 through September 2001, and
Xceed, Inc., a publicly held Internet consulting firm, from 1999 to 2000.
From 1994 to 1999, Mr. Gandolfo was Chief Financial Officer and Chief
Operating Officer of Impath, Inc., a publicly held, cancer-focused
healthcare information company. From 1987 through 1994, he was Chief Financial
Officer of Medical Resources, Inc., a publicly held manager of diagnostic
imaging centers throughout the United States. A graduate of Rutgers
University, Mr. Gandolfo is a certified public accountant (inactive status)
who began his professional career at Price Waterhouse.
Jesus Hernandez, Vice President of
Biologics, began his career as the Director of the Organ and Tissue Bank
at University of California, Irvine Medical Center. He has over 20 years of
organ and tissue banking experience, including having served as Chief Operating
Officer and Chief Executive Officer for two national tissue
banks. Mr. Hernandez served as the Chief Operating Officer of Bone
Bank Allografts from November 1997 to April 2005. He has been an
advisor for various committees including the United Network for Organ Sharing,
Association of Organ Procurement Organizations, North American Transplant
Coordinators Organization, American Association of Tissue Banks and served as a
board member of the World Children’s Transplant Fund. Mr. Hernandez graduated
from the University of California, Irvine. Mr. Hernandez has served
in his current position since April 2005.
Darrel Holmes, Vice President of
Medical Devices, joined Bacterin in 2003 as Director of Operations. Mr.
Holmes started his career as chemist and later Director of Operations for ICL
Scientific. He later worked for Hycor Medical as the Director of Manufacturing,
and then as Director of Operations at Stratagene Cloning Systems. Mr. Holmes
moved to Montana and became the President of Big Spring Water in Bozeman. He
holds several certificates including Environmental Inspector with the
Environmental Assessment Association and is a Hazardous Materials Specialist.
Mr. Holmes attended California State University at Long Beach and graduated with
a Bachelor’s Degree in Biology. He has over 25 years of Technical Operations
experience in the medical device and diagnostics industries.
36
Scientific
Advisory Board
Our
Scientific Advisory Board assists us with issues relating to the clinical
development and exploitation of our coating and biologic
technologies. As our needs evolve, members with required areas of
interest and expertise are added. The members of our Scientific Advisory Board
are compensated with stock options and shares of common stock under our equity
incentive plan.
Steven Scott MD, is
currently the Chairman of our Scientific Advisory Board and a member of the
American Academy of Orthopaedic Surgeons, the Musculoskeletal Tumor Society and
the Pediatric Society Orthopaedic of North America. Dr. Scott
maintains an active orthopaedic practice in Salt Lake City and has special
expertise in the use of Ilizarov External Fixation, pediatric orthopaedics, bone
graft technology, and orthopedic oncology. Dr. Scott has authored
many scientific publications, has presented at numerous national conferences and
has a patent pending. He received his BA from Linfield College summa
cum laude and attended medical school at the University of
Colorado. He completed his orthopaedic training at the University of
Utah and the Mayo Clinic; he holds a clinical appointment within the Department
of Orthopaedics at University of Utah and received an M.B.A. through the
University of Utah.
Board
Composition and Terms of Office
The
composition of our board of directors, and any future audit committee,
compensation committee, and nominations and governance committee, will be
subject to the corporate governance provisions of our primary trading market,
including rules relating to the independence of directors. All
directors hold office until the next annual meeting of stockholders and the
election and qualification of their successors. Officers are elected
annually by the board of directors and serve at the discretion of the
board.
We have
not previously had an audit committee, compensation committee or nominations and
governance committee. Later in 2010, our board of directors expects to create
such committees, in compliance with established corporate governance
requirements.
Audit
Committee. We
plan to establish an audit committee of the board of directors. Gary
Simon is expected to chair this committee upon its establishment. The
audit committee’s duties would be to recommend to the board of directors the
engagement of independent auditors to audit our financial statements and to
review our accounting and auditing principles. The audit committee would review
the scope, timing and fees for the annual audit and the results of audit
examinations performed by the internal auditors and independent public
accountants, including their recommendations to improve the system of accounting
and internal controls. The audit committee would at all times be composed
exclusively of directors who are, in the opinion of the board of directors, free
from any relationship which would interfere with the exercise of independent
judgment as a committee member and who possess an understanding of financial
statements and generally accepted accounting principles.
Compensation
Committee. We
plan to establish a compensation committee of the board of
directors. Ken Calligar is expected to chair this committee upon its
establishment. The compensation committee would review and approve
our salary and benefits policies, including compensation of executive officers.
The compensation committee would also administer our equity incentive plan, and
recommend and approve awards, including grants of stock options and restricted
stock, under that plan.
Nominations and
Governance Committee. We plan to establish a nominations and governance
committee of the board of directors. Daniel Frank is expected to
chair this committee upon its establishment. The purpose of the
nominations and governance committee would be to select, or recommend for our
entire board’s selection, the individuals to stand for election as directors at
the annual meeting of stockholders and to oversee the selection and composition
of committees of our board. The nominations and governance committee’s duties
would also include considering the adequacy of our corporate governance and
overseeing and approving management continuity planning processes.
37
Nominations
to the Board of Directors
Our
directors take a critical role in guiding our strategic direction and oversee
the management of our company. Board candidates are considered based
upon various criteria, such as their broad-based business and professional
skills and experiences, a global business and social perspective, concern for
the long-term interests of the stockholders, diversity, and personal integrity
and judgment.
In
addition, directors must have time available to devote to board activities and
to enhance their knowledge in the growing business. Accordingly, we
seek to attract and retain highly qualified directors who have sufficient time
to attend to their substantial duties and responsibilities.
Indebtedness
of Directors and Executive Officers
We have a
note receivable from Guy Cook, our Chairman, Chief Executive Officer and
President, in the principal amount of $72,178, which bears interest at the prime
rate of interest and is secured by certain shares of our common stock owned by
Mr. Cook.
We have a
promissory note due to Mitchell T. Godfrey, our director and our Secretary and
Treasurer, in the principal amount of $83,090, which bears interest at 6% per
annum with an unspecified maturity date.
Family
Relationships
There are
no family relationships among our new directors and executive officers and any
former or proposed directors or executive officers.
Legal
Proceedings
As of the
date of this current report, there are no material proceedings pending or
threatened to which any of our directors, executive officers, affiliates or
stockholders is or would be a party adverse to us.
The table
below summarizes the compensation earned for services rendered to Bacterin
International Holdings, Inc. f/ka/ K-Kitz, Inc. and Bacterin International, Inc.
in all capacities, for the fiscal years indicated, by its Chief Executive
Officer and two most highly-compensated officers other than the Chief Executive
Officer.
|
Name
and
Principal
Position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
Option
Awards
|
Non-Equity
Incentive
Plan
Compensation
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
|
All
Other
Compensation
|
Total
|
|||||||||||||||||||||||||
|
Guy
S. Cook(1)
|
2009
|
$ | 230,750 | $ | -- | $ | 40,000 | (2) | $ | -- | $ | -- | $ | -- | $ | 34,897 | (2) | $ | 305,647 | |||||||||||||||
|
Chairman
of the Board and
Chief
Executive Officer
|
2008
|
249,210 | -- | -- | -- | -- | -- | 23,783 | 272,993 | |||||||||||||||||||||||||
|
Jesus
Hernandez(1)
|
2009
|
236,153 | -- | -- | -- | -- | -- | 12,743 | 248,896 | |||||||||||||||||||||||||
|
EVP
- Biologics
|
2008
|
197,308 | 27,500 | -- | -- | -- | -- | 66,983 | 236,791 | |||||||||||||||||||||||||
|
Darrel
Holmes(1)
|
2009
|
100,000 | -- | -- | -- | -- | -- | 15,744 | 115,744 | |||||||||||||||||||||||||
|
EVP
- Medical Devices
|
2008
|
57,115 | -- | -- | -- | -- | -- | 9,040 | 66,155 | |||||||||||||||||||||||||
|
Jennifer
Jarvis
|
2009
|
-- | -- | -- | -- | -- | -- | -- | -- | |||||||||||||||||||||||||
|
Former
Director, Chief
Executive
Officer, President
and
Chief Financial Officer(3)
|
2008
|
45,000 | -- | -- | -- | -- | -- | -- | 45,000 | |||||||||||||||||||||||||
_______________
|
(1)
|
Each
of Mr. Cook, Mr. Hernandez and Mr. Holmes received this compensation in
connection with their service to Bacterin, our wholly-owned subsidiary
through which we now operate our
business.
|
38
|
(2)
|
Mr.
Cook received 25,000 shares of common stock of Bacterin (as adjusted to
reflect the ratio used to determine the number of shares issuable to
Bacterin stockholders in connection with the Reverse Merger) and is
entitled to $10,000, each as of December 31, 2009, for his service on
Bacterin’s board of directors for fiscal year 2009, though payment of the
$10,000 has been deferred indefinitely. Although this
consideration reflects Bacterin’s past board compensation policy, it does
not reflect our current board compensation policy, which is discussed
below.
|
|
(3)
|
Ms.
Jarvis resigned from her position as a director and our Chief Executive
Officer, President and Chief Financial Officer, effective June 30,
2010.
|
The
aggregate amount of benefits in each of the years indicated did not exceed the
lesser of $50,000 or 10% of the compensation of any named officer.
We do not
currently have any employment agreements with our executive officers and do not
intend to enter into any such agreements in the near
term. We intend to keep the current employment agreements
between Bacterin, our wholly-owned subsidiary through which we now conduct our
business, and Guy Cook, Mitchell Godfrey, John P. Gandolfo, Jesus Hernandez and
Darrel Holmes. The employment agreements are set forth in Item 9.01
of this report. The employment agreements require each of the executives
to perform such duties as are customarily performed by one holding their
positions, which are President and Chief Executive Officer, Secretary and
Treasurer, Interim Chief Financial Officer, Executive Vice President - Biologics
Division and Executive Vice President - Medical Devices Division,
respectively. The employment agreements for each of the above
officers are for an indefinite term and provide that each of Messrs. Cook,
Godfrey, Gandolfo, Hernandez and Holmes receive a fixed annual base salary
during the term of the employment agreement. In addition, each
executive is entitled to (a) receive certain cash bonuses as set forth in their
respective employment agreements or as may be determined in the future by our
compensation committee of our board of directors (or the entire board until such
committee has been established) and (b) participate in our equity incentive
plan.
The
employment agreements are essentially terminable at will by reference to the
termination procedures set forth in Bacterin’s employee manual but also provide
for termination of an executive’s employment without any further obligation of
our company upon the disability of the executive for a period of 30 days or more
during any calendar year.
The
employment agreements also contain covenants (a) restricting the executive from
engaging in any activity competitive with our business during the term of the
employment agreement, (b) prohibiting the executive from disclosing confidential
information regarding our company, and (c) requiring that all intellectual
property developed by the executive and relating to our business constitutes our
sole and exclusive property. The officers also entered into lock-up
agreements restricting the sale of their shares of our common stock over an
initial period of time following the closing of the private
placement.
Bacterin
International Equity Incentive Plan
Prior to
the consummation of the Reverse Merger, we adopted and ratified the Bacterin
International Equity Incentive Plan. The following is a summary of
the material terms of that plan.
The
purpose of the incentive compensation plan is to enable us to attract, retain
and motivate key employees, directors and, on occasion, independent consultants,
by providing them with stock options and restricted stock
grants. Stock options granted under the incentive compensation plan
may be either incentive stock options to employees, as defined in Section 422A
of the Internal Revenue Code of 1986, or non-qualified stock
options. The plan is currently administered by our board of directors
but will be administered by our compensation committee once such committee has
been established. The administrator of the plan has the power to
determine the terms of any stock options granted under the incentive plan,
including the exercise price, the number of shares subject to the stock option
and conditions of exercise. Stock options granted under the incentive
plan are generally not transferable, vest in installments and are exercisable
during the lifetime of the optionee only by such optionee. The
exercise price of all incentive stock options granted under the incentive plan
must be at least equal to the fair market value of the shares of common stock on
the date of the grant. The specific terms of each stock option grant
will be reflected in a written stock option agreement.
39
Also, in
connection with the Reverse Merger, we are substituting each equity award
granted under the Bacterin International, Inc. 2004 Stock Incentive Plan, as
most recently amended effective April 1, 2009, with a substantially similar
equity award granted under our new plan; provided, that the number of shares
which may be purchased under such substitute options and the exercise prices
therefor reflect proportional adjustments required to be made to account for the
ratio used in determining the number of shares issuable to Bacterin stockholders
in connection with the Reverse Merger.
There are
6,000,000 shares of our common stock authorized to be issued under the plan,
representing approximately 17.4% of our outstanding common stock or 13.3% on a
fully-diluted basis. As of June 30, 2010, we had outstanding options
to purchase 4,213,196 shares granted to employees and executives (at exercise
prices ranging from $0.104 to $2.60 per share), leaving an additional 1,786,804
available for issuance thereunder. The outstanding options reflect
substitute options to be granted to former holders of Bacterin options issued
under its 2004 Stock Incentive Plan, as amended.
Except
for the Equity Incentive Plan discussed above, we have not had a stock option
plan or other similar incentive compensation plan for officers, directors and
employees, and no stock options, restricted stock or stock appreciation rights
grants were granted or were outstanding at any time prior to the Reverse
Merger.
Outstanding
Equity Awards at Fiscal Year-End (December 31, 2009)
|
Option
Awards
|
||||||||||||||||||||
|
Number
of Securities
Underlying
Unexercised
Options
|
Equity
Incentive
Plan
Awards:
Number
of Securities
Underlying
Unexercised
Unearned
|
Option
Exercise
|
Option
Expiration
|
|||||||||||||||||
|
Name
|
Exercisable
|
Unexercisable
|
Options
|
Price
|
Date
|
|||||||||||||||
|
Guy
Cook
|
-- | -- | -- | -- | -- | |||||||||||||||
|
Jesus
Hernandez(1)
|
480,000 | -- | -- | $ | 1.396 |
10/10/16
|
||||||||||||||
|
Jesus
Hernandez(1)
|
55,680 | -- | -- | $ | 1.667 |
5/19/15
|
||||||||||||||
|
Darrrel
Holmes(2)
|
43,200 | $ | 0.104 |
10/9/13
|
||||||||||||||||
|
Darrrel
Holmes(2)
|
28,800 | $ | 1.396 |
10/9/16
|
||||||||||||||||
|
Darrrel
Holmes(2)
|
17,556 | 54,444 | $ | 1.563 |
12/29/18
|
|||||||||||||||
_______________
|
(1)
|
In
connection with the Reverse Merger, Mr. Hernandez will receive substitute
options to purchase 535,680 shares of our common stock under the Bacterin
International Equity Incentive Plan in replacement of his current options
to purchase 1,000,000 shares of Bacterin’s common stock at $0.67 per share
and 116,000 shares at $0.80 per share under Bacterin’s 2004 Stock
Incentive Plan, as amended. The change in the number of option
shares and exercise price reflects proportional adjustments required to be
made to reflect the ratio used to determine the number of shares issuable
to Bacterin stockholders in connection with the Reverse
Merger.
|
|
(2)
|
In
connection with the Reverse Merger, Mr. Holmes will receive substitute
options to purchase an aggregate of 144,000 shares of our common stock
under the Bacterin International Equity Incentive Plan in replacement of
his current options to purchase 90,000 shares of Bacterin’s common stock
at $0.05 per share, 60,000 shares at $0.67 per share, and 150,000 shares
at $0.75 per share under Bacterin’s 2004 Stock Incentive Plan, as
amended. The change in the number of option shares and exercise
price reflects proportional adjustments required to be made to reflect the
ratio used to determine the number of shares issuable to Bacterin
stockholders in connection with the Reverse Merger. 11,244 of
the unvested options vest on December 29, 2010, 14,400 vest on
December 29, 2011, 14,400 vest on December 29, 2012, and 14,400 vest on
December 29, 2013.
|
40
Potential
Payments Upon Termination or Change-in-Control
SEC
regulations state that we must disclose information regarding agreements, plans
or arrangements that provide for payments or benefits to our named executive
officers in connection with any termination of employment or change in control
of the company. We currently have no employment agreements with any of our named
executive officers, nor any compensatory plans or arrangements that provide for
any payments or benefits upon the resignation, retirement or any other
termination of any of our named executive officers, as the result of a change in
control, or from a change in any named executive officer’s responsibilities
following a change in control.
Director
Compensation
|
Name
|
Fees
Earned
or
Paid in
Cash(1)
|
Stock
Awards(2)
|
Option
Awards
|
Non-Equity
Incentive
Plan
Compensation
|
Change
in Pension
Value
and Nonqualified
Deferred
Compensation
Earnings
|
All
Other
Compensation
|
Total
|
|||||||||||||||||||||
|
Mitch
Godfrey
|
$ | 10,000 | $ | 40,000 | -- | -- | -- | -- | $ | 50,000 | ||||||||||||||||||
|
Kent
Swanson
|
$ | 10,000 | $ | 40,000 | -- | -- | -- | -- | $ | 50,000 | ||||||||||||||||||
|
Steve
Warnecke(3)
|
$ | 10,000 | $ | 40,000 | -- | -- | -- | -- | $ | 50,000 | ||||||||||||||||||
_______________
|
(1)
|
Each
of Bacterin’s directors, regardless of management affiliation, earned
$10,000 for their service on Bacterin’s board of directors during 2009
although payment of such amount has been indefinitely
deferred.
|
|
(2)
|
Each
of Bacterin’s directors, regardless of management affiliation, received
50,000 shares of common stock as of December 31, 2009, for their service
on Bacterin’s board of directors during
2009.
|
|
(3)
|
Mr.
Warnecke resigned as a director effective May 22,
2010.
|
We are
currently re-evaluating our director compensation policies and intend to adopt
new ones shortly. We expect that such new policies will, among other
things, entitle each non-management director to receive participation fees for
attendance at regular and special meetings of our board of directors and stock
options granted under our Bacterin International Equity Incentive Plan, to
purchase shares of our common stock with an exercise price equal to the fair
market value of such stock on the date of grant. Our board of directors will
review director compensation annually and adjust it according to prevailing
market conditions and good business practices.
Compensation
Committee Interlocks and Insider Participation
No
interlocking relationship exists between our board of directors and the board of
directors or compensation committee of any other company, nor has any
interlocking relationship existed in the past.
Certain
Relationships and Transactions
Guy Cook,
our President and Chief Executive Officer, serves as a board member of West
Coast Tissue Services and American Donor Services. Both of these
entities recover tissue from donors. We reimburse them for their
recovery fees, which are comprised primarily of labor costs. The
aggregate amount of all payments we and our subsidiaries made to these entities
since January 1, 2008 is $575,297.27 to West Coast Tissue Services, and
$1,654,352.00 to American Donor Services. This relationship benefits
us, and thus Mr. Cook, as these entities provide us with donors, thus insuring
that we have a pipeline of current and future donors, which is necessary to our
success. Mr. Cook’s wife performs the bookkeeping and accounting for
American Donor Services. She was paid $60,126 in 2009 for her
services, but received no compensation in 2006-2008 or 2010 for her
services.
Concurrently
with the closing of the Reverse Merger and the private placement, we repurchased
and cancelled, 4,319,404 shares of our common stock from Jennifer Jarvis, our
former director, chief executive officer and chief financial officer, for
aggregate consideration of $100 and certain other good and valuable
consideration.
Although
we have not adopted a Code of Ethics at this time, we rely on our board to
review related party transactions on an ongoing basis to prevent conflicts of
interest. Our board reviews a transaction in light of the affiliations of the
director, officer or employee and the affiliations of such person’s immediate
family. Transactions are presented to our board for approval before they are
entered into or, if this is not possible, for ratification after the transaction
has occurred. If our board finds that a conflict of interest exists, then it
will determine the appropriate remedial action, if any. Our board approves or
ratifies a transaction if it determines that the transaction is consistent with
the best interests of our company. These policies and procedures are
not evidenced in writing.
41
Director
Independence
During
the year ended December 31, 2009, we did not have any independent directors on
our board. We evaluate independence by the standards for director
independence established by applicable laws, rules, and listing standards
including, without limitation, the standards for independent directors
established by the NASDAQ stock market.
Subject
to some exceptions, these standards generally provide that a director will not
be independent if:
|
|
·
|
the
director is, or in the past three years has been, an employee of
ours;
|
|
|
·
|
a
member of the director's immediate family is, or in the past three years
has been, an executive officer of
ours;
|
|
|
·
|
the
director or a member of the director's immediate family has received more
than $120,000 per year in direct compensation from us other than for
service as a director (or for a family member, as a non-executive
employee);
|
|
|
·
|
the
director or a member of the director's immediate family is, or in the past
three years has been, employed in a professional capacity by our
independent public accountants, or has worked for such firm in any
capacity on our audit;
|
|
|
·
|
the
director or a member of the director's immediate family is, or in the past
three years has been, employed as an executive officer of a company where
one of our executive officers serves on the compensation committee;
or
|
|
|
·
|
the
director or a member of the director's immediate family is an executive
officer of a company that makes payments to, or receives payments from, us
in an amount which, in any twelve-month period during the past three
years, exceeds the greater of $1,000,000 or two percent of that other
company's consolidated gross
revenues.
|
Description
of Securities
Common
Stock
The
holders of our common stock are entitled to one vote per share. Our
certificate of incorporation does not provide for cumulative
voting. The holders of our common stock are entitled to receive
ratably such dividends, if any, as may be declared by our board of directors out
of legally available funds. However, the current policy of our board of
directors is to retain earnings, if any, for our operation and
expansion. Upon our liquidation, dissolution or winding-up, the
holders of our common stock are entitled to share ratably in all of our assets
which are legally available for distribution, after payment of or provision for
all liabilities and the preferences of any then outstanding shares of preferred
stock. The holders of our common stock have no preemptive,
subscription, redemption or conversion rights. All issued and
outstanding shares of our common stock are, and the common stock reserved for
issuance upon exercise of the warrants will be, when issued, fully-paid and
non-assessable.
Preferred
Stock
Our
certificate of incorporation authorizes the issuance of up to 5,000,000 shares
of “blank check” preferred stock with designations, rights and preferences as
may be determined from time to time by our board of directors. We
have not designated or issued any shares of our preferred stock to
date.
Warrants
We issued
warrants to purchase approximately 1,485,259 shares of our common stock in the
initial closing of the private placement, including warrants to purchase 251,625
shares of our common stock that was issued to the placement
agents. Each warrant acquired in the private placement entitles the
holder thereof to purchase shares of our common stock at an exercise price of
$2.50 per share from the date of issuance until the fifth anniversary thereof;
provided, that note holders who converted debt in the private placement,
received warrants with an exercise price of $2.25 per share and the placement
agents received warrants with an exercise price of $1.60 per share.
42
In
addition, subject to adjustment for the ratio used to determine the number of
shares issuable to Bacterin stockholders in connection with the Reverse Merger,
we have assumed Bacterin’s obligations under its outstanding warrants
immediately prior to the Reverse Merger and are in the process of issuing
substitute warrants. As a result of such assumption and issuance of
substitute warrants, we also have warrants outstanding to purchase approximately
4,879,075 shares of our common stock. The exercise prices of these
warrants range from $2.08 to $2.60 and commence expiring in March 2014 through
December 2019.
Adjustments. All
of our outstanding warrants contain provisions that protect the holders thereof
against dilution by adjustment of the number of shares for which the warrants
are exercisable as well as the exercise price to purchase such shares in certain
events, such as stock dividends, stock splits, mergers and other similar
events.
In
addition, the warrants that were issued in connection with our recent bridge
financings provide that, in the event that we issue any shares of our common
stock (or securities convertible into or exercisable or exchangeable for shares
of common stock) for an effective price of less than $1.60 per share of common
stock, except (i) securities which are issued pursuant to the bridge financings,
(ii) shares of our common stock or options to purchase such shares issued to
employees, consultants, officers or directors in accordance with stock plans
approved by the board of directors, and shares of common stock issuable under
options or warrants that are outstanding as of the date of the closing of the
bridge financings or issued in the future pursuant to the our equity incentive
plan up to a total of 6,000,000 shares, and (iii) shares of our common stock
issued pursuant to a stock dividend, split or other similar transaction, the
exercise price of each warrant shall be adjusted downward on a “full-ratchet”
basis, i.e., to the lowest price per share at which our stock was issued or
deemed issued, regardless of how many shares were issued at such
price. The holder of a Warrant will not possess any rights as a
stockholder of our company unless and until he exercises the
Warrant.
Cashless
Exercise. The warrants issued in connection with our recent
bridge financings and the private placement contain “cashless” exercise
provisions. In a “cashless” exercise, a warrant is exchanged for a
lesser number of shares because a portion of the shares is used to pay the
exercise price.
Stockholder
Rights. The warrants do not confer upon holders any voting or
any other rights as a stockholder of our company.
The
foregoing discussion of our warrants, to the extent it relates to the warrants
issued in the private placement, is qualified entirely by reference to the
composite form of the warrant used in such private placement and included as an
exhibit to this current report.
We have
agreed to use our best efforts to file a shelf registration statement on Form
S-1 with the SEC covering the resale of all shares of common stock and all
shares of common stock underlying the warrants issued in connection with the
private placement (as well as up to 1,177,196 shares of our common stock held by
certain of our stockholders at the time of the closing of the Reverse Merger and
the shares underlying the placement agents’ warrants) on or before the date
which is 90 days after the closing date and use our best efforts to have such
shelf registration statement declared effective by the SEC as soon as
practicable thereafter, but in any event not later than 150 days after the
closing date (or 180 days after the closing date in the event of a full review
of the registration statement by the SEC). We are also obligated to
respond to any SEC comments within a stipulated period of time after receiving
any such comments and to maintain the effectiveness of the shelf registration
statement from the effective date through the earlier of (a) the date on which
all the investors in the private placement have completed the sales or
distribution described in the registration statement relating thereto or, if
earlier until all securities covered by the registration rights agreement may be
sold by the investors in the private placement under Rule 144(b)(1) and (b) the
date that is eighteen (18) months anniversary of the sale of the
securities. In the event the shelf registration statement is not
filed with, or declared effective by, the SEC on or prior to the dates set forth
above, or we fail to timely satisfy our reporting requirements, each investor in
the private placement will receive cash liquidated damages equal to 1% of the
purchase price for the shares of common stock and warrants acquired in the
private placement for each month (or portion thereof) that the registration
statement is not so filed or effective, or has failed to timely file required
reports, provided that the aggregate payment as a result of the registration
default will in no event exceed 12% of the purchase price for the shares of
common stock and warrants. We will bear the expenses in connection
with the registration of these shares (exclusive of any underwriting discounts
and commissions, if any).
43
If, at
any time or from time to time after the date of the effectiveness of the
registration statement, we determine good faith, following consultation with
legal counsel, that (i) it would be detrimental to us and our stockholders for
resales of the registered securities to be made pursuant to a registration
statement due to the existence of a material development or potential material
development involving us that we would be obligated to disclose in a
registration statement, which disclosure would be premature or otherwise
inadvisable at such time or would have a material adverse effect upon us and our
stockholders, or (ii) such material development or potential material
development involving us would adversely affect or require premature disclosure
of the filing of a registration by us of any class of our equity securities,
then we have the right to suspend offers and sales of the registered securities
pursuant to a registration statement for a period of not more than 30 calendar
days in any 12 month period, but only if we reasonably conclude, after
consultation with outside legal counsel, that the failure to suspend the use of
the registration statement would create a material liability or violation under
applicable securities laws or regulations.
Lock-Up
Agreements
All
shares of common stock issued in the Reverse Merger to the former holders of
shares in Bacterin will be considered “restricted securities” under U.S. federal
securities laws and may not be resold pursuant to Rule 144 for a period of one
year after the filing of this report. Each of the former Bacterin
stockholders who served as directors or executive officers of Bacterin as of the
closing of the Reverse Merger or who have joined as members of our Board of
Directors concurrently with the consummation of the Reverse Merger
(collectively, “Management”), have executed one-year a lock-up agreement with us
which provide that their shares, including any shares that are now owned or are
subsequently acquired by them, will not be, directly or indirectly, publicly
sold, subject to a contract for sale or otherwise transferred for a period of 12
months following the Reverse Merger and the private placement; provided,
however, that (a) the restrictions set forth in such lock-up agreement will not
apply to any securities acquired by Management in the private placement and (b)
Guy Cook is permitted to hypothecate, pledge and grant a security interest in up
to 5,000,000 of his existing shares received from us in connection with the
Reverse Merger as collateral for borrowed funds used to acquire securities in
the private placement and, if such collateral is executed against, shall be
permitted to assign and transfer such shares to the secured party free of any
restrictions set forth therein.
Other
Rights To Acquire Our Common Stock
We are
contractually obligated to issue shares of our common stock to one of our
stockholders as follows:
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|
·
|
if,
after seven months from the closing of the Reverse Merger and the private
placement, our common stock is publicly trading at an average daily
closing price of $1.60 per share for the 30 days immediately preceding the
last day of such seven month period, we must issue to such stockholder
375,000 shares of our common stock;
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|
|
·
|
if,
after 13 months from the closing of the Reverse Merger and the private
placement, our common stock is publicly trading at an average daily
closing price of $1.60 per share for the 30 days immediately preceding the
last day of such thirteen month period, we must issue to such stockholder
375,000 additional shares of our common stock;
and
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|
|
·
|
if,
after 13 months from the closing of the Reverse Merger and the private
placement, our common stock is publicly trading at an average daily
closing price of $2.40 per share for the 30 days immediately preceding the
last day of such thirteen month period, we must issue to such stockholder
375,000 additional shares of our common stock (which shares, for the sake
of clarification, shall be in addition to the shares to be issued pursuant
to the second bullet point above).
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44
Market
Price and Dividends on Common Equity and Related Stockholder
Matters
Trading
Information
Our
common stock will trade in the over-the-counter market and will be quoted on the
OTC Bulletin Board under the trading symbol KKTZ.OB until such time as we have
received a new symbol. The trading market for our common stock has been
extremely limited and sporadic.
We intend
to apply to list our common stock for trading on the Nasdaq Capital Market as
soon as reasonably practicable. No assurance can be given that we
will satisfy the initial listing requirements, or that our shares of common
stock will ever be listed on Nasdaq or another national securities
exchange.
The
warrants will not be registered or listed for trading.
Our
current transfer agent and registrar for our common stock is Globex Transfer,
LLC, Deltona, Florida. We will serve as warrant agent for the
Warrants.
Holders
of Record
As of
June 30, 2010, there were approximately 324 holders of record of our common
stock.
Dividends
We have
not paid any dividends on our common stock and we do not intend to pay any
dividends on our common stock in the foreseeable future.
Indemnification
of Directors and Officers
Our
certificate of incorporation provides that no director of the company will be
personally liable to the company or our stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director’s duty of loyalty to the company or our stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for the improper declaration of dividends or
redemption of shares of capital stock in violation of Delaware law, or (iv) for
any transaction from which the director derived an improper personal
benefit.
We have
been advised that it is the position of the SEC that insofar as the foregoing
provisions may be invoked to disclaim liability for damages arising under the
Securities Act of 1933, as amended, that such provisions are against public
policy as expressed in the Securities Act and are therefore
unenforceable.
Reverse
Merger. On
June 30, 2010, at the closing of the Reverse Merger, we issued an aggregate of
28,257,287 shares of our common stock to the former stockholders of Bacterin.
The shares of our common stock issued to former holders of Bacterin’s common
stock in connection with the exchange transaction were exempt from registration
under Section 4(2) of the Securities Act of 1933 as a sale by an issuer not
involving a public offering and under Regulation D promulgated pursuant to the
Securities Act of 1933. These shares of common stock were not registered under
the Securities Act, or the securities laws of any state, and were offered and
sold in reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws, which exempts transactions by an issuer not involving any
public offering. Such securities may not be offered or sold in the
United States absent registration or an applicable exemption from the
registration requirements and certificates evidencing such shares contain or,
upon issuance will contain, a legend stating the same.
Private
Placement. Concurrently with the closing of the Reverse Merger, we
completed the initial closing of a private placement to certain institutional
investors and accredited individuals of shares of our common stock and warrants
to purchase additional shares of our common stock. We sold each share
and warrant for an aggregate price of $1.60 per share pursuant to the terms of a
subscription agreement executed and delivered by each investor on or before the
closing of the private placement. Each warrant entitles the holder to
purchase one-quarter share of our common stock at an exercise price of $2.50 per
share for a period of five years from the date of the closing on their
subscription. The form of private placement subscription agreement is
filed as Exhibit 10.1 to this report. Certain Bacterin note holders
also participated in the private placement by converting certain debt into
shares of our common stock and warrants; however, the conversion of their debt
was effected at a 10% discount to the price per share at which investors
purchased securities in such private placement, being $1.44 per share, and the
exercise price of the warrants they received also carried a 10% discount to the
exercise price of the warrants received by new investors in such private
placement, being $2.25 per share. In total, we sold 4,934,534 shares
of our common stock and warrants to purchase an aggregate of up to 1,233,634
shares of common stock, including the conversion of debt in the private
placement by note holders and excluding warrants issued to the placement agent.
We received gross proceeds of $7,508,329, including from the conversion of debt,
in consideration for the sale of the shares and warrants.
45
The
shares of common stock and warrants issued in the private placement were exempt
from registration under Section 4(2) of the Securities Act of 1933 as a sale by
an issuer not involving a public offering and under Regulation D promulgated
pursuant to the Securities Act of 1933, as amended. The shares of common stock
and warrants were not registered under the Securities Act, or the securities
laws of any state, and were offered and sold in reliance on the exemption from
registration afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws, which
exempts transactions by an issuer not involving any public offering. Such
securities may not be offered or sold in the United States absent registration
or an applicable exemption from the registration requirements and certificates
evidencing such securities contain a legend stating the same.
Transaction Fees
and Use of Proceeds. We have assumed Bacterin’s agreement to
pay the lead placement agent, Middlebury Securities, LLC, and any sub-placement
agents, in total, (i) a cash fee equal to 8% of the aggregate gross cash
proceeds received in the private placement, (ii) warrants to purchase that
number of shares of our common stock equal to 10% of the shares of common stock
purchased in the private placement, at an exercise price of $1.60 per share, and
(iii) shares of our common stock equal to 2% of the shares of common stock
purchased in the private placement for cash and acquired through the conversion
of $1,250,000 in convertible debt. Except as set forth above, no
commission was paid to the placement agents for sales of shares of our common
stock or warrants upon the conversion of the debt held by note holders from
Bacterin’s bridge financings. Additionally, we paid auditing fees of
approximately $86,000, and legal fees for us, Bacterin and the investors in the
Reverse Merger and private placement of approximately $340,000.
The net
proceeds will be used to pay certain of our debts and provide additional working
capital for us. Specifically, the net proceeds of the private
placement will be used by us to support sales and marketing, purchase
bio-materials and other product components, fund research and development,
reduce existing trade payables and other liabilities, repay notes payable, pay
the costs associated with the Reverse Merger and the private placement
(including the future costs of registering the Company’s common shares under the
Securities Act and on-going public company costs) and for working capital and
general corporate purposes.
The
amount of our actual expenditures will depend upon numerous factors, including
the pace with which we can commercially deploy our products. Actual
expenditures may vary substantially and we may find it necessary or advisable to
reallocate the net proceeds for other purposes. Pending application
of the net proceeds as described above, we intend to invest the net proceeds of
from the private placement in short-term, interest-bearing
securities.
Item
5.01. Changes in Control of Registrant.
The
information set forth above in Items 1.01 and 2.01 of this report is
incorporated herein by reference in its entirety.
The
information set forth above in Items 1.01 and 2.01 of this report is
incorporated herein by reference in its entirety.
46
Item
5.03. Amendments to Articles of Incorporation or Bylaws; Change in
Fiscal Year.
The information set forth above in
Items 1.01 and 2.01 of this report is incorporated herein by reference in its
entirety.
(a) Financial
Statements of Businesses Acquired.
The
financial statements of Bacterin for the 12 months ended December 31, 2009 and
2008 and for the three months ended March 31, 2010 and 2009 (unaudited) are
incorporated herein by reference to Exhibits 99.1 and 99.2, respectively, to
this current report.
(b) Pro
Forma Financial Information.
Our
unaudited pro forma condensed combined financial statements as of and for the
three months ended March 31, 2010 and the 12 months ended December 31, 2009 are
incorporated herein by reference to Exhibit 99.3 to this report, and are based
on the historical financial statements of our company and Bacterin after giving
effect to the Reverse Merger. The unaudited pro forma combined condensed balance
sheet as of March 31, 2010 is presented to give effect to the Reverse Merger as
if it occurred on April 1, 2010. The unaudited pro forma combined condensed
statement of operations of our company and Bacterin for the three months ended
March 31, 2010 and the 12 months ended December 31, 2009 are presented as if the
combination had taken place on April 1, 2010.
Reclassifications
have been made to the company’s historical financial statements to conform to
Bacterin’s historical financial statement presentation.
The
unaudited pro forma combined condensed financial statements should be read in
conjunction with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” set forth under Item 2.01 of this current report,
which disclosure is incorporated herein by reference, and the historical
consolidated financial statements and accompanying notes of our company and
Bacterin. The unaudited pro forma combined condensed financial statements are
not intended to represent or be indicative of our consolidated results of
operations or financial condition that would have been reported had the Reverse
Merger been completed as of the dates presented, and should not be taken as
representative of the future consolidated results of operations or financial
condition of our company.
(d) Exhibits.
The
exhibits listed in the following Exhibit Index are filed as part of this current
report.
|
Description
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||
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2.1*
|
Agreement
and Plan of Merger, dated as of June 30, 2010, by and among K-Kitz, Inc.,
KB Merger Sub, Inc. and Bacterin International, Inc.
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3.1*
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Certificate
of Incorporation, including all amendments to date
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3.2(a)
|
Amendment
No. 1 to Bylaws, dated May 24, 2010
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3.2(b)**
|
Bylaws,
including all amendments to date except the amendment set forth at Exhibit
3.2(a) hereto
|
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4.1*
|
Form
of Warrant to Purchase Common Stock.
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10.1*
|
Form
of Private Placement Subscription Agreement to purchase Shares and
Warrants.
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47
|
10.2
|
Form
of Registration Rights Agreement
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10.3
|
Form
of Management Lock-Up Agreement for the officers and directors of Bacterin
International Holdings, Inc. and Bacterin International,
Inc.
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|
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10.4
|
Form
of Indemnification Agreement for the officers and directors of Bacterin
International Holdings, Inc. and Bacterin International,
Inc.
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10.5
|
Bacterin
International Equity Incentive Plan.
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10.6
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Guy
Cook Employment Agreement
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10.7
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Mitchell
Godfrey Employment Agreement
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|
| 10.8 |
John
Gandolfo Employment Agreement
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10.9
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Jesus
Hernandez Employment Agreement
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10.10
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Darrel
Holmes Employment Agreement
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21.1
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Subsidiaries
of Bacterin, Inc.
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99.1
|
Financial
statements of Bacterin International, Inc. as of and for the 12 months
ended December 31, 2009 and 2008.
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99.2
|
Financial
statements of Bacterin International, Inc. as of and for the three months
ended March 31, 2010 and 2009 (unaudited).
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99.3
|
Unaudited
pro forma condensed combined financial statements of K-Kitz, Inc. and
Bacterin International, Inc. as of and for the three months ended March
31, 2010 and the 12 months ended December 31,
2009.
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________________
* Incorporated
herein by reference to the exhibits included with Form 8-K dated June 30, 2010,
filed with the SEC on June 30, 2010.
** Incorporated
herein by reference to the exhibits included with Registration Statement on Form
S-1 (No. 333-158426), declared effective by the U.S. Securities and Exchange
Commission on September 29, 2009.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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Date:
July 7, 2010
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BACTERIN
INTERNATIONAL HOLDINGS, INC.
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|
By:
|
/s/
Guy S. Cook
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|
Guy
S. Cook
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||
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President
and Chief Executive
Officer
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||
48
EXHIBIT
3.2(a)
AMENDMENT
NO. 1
TO
THE
BYLAWS
OF
K-KITZ,
INC.
The Bylaws of K-Kitz, Inc., a Delaware
corporation (the “Corporation”), are amended by deleting and restating Article
II, Section 1 to read in its entirety as follows:
“Section 1. Number
and qualifications. The
entire Board of Directors shall consist of anywhere from one (1) to nine (9)
natural persons, and the exact number thereof shall be determined from time to
time by resolution of the Board of Directors. Each member of the
Board of Directors shall be of the age and capacity to make binding contractual
agreements under Delaware law. The directors need not be shareholders
of the Corporation or residents of the State of Delaware.”
The foregoing amendment to the
Corporation’s Bylaws was duly adopted pursuant to written consent resolutions of
all of the members of the Board of Directors and the holder of a majority of the
outstanding shares of common stock of the Corporation dated May 24,
2010.
* * *
*
EXHIBIT
10.2
REGISTRATION
RIGHTS AGREEMENT
This
Registration Rights Agreement (“Agreement”) is
entered into as of June ___, 2010, by and among Bacterin International Holdings,
Inc., f/k/a K-Kitz, Inc. (the “Company”) and the
Holders (as defined below).
WITNESSETH:
WHEREAS, the Company has
entered into an agreement and plan of merger (the “Merger Agreement”)
pursuant to which Bacterin International Inc., a Nevada corporation (“Bacterin”), will
become a wholly-owned subsidiary of the Company (the “Reverse Merger”) and,
contingent upon the closing of the Reverse Merger, the Investors have agreed to
acquire from the Company (the “Offering”), either
for cash or upon conversion of certain existing promissory notes (“Bridge Notes”) of
Bacterin, (i) shares of Company common stock (the “Common Stock”) and
(ii) warrants (“Warrants”) to
purchase additional shares of the Common Stock, subject to the terms and
conditions set forth in that certain Subscription Agreement dated on or about
June __, 2010 between Bacterin and each of the Investors (the “Subscription
Agreement”); and
WHEREAS, it is a condition
precedent to the consummation of the transactions contemplated by the
Subscription Agreement that the Company execute this Agreement; and
WHEREAS, certain terms used in
this Agreement are defined in Section 3 hereof.
NOW, THEREFORE, in
consideration of the mutual promises, representations, warranties, covenants and
conditions set forth in the Subscription Agreement, the Appendices thereto and
the other documents to be entered into and/or delivered in connection therewith
(the “Transaction
Documents”), the Company and each Holder agree as follows:
1. Certain
Definitions. Capitalized terms used herein and not otherwise
defined shall have the meaning ascribed thereto in the Subscription
Agreement. As used in this Agreement, the following terms shall have
the following respective meanings:
“Closing” and “Closing Date” shall have the
meanings ascribed to such terms in the Subscription Agreement.
“Commission” or “SEC” shall mean the Securities
and Exchange Commission or any other federal agency at the time administering
the Securities Act.
“Demand Registrable Securities”
shall mean (i) the Registrable Securities, (ii) securities issued or issuable in
respect of the foregoing upon any stock split, stock dividend, recapitalization
or similar event; and (iii) any other security issued as a dividend or other
distribution with respect to, in exchange for or in replacement of the
securities referred to in the preceding clauses; provided that all such shares
shall cease to be Demand Registrable Securities at such time as they have been
sold under a Registration Statement or pursuant to Rule 144 under the Securities
Act or otherwise or at such time as they are eligible to be sold pursuant to
Rule 144(b)(1).
“Harborview Shareholders” shall
mean The Corbran LLC, Harborview Master Fund, L.P., Harborview Value Master
Fund, L.P. and Chex Associates LLC and any permitted transferee
or transferees of a Harborview Shareholder’s Registrable
Securities.
“Harborview Shares” shall mean
the 1,177,196 shares of common stock of the Company owned in
the aggregate by the Harborview Shareholders (which shall be in addition to any
other Registrable Securities that may be registered by any of the Harborview
Shareholders pursuant to clauses (i), (ii) and (iv) of the definition of
Registrable Securities).
“Holder” and “Holders” shall be used to
refer to the Harborview Shareholders, Investors and Placement Agent
collectively.
“Investor” and “Investors” shall include each
Investor, the Placement Agent and any permitted transferee or transferees of an
Investor’s Registrable Securities.
“Permitted Free Writing
Prospectus” means a free writing prospectus authorized for use by the
Company in connection with any offering of Registrable Securities that has been
filed with the SEC in accordance with Rule 433 under the Act .
“Placement Agent” means
Middlebury Securities, LLC and any authorized sub placement agents.
The terms
“register,” “registered” and “registration” shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
“Registrable Securities” shall
mean: (i) the Common Stock or other securities issued or issuable to
each Investor and to the Placement Agent or any of their respective permitted
transferees or designees (a) in connection with the Offering (including upon
conversion or tender of any Bridge Notes), (b) in connection with Investor’s
exercise of Warrants received in connection with the Offering, (c) in connection
with the exercise of warrants received by the Placement Agent pursuant to the
placement agent agreement, as amended, between Bacterin and the Placement Agent
(the “Placement Agent
Agreement”), (d) upon any distribution with respect to, any exchange for
or any replacement of, any shares of Common Stock, or (e) upon any
conversion, exercise or exchange of any securities issued in connection with any
such distribution, exchange or replacement; (ii) securities issued or issuable
in respect of the foregoing upon any stock split, stock dividend,
recapitalization or similar event; (iii) the Harborview Shares; and
(iv) any other security issued as a dividend or other distribution with respect
to, in exchange for or in replacement of the securities referred to in the
preceding clauses; provided that all such shares shall cease to be Registrable
Securities at such time as they have been sold under a Registration Statement or
pursuant to Rule 144 under the Securities Act or otherwise or at such time as
they are eligible to be sold pursuant to Rule 144(b)(1).
“Registration Expenses” shall
mean all expenses to be incurred in connection with each Holder’s registration
rights under this Agreement not included in Selling Expenses, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company and one counsel for the Holders, blue
sky fees and expenses, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company, which shall be paid in any event by the
Company).
“Registration Statement” shall
have the meaning set forth in Section 2(a) herein.
“Regulation D” shall mean
Regulation D as promulgated pursuant to the Securities Act, and as subsequently
amended.
“Securities Act” or “Act” shall mean the Securities
Act of 1933, as amended.
“Selling Expenses” shall mean
all underwriting discounts and selling commissions applicable to the sale of
Registrable Securities or Demand Registrable Securities, as the case may
be.
“Special Counsel” means the
single attorney selected by Holders holding a majority in interest of the Common
Stock (which attorney shall be reasonably acceptable to the Company) to
represent the Holders’ interests in connection with the registrations
contemplated by this Agreement.
“Time of Sale Information”
means any preliminary prospectus together with each Permitted Free Writing
Prospectus, if any, used in connection with any offering of Registrable
Securities.
2. Registration
Requirements. The Company shall use its best efforts to effect
the registration of the Registrable Securities (including, without limitation,
the execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act) as would permit or facilitate the sale or distribution of all the
Registrable Securities in the manner (including manner of sale) and in all
states reasonably requested by the Holders. Such best efforts by the
Company shall include, without limitation, the following:
(a) The
Company shall, as expeditiously as possible after the Closing
Date:
(i)
But in any event no later than ninety (90) days after the Closing Date
(the “Required Filing
Date”), prepare and file a registration statement with the Commission
pursuant to Rule 415 under the Securities Act (“Rule 415”) on Form
S-1 or Form S-3 under the Securities Act (or in the event that the Company is
ineligible to use such form, such other form as the Company is eligible to use
under the Securities Act provided that any other form shall be converted into a
Form S-3 as soon as Form S-3 becomes available to the Company) covering resales
by the Holders as selling stockholders (not underwriters) of the Registrable
Securities (a “Registration
Statement”) and such additional securities as are permitted under Rule
416 under the Securities Act. The number of shares of Common Stock initially
included in such Registration Statement shall be no less than 100% of the
maximum number of Registrable Securities. If at any time
the Commission takes the position that the offering of some or all of the
Registrable Securities in a registration statement is not eligible to be made on
a delayed or continuous basis under the provisions of Rule 415 under the
Securities Act or requires any Holder to be named as an “underwriter,” the
Company shall use its best efforts to persuade the Commission that the offering
contemplated by the registration statement is a valid secondary offering and not
an offering “by or on behalf of the issuer” as defined in Rule 415 and that none
of the Holders is an “underwriter.” The Holders shall have the right
to participate or have their Special Counsel participate in any meetings or
discussions with the Commission regarding the Commission’s position and to
comment or have their Special Counsel comment on any written submission made to
the Commission with respect thereto. No such written submission shall
be made to the Commission to which the Special Counsel reasonably
objects. In the event that, despite the Company’s best efforts and
compliance with the terms of this Section 2(a)(i), the Commission refuses to
alter its position, the Company shall (i) remove from the registration statement
such portion of the Registrable Securities (the “Cut Back Shares”)
and/or (ii) agree to such restrictions and limitations on the registration and
resale of the Registrable Securities as the Commission may require to assure the
Company’s compliance with the requirements of Rule 415 (collectively, the “Commission
Restrictions”); provided, however, that the Company shall not agree to
name any Holder as an “underwriter” in such registration statement without the
prior written consent of such Holder. Thereafter, the Company shall
use its best efforts to cause such Registration Statement and other filings to
be declared effective, as soon as possible, and in any event no later than the
150th day following the Closing Date (or not later than the 180th day following
the Closing Date if the SEC reviews such Registration Statement) (the “Required Effective
Date”). In the event that less than all of the Registrable
Securities are included in a Registration Statement as a result of the
limitations described in this paragraph, then the Company will (i) reduce on a
proportionate basis the number of Registrable Securities of each Holder included
in such Registration Statement and (ii) file additional Registration Statements,
each registering the maximum number of Cut Back Shares permitted as a result of
Commission Restrictions, seriatim, until all
of the Registrable Securities have been registered. The Required Filing Date and
the Required Effective Date of each such additional Registration Statement shall
be thirty (30) days and ninety (90) days, respectively, after the first day such
Registration Statement may be filed without objection by the SEC based on Rule
415. Without limiting the foregoing, the Company will promptly
respond to all SEC comments, inquiries and requests, and shall request
acceleration of effectiveness at the earliest possible date.
(ii) Prepare
and file with the SEC such amendments and supplements to such Registration
Statement and the prospectus used in connection with such Registration Statement
as may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement and notify the Holders of the filing and effectiveness of such
Registration Statement and any amendments or supplements.
(iii) Furnish
to each Holder that has Registrable Securities included in a Registration
Statement such numbers of copies of a current prospectus conforming with the
requirements of the Securities Act, copies of such Registration Statement, any
amendment or supplement thereto and any documents incorporated by reference
therein and such other documents as such Holder may reasonably require in order
to facilitate the disposition of Registrable Securities owned by such
Holder.
(iv) Register
and qualify the securities covered by such Registration Statement under the
securities or “Blue Sky” laws of all U.S. domestic jurisdictions; provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service
of process in any such states or jurisdictions.
(v) Notify
promptly each Holder that has Registrable Securities included in a Registration
Statement of the happening of any event (but not the substance or details of any
such event) of which the Company has knowledge as a result of which the
prospectus (including any supplements thereto or thereof) included in such
Registration Statement, as then in effect, includes an untrue statement of
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing (each an “Event”), and use its
best efforts to promptly update and/or correct such prospectus. Each Holder will
hold in confidence and will not make any disclosure of any such Event and any
related information disclosed by the Company.
(vi) Notify
each Holder of the issuance by the Commission or any state securities commission
or agency of any stop order suspending the effectiveness of any Registration
Statement or the threat or initiation of any proceedings for that
purpose. The Company shall use its best efforts to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible time.
(vii) List
the Registrable Securities covered by such Registration Statement with all
securities exchange(s) and/or markets on which the Common Stock is then listed
and prepare and file any required filings with any exchange or market where the
Common Shares are traded.
(viii) Take
all steps reasonably necessary to enable Holders to avail themselves of the
prospectus delivery mechanism set forth in Rule 153 (or successor thereto) under
the Act.
(b) Notwithstanding
the obligations under Section 2(a)(v) or any other provision of this Agreement,
if (i) in the good faith judgment of the Company, following consultation with
legal counsel, it would be detrimental to the Company and its stockholders for
resales of Registrable Securities to be made pursuant to a Registration
Statement due to the existence of a material development or potential material
development involving the Company that the Company would be obligated to
disclose in the Registration Statement, which disclosure would be premature or
otherwise inadvisable at such time or would have a material adverse effect upon
the Company and its stockholders, or (ii) in the good faith judgment of the
Company, it would adversely affect or require premature disclosure of the filing
of a Company-initiated registration of any class of its equity securities, then
the Company will have the right to suspend the use of the Registration Statement
for one period of not more than 30 calendar days in any 12 month period, but
only if the Company reasonably concludes, after consultation with outside legal
counsel, that the failure to suspend the use of the Registration Statement as
such would create a material liability or violation under applicable securities
laws or regulations.
(c) Set
forth below in this Section 2(c) are (I) events that may arise that the Holders
consider will interfere with the full enjoyment of their rights under this
Agreement, the Subscription Agreement and the other Transaction Documents (the
“Interfering
Events”), and (II) certain remedies applicable in each of these
events.
(i) Payments by the
Company. If (i) at any time after effectiveness of a
Registration Statement, sales thereunder during the registration period (as
described in Section 6) cannot be made for any reason, other than by reason of
the operation of Section 2(b), for a period of more than 30 consecutive business
days, (ii) at any time after effectiveness of the Registration Statement, sales
thereunder during the registration period cannot be made for a period of time
that exceeds the limitations set forth in Section 2(b), or (iii) at any
time after the Registrable Securities are listed in accordance with Section
2(a)(vii), for a period of more than 30 consecutive calendar days the Common
Stock is not listed or included for quotation on the OTC Bulletin Board or, if
the Common Stock is then listed or traded on a U.S. national securities
exchange, such securities exchange where the Common Stock is then traded, then
the Company will make a payment as liquidated damages to each Holder as set
forth below. The amount of the payment made to each Holder will be equal to 1%
of the Purchase Price (defined below) paid for (i) the shares of Common Stock
then held by the Holder and (ii) shares of Common Stock obtained upon exercise
of the Warrants, for each 30 calendar days that sales cannot be made under
an effective Registration Statement or the Shares are not listed or included for
quotation on the OTC Bulletin Board or other exchange or market where the Common
Stock is then traded (but any day on which both conditions exist shall count as
a single day and no day taken into account for purposes of determining whether
any payment is due under Section 2 (c)(ii) shall be taken into account for
purposes of determining whether any payment is due under this Section 2(c)(i) or
the amount of such payment). The number of shares of Common Stock held for
purposes of clause (ii) of the preceding sentence shall be determined as of the
end of the respective 30-day period. In no event shall payments
pursuant to this Section exceed 12% in the aggregate of the Purchase Price
paid for the shares of Common Stock purchased in the Offering for the entire
registration period (as described in Section 6). For purposes
of this Section, the Purchase Price of shares of Common Stock acquired upon
conversion or tender of Bridge Notes shall be the principal amount plus accrued
and unpaid interest deemed to have been tendered or converted. These
payments will be prorated on a daily basis during the 30-day period and will be
paid to each Holder within ten business days following the end of each 30-day
period as to which payment is due hereunder. The Holders may make a
claim for additional damages as a remedy for the Company’s failure to comply
with the timelines set forth in this Section, but acknowledgement of such right
in this Agreement shall not constitute an admission by the Company that any such
damages exist or may exist. Nothing contained in the preceding sentence shall be
read to limit the ability of the Holders to seek specific performance of this
Agreement.
(ii) Effect of Late
Registration. Subject to the last sentence of this Section 2(c)(ii), if
any Registration Statement has not been filed by the Required Filing Date or
declared effective by the Required Effective Date other than by reason of the
operation of Section 2(b), then the Company will make a payment to each Holder
as liquidated damages for such delay (each a “Late Registration
Payment”). Each Late Registration Payment will be equal to 1% of the
Purchase Price paid for (i) the shares of Common Stock then held by the Holder
and (ii) shares of Common Stock obtained upon exercise of the Warrants for the
first 30 calendar days after the Required Filing Date or Required Effective
Date, as applicable, and 1% of such Purchase Price for each period of 30
calendar days thereafter (but no day taken into account for purposes of
determining whether any payment is due under Section 2(c)(i) shall be taken into
account for purposes of determining whether any payment is due under this
Section 2(c)(ii) or the amount of such payment). In no event shall
payment pursuant to this Section exceed 12% in the aggregate of the Purchase
Price paid for (i) the shares of Common Stock and (ii) shares obtained upon
exercise of the Warrants (including such Holder’s predecessors and successors),
as applicable, for the entire registration period (as described in Section
6). The Late Registration Payments will be prorated on a daily basis
during the 30-day period and will be paid to the Holders within ten business
days following the end of each 30-day period as to which payment is due
hereunder. The Holders may make a claim for additional damages as a
remedy for the Company’s failure to comply with the timelines set forth in this
Section, but acknowledgement of such right in this Agreement shall not
constitute an admission by the Company that any such damages exist or may
exist. Nothing contained in the preceding sentence shall be read to
limit the ability of the Holders to seek specific performance of this
Agreement. Notwithstanding the foregoing, no penalties shall be
payable by the Company with respect to the Registrable Securities which are not
covered by an effective Registration Statement if the sole reason for such
failure is the application of Rule 415 by the SEC; provided, however, that the
Company shall use commercially reasonable efforts to cause such Registration
Statement to be declared effective. For purposes of Section 2(c) of
this Agreement, “Purchase Price” shall mean $0.80 per share regardless of the
actual price per share paid by Holder.
(d) During
the registration period, the Company will make available, upon reasonable
advance notice during normal business hours, for inspection by any Holder whose
Registrable Securities are being sold pursuant to a Registration Statement, all
pertinent financial and other records, pertinent corporate documents and
properties of the Company (collectively, the “Records”) as
reasonably necessary to enable each such Holder to exercise its due diligence
responsibility in connection with or related to the contemplated offering. The
Company will cause its officers, directors and employees to supply all
information that any Holder may reasonably request for purposes of performing
such due diligence.
(e) Each
Holder will hold in confidence, use only in connection with the contemplated
offering and not make any disclosure of all Records and other information that
the Company determines in good faith to be confidential, and of which
determination the Holders are so notified, unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court or government body of competent
jurisdiction, (iii) the information in such Records has been made generally
available to the public other than by disclosure in violation of this or any
other agreement (to the knowledge of the relevant Holder), (iv) the Records or
other information were developed independently by the Holder without breach of
this Agreement, (v) the information was known to the Holder before receipt of
such information from the Company, or (vi) the information was disclosed to the
Holder by a third party not under an obligation of confidentiality. However, a
Holder may make disclosure of such Records and other information to any
attorney, adviser, or other third party retained by it that needs to know the
information as determined in good faith by the Holder (the “Holder
Representative”), if the Holder advises the Holder Representative of the
confidentiality provisions of this Section 2(e), but the Holder will be liable
for any act or omission of any of its Holder Representatives relative to such
information as if the act or omission was that of the Holder. The Company is not
required to disclose any confidential information in the Records to any Holder
unless and until such Holder has entered into a confidentiality agreement (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially to the effect of this Section 2(e). Unless legally
prohibited from so doing, each Holder will, upon learning that disclosure of
Records containing confidential information is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at the Company’s expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. Nothing herein will be deemed to
limit the Holder’s ability to sell Registrable Securities in a manner that is
otherwise consistent with applicable laws and regulations.
(f) The
Company shall file a Registration Statement with respect to any newly authorized
and/or reserved Registrable Securities consisting of Shares described in clause
(i) of the definition of Registrable Securities within ten (10) business days of
any stockholders’ meeting authorizing same and shall use its best efforts to
cause such Registration Statement to become effective within ninety (90) days of
such stockholders’ meeting. If the Holders become entitled, pursuant
to an event described in clause (ii) and (iii) of the definition of Registrable
Securities, to receive any securities in respect of Registrable Securities that
were already included in a Registration Statement, subsequent to the date such
Registration Statement is declared effective, and the Company is unable under
the securities laws to add such securities to the then effective Registration
Statement, the Company shall promptly file, in accordance with the procedures
set forth herein, an additional Registration Statement with respect to such
newly Registrable Securities. The Company shall use its best efforts
to (i) cause any such additional Registration Statement, when filed, to become
effective within 30 days of that date that the need to file the Registration
Statement arose. All of the registration rights and remedies under
this Agreement shall apply to the registration of such newly reserved shares and
such new Registrable Securities.
(g) If
at any time during the term of this Agreement, a registration statement
described herein is not effective with respect to some or all of the Demand
Registrable Securities, each Holder shall have the following “piggyback”
registration rights. If the Company at any time following the Closing Date
proposes for any reason to register Common Shares under the Securities Act
(other than registrations on Form S-4 or Form S-8 promulgated under
the Securities Act or any successor forms thereto), it shall promptly give
written notice to each Holder of its intention to so register such equity
securities and, upon the written request, given within 20 days after delivery of
such notice by the Company, of each Holder to include in such registration
Demand Registrable Securities held by the Holder (which request shall specify
the number of Demand Registrable Securities proposed to be included in such
registration by the Holder and shall state the intended method of disposition of
such Demand Registrable Securities by the Holder), the Company shall use its
best efforts to cause all such Demand Registrable Securities to be included in
such registration on the same terms and conditions as the securities otherwise
being sold in such registration; provided, however, that if the
managing underwriter advises the Company in writing that the inclusion of all
Demand Registrable Securities proposed to be included in such registration would
interfere materially with the successful marketing (including pricing) of
primary shares (the “Primary Shares”)
proposed to be registered by the Company, then the number of Primary Shares and
Demand Registrable Securities proposed to be included in such registration shall
be included in the following order:
(i)
first, the
Demand Registrable Securities requested to be included in such registration
pursuant to this Section 2(g); and
(ii) second, the Primary
Shares
provided, that, in the case of
any such underwritten offering of Common Stock by the Company that is in
satisfaction of a demand registration pursuant to Section 2(h), the order
for inclusion of Primary Shares and Demand Registrable Securities shall be as
set forth in that section.
(h) If
at any time during the term of this Agreement, a registration statement
described herein is not effective with respect to some or all of the Demand
Registrable Securities, each Holder shall have the following demand registration
rights. If the Company shall be requested in writing by a Holder to
effect a registration on Form S-1 under the Securities Act of Demand
Registrable Securities (which request shall specify the number of Demand
Registrable Securities proposed to be included in such registration by the
Holder and shall state the intended method of disposition of such Demand
Registrable Securities), then the Company shall promptly and in any event within
three (3) business days give written notice (“Demand Notice”) to
the other Holders of such request and use its best efforts to file within ten
(10) business days of providing the Demand Notice such Registration Statement
registering such Demand Registrable Securities which the Company has been so
requested to register by the Holder and any other Holders responding to such
notice during such ten (10) business days following delivery of the Demand
Notice pursuant to this Section 2(h); provided, however, that the
Company shall not be obligated to effect any registration under this Section
2(h) except in accordance with the following provisions:
(i)
The Company shall not be obligated to use its best efforts to file and
cause to become effective (x) more than two registration
statements on Form S-1 with respect to Demand Registrable Securities
initiated by any or all of the Holders pursuant to this
Section 2(h);
(ii) The
Company may delay the filing or effectiveness of any registration statement for
a period of up to 30 days after the date of a request for registration pursuant
to this Section 2(h) if the Company determines in good faith that (A) it is in
possession of material, non-public information concerning an acquisition,
merger, recapitalization, consolidation, reorganization or other material
transaction by or of the Company or concerning pending or threatened litigation
and (B) disclosure of such information would jeopardize any such transaction or
litigation or otherwise materially harm the Company; provided, however, that the
Company may not exercise such deferral right more than once in any twelve
month-period.
(iii) The
number of shares of Common Stock initially included in such registration
statement shall be no less than 100% of the maximum number of shares of Common
Stock which may be included in a Registration Statement without exceeding
registration limitations imposed by the SEC pursuant to Rule 415 described in
Section 2(a)(i). In the event that less than all of the Demand
Registrable Securities are included in a registration statement as a result of
the limitations described in this paragraph and Section 2(a)(i), then the
Company will (i) reduce on proportionate basis the number of Demand Registrable
Securities of each Holder included in such registration statement and (ii) file
additional registration statements, each registering the maximum number of Cut
Back Shares permitted as a result of Commission Restrictions, seriatim, until all
of the Demand Registrable Securities have been registered.
(i)
At such time as the Company shall have qualified for the use
of Form S-3 promulgated under the Securities Act or any successor form thereto,
each Holder shall have the right to request in writing registrations on Form S-3
or such successor form of Registrable Securities held by each Holder in the
manner described in Section 2(a), which request or requests shall (i) specify
the number of Registrable Securities held by each Holder intended to be sold or
disposed of, (ii) state the intended method of disposition of such Registrable
Securities held by such Holders and (iii) relate to Registrable Securities
having an anticipated aggregate offering price of at least
$500,000. A requested registration on Form S-3 or any such successor
form in compliance with Section 4 shall not count as a registration statement
initiated pursuant to Section 2(h) but shall otherwise be treated as a
registration statement initiated pursuant to, and shall, except as otherwise
expressly provided in Section 4, be subject to
Section 2.
3.
Expenses of
Registration. All
Registration Expenses in connection with any registration, qualification or
compliance with registration pursuant to this Agreement shall be borne by the
Company, and all Selling Expenses of a Holder shall be borne by such
Holder.
4.
No Other
Registration Rights. Without the prior written consent of all
Holders who hold Demand Registrable Securities, the Company will not grant any
registration rights which are senior to the registration rights granted
hereby. The Company represents and warrants to each Holder that,
other than as set forth on Schedule 4 hereto, there is not in effect on the date
of this Agreement any agreement by the Company pursuant to which any holders of
securities of the Company have a right to cause the Company to register or
qualify such securities under the Securities Act or any securities or blue sky
laws of any jurisdiction.
5.
Registration on
Form S-3. The Company shall use its reasonable best efforts to
meet the “registrant eligibility” requirements for a secondary offering set
forth in the general instructions to Form S-3 or any comparable or successor
form or forms, or in the event that the Company is ineligible to use such form,
such form as the Company is eligible to use under the Securities Act, provided
that if such other form is used, the Company shall convert such other form to a
Form S-3 as soon as the Company becomes so eligible.
6.
Registration
Period. In the case of the registration effected by the
Company pursuant to this Agreement, the Company shall keep such registration
effective and current until the earlier of (a) the date on which all the Holders
have completed the sales or distribution described in the Registration Statement
relating thereto or, if earlier until such Registrable Securities may be sold by
the Investors under Rule 144(b)(1) (provided that the Company’s transfer agent
has accepted an instruction from the Company to such effect) and (b) the
eighteen (18) month anniversary of the Closing Date.
7.
Indemnification.
(a) Company
Indemnity. The Company will indemnify each Holder, each of its
officers, directors, agents, members and partners, and each person controlling
each of the foregoing, within the meaning of Section 15 of the Securities Act
and the rules and regulations thereunder with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls, within the meaning of
Section 15 of the Securities Act and the rules and regulations thereunder, any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any Time of Sale Information,
final prospectus (as amended or supplemented if the Company files any amendment
or supplement thereto with the SEC), Registration Statement filed pursuant to
this Agreement or any post-effective amendment thereof or based on any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made, or any violation by the Company of
the Securities Act or any state securities law or in either case, any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each Holder, each of its
officers, directors, agents, members and partners, and each person controlling
each of the foregoing, for any reasonable legal fees of a single counsel and any
other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to a Holder to the extent that any
such claim, loss, damage, liability or expense arises out of or is based on (i)
any untrue statement or omission based upon written information furnished to the
Company by such Holder or underwriter (if any) therefor and stated to be
specifically for use therein, (ii) any failure by any Holder to comply with
prospectus delivery requirements of the Securities Act (other than a failure
resulting from an act or omission on the part of the Company) or any other law
or legal requirement applicable to them or any covenant or agreement contained
in the Subscription Agreement or this Agreement or (iii) an offer or sale of
Registrable Securities or Demand Registrable Securities occurring during a
period in which sales under a Registration Statement are suspended as permitted
by this Agreement; provided that notice
has been properly provided to the Holder. The indemnity agreement
contained in this Section 7(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent will not be unreasonably
withheld).
(b) Holder
Indemnity. Each Holder will, severally but not jointly, if
Registrable Securities or Demand Registrable Securities held by it are included
in the securities as to which such registration, qualification or compliance is
being effected, indemnify the Company, each of its directors, officers, agents
and partners, and any other stockholder selling securities pursuant to the
Registration Statement and any of its directors, officers, agents, partners, and
any person who controls such stockholder within the meaning of the Securities
Act or Exchange Act and each underwriter, if any, of the Company’s securities
covered by such a Registration Statement, each person who controls the Company
or such underwriter within the meaning of Section 15 of the Securities Act and
the rules and regulations thereunder, each other Holder (if any), and each of
their officers, directors and partners, and each person controlling such other
Holder(s) against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on (i) any untrue statement (or alleged
untrue statement) of a material fact contained in any Time of Sale Information,
final prospectus (as amended or supplemented if the Company files any amendment
or supplement thereto with the SEC), Registration Statement filed pursuant to
this Agreement or any post-effective amendment thereof or based on any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statement therein not misleading in light of
the circumstances under which they were made or (ii) failure by such Holder to
comply with prospectus delivery requirements of the Securities Act (other than a
failure resulting from an act or omission on the part of the Company or any
other law or legal requirement applicable to them or any covenant or agreement
contained in the Subscription Agreement or this Agreement, and will reimburse
the Company and such other Holder(s) and their directors, officers and partners,
underwriters or control persons for any reasonable legal fees or any other
expenses reasonably incurred in connection with investigating and defending any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such Time of Sale Information, final
prospectus (as amended or supplemented if the Company files any amendment or
supplement thereto with the SEC), Registration Statement filed pursuant to this
Agreement or any post-effective amendment thereof in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein, and provided that the maximum amount
for which such Holder shall be liable under this indemnity shall not exceed the
net proceeds received by such Holder from the sale of the Registrable Securities
or Demand Registrable Securities, as the case may be, pursuant to the
registration statement in question. The indemnity agreement contained
in this Section 7(b) shall not apply to amounts paid in settlement of any such
claims, losses, damages or liabilities if such settlement is effected without
the consent of such Holder (which consent shall not be unreasonably
withheld).
(c) Procedure. Each
party entitled to indemnification under this Section 7 (the “Indemnified Party”)
shall give notice to the party required to provide indemnification (the “Indemnifying Party”)
promptly after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim in any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of such
claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at its own expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 7 except to the extent that the Indemnifying Party is
materially and adversely affected by such failure to provide
notice. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such non-privileged
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting
therefrom.
8.
Contribution. If
the indemnification provided for in Section 7 herein is unavailable to the
Indemnified Parties in respect of any losses, claims, damages or liabilities
referred to herein (other than by reason of the exceptions provided therein),
then each such Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages or liabilities as between the
Company on the one hand and any Holder(s) on the other, in such proportion as is
appropriate to reflect the relative fault of the Company and of such Holder(s)
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and
of any Holder(s) on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by such Holder(s).
In no
event shall the obligation of any Indemnifying Party to contribute under this
Section 8 exceed the amount that such Indemnifying Party would have been
obligated to pay by way of indemnification if the indemnification provided for
under Section 7(a) or 7(b) hereof had been available under the
circumstances.
The
Company and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
(even if the Holders were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding
paragraphs. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraphs shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section, no
Holder shall be required to contribute any amount in excess of the amount of the
net proceeds received by such Holder from the sale of Registrable Securities
pursuant to the registration statement in question. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
9.
Survival. The
indemnity and contribution agreements contained in Sections 7 and 8 shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, the Subscription Agreement or the Placement Agent Agreement and (ii)
the consummation of the sale or successive resales of the Registrable
Securities.
10.
Information by
Holders. As a condition to the obligations of the Company to
complete any registration pursuant to this Agreement with respect to the
Registrable Securities of each Holder, such Holder will furnish to the Company
such information regarding itself, the Registrable Securities held by it and the
intended methods of disposition of the Registrable Securities held by it as is
reasonably required by the Company to effect the registration of the Registrable
Securities. At least five business days prior to the first anticipated filing
date of a Registration Statement for any registration under this Agreement, the
Company will notify each Holder of the information the Company requires from
that Holder whether or not such Holder has elected to have any of its
Registrable Securities included in the Registration Statement. If the Company
has not received the requested information from a Holder by the business day
prior to the anticipated filing date, then the Company may file the Registration
Statement without including Registrable Securities of that Holder.
11.
Further
Assurances. Each Holder will cooperate with the Company, as reasonably
requested by the Company, in connection with the preparation and filing of any
Registration Statement hereunder, unless such Holder has notified the Company in
writing of such Holder’s irrevocable election to exclude all of such Holder’s
Registrable Securities from such Registration Statement.
12.
Suspension of
Sales. Upon receipt of any notice from the Company under Section 2(a)(v)
or 2(b), each Holder will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until (i) it receives copies of a supplemented or amended prospectus
contemplated by Sections 2(a)(v) or (ii) the Company advises the Holder that a
suspension of sales under Section 2(b) has terminated. If so directed by the
Company, each Holder will deliver to the Company (at the expense of the Company)
or destroy all copies in the Holder’s possession (other than a limited
number of file copies) of the prospectus covering such Registrable Securities
that is current at the time of receipt of such notice.
13. Replacement
Certificates. The certificate(s) representing the Registrable
Securities held by the Holder may be exchanged by the Holder at any time and
from time to time for certificates with different denominations representing an
equal aggregate number of Registrable Securities of the same tenor, as
reasonably requested by such Holder upon surrendering the same. No
service charge will be made for such registration or transfer or
exchange. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of certificates
evidencing any Registrable Securities, and, in the case of loss, theft or
destruction, of indemnity reasonably satisfactory to it, or upon surrender and
cancellation of such certificate if mutilated, the Company will make and deliver
a new certificate of like tenor and dated as of such cancellation at no charge
to the holder.
14. Transfer or
Assignment. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The rights granted to the
Holder by the Company under this Agreement to cause the Company to register
Registrable Securities may be transferred or assigned (in whole or in part) to a
transferee or assignee of the shares of Common Stock, Warrants or Registrable
Securities, and all other rights granted to the Holder by the Company hereunder
may be transferred or assigned to any transferee or assignee of the shares of
Common Stock, Warrants or Registrable Securities; provided in each case that (i)
the Company is given written notice by the Holder at the time of or within a
reasonable time after such transfer or assignment, stating the name and address
of said transferee or assignee and identifying the securities with respect to
which such registration rights are being transferred or assigned; and provided
further that the transferee or assignee of such rights agrees in writing to be
bound by the registration provisions of this Agreement, (ii) such transfer or
assignment is not made under the Registration Statement or Rule 144, (iii) such
transfer is made according to the applicable requirements of the Subscription
Agreement, and (iv) the transferee has provided to the Company an investor
questionnaire (or equivalent document) evidencing that the transferee is a
“qualified institutional buyer” as defined in Rule 144A under the Securities Act
or an “accredited investor” as defined in Rule 501(a) of Regulation
D.
15. Miscellaneous.
(a) Remedies. The
Company and the Holders acknowledge and agree that irreparable damage may occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to seek an injunction
or injunctions to prevent or cure breaches of the provisions of this Agreement
and to enforce specifically the terms and provisions hereof, this being in
addition to any other remedy to which any of them may be entitled by law or
equity.
(b) Jurisdiction. The
Company and each Holder (i) hereby irrevocably submits to the exclusive
jurisdiction of the United States District Court, the New York state courts and
other courts of the United States sitting in New York County, New York for the
purposes of any suit, action or proceeding arising out of or relating to this
Agreement and (ii) hereby waives, and agrees not to assert in any such suit
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. The Company and the Holder consent to process being served
in any such suit, action or proceeding by mailing a copy thereof to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing in this paragraph shall affect or limit any right to
serve process in any other manner permitted by law.
(c) Notices. Any
notice or other communication required or permitted to be given hereunder shall
be in writing by facsimile, mail or personal delivery and shall be effective
upon actual receipt of such notice. The addresses for such
communications shall be:
to the
Company:
[Pubco]
600
Cruiser Lane
Belgrade,
Montana 59714
Attn: Chief
Financial Officer
with a
copy to:
Greenberg
Traurig, LLP
1200
17th
Street, Suite 2400
Denver,
Colorado 80123
Attn: Marc
J. Musyl
If to the
Investors, to the addresses set forth on Schedule I to the Subscription
Agreement:
with a
copy to:
Wollmuth
Maher Deutsch LLP
500 Fifth
Avenue, 12th Floor
New York,
New York 10110
Facsimile: (212)
382-0050
Attention: Gerald
Coviello
If to any of the Harborview
Shareholders:
Harborview Advisors, LLC
850 Third Avenue, Suite
1801
New York, New York 10022
Facsimile: (646) 218-1401
Attention: Chief Financial
Officer
with a copy to:
Haynes and Boone LLP
1221 Avenue of the
Americas
26th
Floor
New York, NY 10020
Facsimile: (212) 884-8234
Attention: Rick A. Werner,
Esq.
Any party
hereto may from time to time change its address for notices by giving at least
five days’ written notice of such changed address to the other parties
hereto.
(d) Waivers. No
waiver by any party 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 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 accruing to it
thereafter. The representations and warranties and the agreements and
covenants of the Company and each Holder contained herein shall survive the
Closing.
(e) Execution in
Counterpart. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same
counterpart.
(f)
Signatures. Facsimile
signatures shall be valid and binding on each party submitting the
same.
(g) Entire Agreement;
Amendment. This Agreement, together with the Subscription
Agreement, the Warrants, and the agreements and documents contemplated hereby
and thereby, contains the entire understanding and agreement of the parties, and
may not be amended, modified or terminated except by a written agreement signed
by the Company plus Investors and holders of the Harborview Shares
who hold not less than 67% of the Demand Registrable Securities (determined on a
fully-diluted, as converted basis, if applicable); provided, however, that any
amendment that pertains to the right and/or obligations of the Harborview
Shareholders shall require the written consent of the holders of a majority of
the Harborview Shares.
(h) Governing
Law. This Agreement and the validity and performance of the
terms hereof shall be governed by and construed in accordance with the laws of
the State of New York applicable to contracts executed and to be performed
entirely within such state, except to the extent that the law of the State of
Delaware regulates the Company’s issuance of securities.
(i)
Jury
Trial. EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY
JURY.
(j)
Titles. The
titles used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
(k) No Strict
Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction will be applied against any
party.
IN WITNESS WHEREOF, the
undersigned have caused this Agreement to be executed as of the date first
written above.
COMPANY:
BACTERIN
INTERNATIONAL HOLDINGS, INC.,
f/k/a
K-KITZ, INC.
|
By:
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||
|
Name:
|
Guy
Cook
|
|
|
Title:
|
President
and Chief Executive
Officer
|
COUNTERPART
SIGNATURE PAGE
TO
REGISTRATION RIGHTS AGREEMENT,
DATED
JUNE __, 2010,
AMONG
BACTERIN INTERNATIONAL, INC. AND
THE
“HOLDERS” IDENTIFIED THEREIN
The
undersigned hereby executes and delivers the Registration Rights Agreement to
which this Signature Page is attached, which, together with all counterparts of
the Registration Rights Agreement and Signature Pages of the Company and other
“Holders” under the Registration Rights Agreement, shall constitute one and the
same document in accordance with the terms of the Registration Rights
Agreement.
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HOLDER:
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||
|
By:
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|
|
|
Name:
|
||
|
Title:
|
||
EXHIBIT
10.3
SHAREHOLDER
LOCK-UP AGREEMENT
THIS
AGREEMENT (this “Agreement”) is dated
as of June ___, 2010 (the “Effective Date”) by
and between Bacterin International Holdings, Inc., f/k/a K-Kitz, Inc., a
Delaware corporation (the “Company”), and the
persons set forth on the signature pages hereto (each a “Management
Shareholder” and collectively, the “Management
Shareholders”). Capitalized terms used but not defined herein
shall have the meanings ascribed to such terms in the Subscription Agreement (as
defined below).
WHEREAS,
the Company has entered into an Agreement and Plan of Merger (the “Merger Agreement”)
pursuant to which Bacterin International Inc., a Nevada corporation (“Bacterin”), will
become a wholly-owned subsidiary of the Company (the “Reverse Merger”) and,
contingent upon the closing of the Reverse Merger, the Investors have agreed to
acquire from the Company (the “Offering”), either
for cash or upon conversion of certain existing promissory notes (“Bridge Notes”) of
Bacterin, (i) shares of the Company’s common stock (the “Common Stock”) and
(ii) warrants (“Warrants”) to
purchase additional shares of the Common Stock, subject to the terms and
conditions set forth in a Subscription Agreement entered into between Bacterin
and each of the Investors in connection with the Offering (the “Subscription
Agreement” and such transaction, the “Financing
Transaction”); and
WHEREAS,
in order to induce the Company and the Investors to enter into the Financing
Transaction, the Management Shareholders have agreed not to sell any shares of
the Company’s Common Stock that such Management Shareholders presently own on
the date hereof, or may acquire on or after the date hereof, except in
accordance with the terms and conditions set forth herein (collectively, the
“Lock-Up
Shares”).
NOW,
THEREFORE, in consideration of the covenants and conditions hereinafter
contained, the parties hereto agree as follows:
1. Restriction on Transfer;
Term. Each Management Shareholder hereby agrees with the Company that
such Management Shareholder will not offer, sell, contract to sell, assign,
transfer, hypothecate, gift, pledge or grant a security interest in, or
otherwise dispose of, or enter into any transaction which is designed to, or
might reasonably be expected to, result in the disposition of (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise, directly or indirectly) (each, a “Transfer”), any of
the Lock-Up Shares and shall not Transfer such shares until the one year
anniversary of the Effective Date; provided, however, that (a) the restrictions
set forth in this Section 1 shall not apply to any Common Stock or Warrants (or
any shares of common stock underlying the Warrants) acquired by a Management
Shareholder in the Offering which would otherwise constitute Lock Up Shares and
(b) Guy Cook shall be permitted to hypothecate, pledge and grant a security
interest in up to 5,000,000 of his Lock Up Shares (excluding any shares of
Common Stock he may acquire in the Offering which are not subject to this
Section 1 pursuant to section 1(a) above) as collateral for borrowed funds used
to acquire shares of Common Stock and warrants in the Offering and, if such
collateral is executed against, shall be permitted to assign and transfer such
Lock Up Shares to the secured party free of any restrictions set forth
herein.
2. Ownership. During the
Lock-Up Period, the Management Shareholders shall retain all rights of ownership
in the Lock-Up Shares, including, without limitation, voting rights and the
right to receive any dividends that may be declared in respect thereof, except
as otherwise provided in the Subscription Agreement or the other documents to be
entered into in connection with the Offering whereby any benefits, rights, title
or otherwise shall inure to the Investors.
3. Company and Transfer
Agent. The Company is hereby authorized and required to disclose the
existence of this Agreement to its transfer agent. The Company and its transfer
agent are hereby authorized and required to decline to make any transfer of the
Common Stock if such transfer would constitute a violation or breach of this
Agreement.
4. Notices. All notices,
demands, consents, requests, instructions and other communications to be given
or delivered or permitted under or by reason of the provisions of this Agreement
or in connection with the transactions contemplated hereby shall be in writing
and shall be deemed to be delivered and received by the intended recipient as
follows: (i) if personally delivered, on the business day of such delivery (as
evidenced by the receipt of the personal delivery service), (ii) if mailed
certified or registered mail return receipt requested, two (2) business days
after being mailed, (iii) if delivered by overnight courier (with all charges
having been prepaid), on the business day of such delivery (as evidenced by the
receipt of the overnight courier service of recognized standing), or (iv) if
delivered by electronic mail or facsimile transmission, on the business day of
such delivery if sent by 6:00 p.m. in the time zone of the recipient, or if sent
after that time, on the next succeeding business day (as evidenced, in the case
of facsimile transmissions by the printed confirmation of delivery generated by
the sending party’s telecopier machine). If any notice, demand, consent,
request, instruction or other communication cannot be delivered because of a
changed address of which no notice was given (in accordance with this Section
4), or the refusal to accept same, the notice, demand, consent, request,
instruction or other communication shall be deemed received on the second
business day the notice is sent (as evidenced by a sworn affidavit of the
sender). All such notices, demands, consents, requests, instructions and other
communications will be sent to the following addresses or facsimile numbers as
applicable.
If to the
Company:
Mr. Guy
S. Cook
Chief
Executive Officer and President
Bacterin
International, Inc.
600
Cruiser Lane
Belgrade,
MT 59714
Fax:
With a
copy to:
Greenberg
Traurig, LLP
1200
17th
Street, Suite 2400
Denver,
CO 80202
Attn: C.
Ben Huber
Fax:
(720) 904-7686
If to the
Investors, to the addresses listed on Schedule I
hereto:
With a
copy to:
Gregory
J. Osborn
Managing
Partner, Co-Founder
Middlebury
Group, L.L.C.
170 East
Ridgewood Ave.
Ridgewood
NJ 07450
Fax:
(646) 514-3980
If to the
Management Shareholders, to such Management Shareholder c/o of the Company
at the address set forth above, or to such other address as any party may
specify by notice given to the other party in accordance with this Section
4.
5. Amendment. This
Agreement may not be modified, amended, altered or supplemented, except by a
written agreement executed by each of the parties hereto following the prior
written consent of Investors holding a majority of the shares of Common Stock
acquired in the Offering through purchase or conversion.
6. Entire Agreement.
This Agreement contains the entire understanding and agreement of the parties
relating to the subject matter hereof and supersedes all prior and/or
contemporaneous understandings and agreements of any kind and nature (whether
written or oral) among the parties with respect to such subject
matter.
7. Governing Law. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York applicable to agreements made and to be performed in that
state, without regard to any of its principles of conflicts of laws or other
laws which would result in the application of the laws of another jurisdiction.
This Agreement shall be construed and interpreted without regard to any
presumption against the party causing this Agreement to be drafted.
8. Waiver of Jury Trial.
EACH OF THE PARTIES HERETO HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES THE
RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE
PARTIES UNCONDITIONALLY AND IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN NEW YORK COUNTY AND THE
FEDERAL DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK WITH RESPECT TO ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY, AND EACH OF THE PARTIES HEREBY UNCONDITIONALLY
AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN NEW YORK COUNTY OR SUCH
DISTRICT, AND AGREES THAT SERVICE OF ANY SUMMONS, COMPLAINT, NOTICE OR OTHER
PROCESS RELATING TO SUCH SUIT, ACTION OR OTHER PROCEEDING MAY BE EFFECTED IN THE
MANNER PROVIDED IN SECTION 4.
9. Severability. The
parties agree that if any provision of this Agreement be held to be invalid,
illegal or unenforceable in any jurisdiction, that holding shall be effective
only to the extent of such invalidity, illegally or unenforceability without
invalidating or rendering illegal or unenforceable the remaining provisions
hereof, and any such invalidity, illegally or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. It is the intent of the parties that this Agreement be fully
enforced to the fullest extent permitted by applicable law.
10. Binding Effect;
Assignment. This Agreement and the rights and obligations hereunder may
not be assigned by any Management Shareholder without the prior written consent
of the Company and Investors holding a majority of the shares of Common Stock
acquired in the Offering through purchase or conversion. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
11. Headings. The section
headings contained in this Agreement (including, without limitation, section
headings and headings in the exhibits and schedules) are inserted for reference
purposes only and shall not affect in any way the meaning, construction or
interpretation of this Agreement. Any reference to the masculine, feminine, or
neuter gender shall be a reference to such other gender as is appropriate.
References to the singular shall include the plural and vice versa.
12. Counterparts. This
Agreement may be executed in two or more counterparts, and by the different
parties hereto in separate counterparts, by facsimile or other electronic
transmission, each of which when executed shall be deemed to be an original, and
all of which, when taken together, shall constitute one and the same document.
This Agreement shall become effective when one or more counterparts, taken
together, shall have been executed and delivered by all of the parties
hereto.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE
PAGE TO LOCK-UP AGREEMENT]
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
written above herein.
|
BACTERIN
INTERNATIONAL
HOLDINGS,
INC., f/k/a K-KITZ, Inc.
|
|
|
By:
|
|
|
Name:
Guy Cook
|
|
|
Title:
President and CEO
|
|
|
SHAREHOLDER
|
|
|
By:
|
|
|
Name:
Guy Cook
|
|
|
SHAREHOLDER
|
|
|
By:
|
|
|
Name:
Kent Swanson
|
|
|
SHAREHOLDER
|
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|
By:
|
|
|
Name:
Ken Calligar
|
|
|
SHAREHOLDER
|
|
|
By:
|
|
|
Name:
Mitch Godfrey
|
|
|
SHAREHOLDER
|
|
|
By:
|
|
|
Name:
Jesus Hernandez
|
|
|
SHAREHOLDER
|
|
|
By:
|
|
|
Name:
Darrel Holmes
|
|
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SHAREHOLDER
|
|
|
By:
|
|
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Name:
John P.
Gandolfo
|
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[SIGNATURE
PAGE TO LOCK-UP AGREEMENT CONTINUED]
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SHAREHOLDER
|
|
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Name:
Daniel Frank
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SHAREHOLDER
|
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Name:
Gary Simon
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EXHIBIT
10.4
INDEMNIFICATION
AGREEMENT
This
Indemnification Agreement (the “Agreement”) is made and entered as of June ___,
2010 by and between Bacterin International Holdings, Inc., a Delaware
corporation, f/k/a K-Kitz, Inc., with its principal place of business at 600
Cruiser Lane, Belgrade, Montana 59714 (the “Company”), and
________________________________ (“Indemnitee”) and the parties agree as
follows:
1. Services by
Indemnitee. Indemnitee agrees to serve as a director of the
Company so long as he is duly appointed or elected and qualified in accordance
with the applicable provisions of the Articles of Incorporation and Bylaws of
the Company or any subsidiary of the Company and until such time as
he resigns or fails to stand for election or is removed from
his position. Indemnitee may, at any time and for any
reason, resign or be removed from such position (subject to any other
contractual obligation or other obligation imposed by operation of law), in
which event the Company shall have no obligation under this Agreement to
continue Indemnitee in any such position.
2. Indemnification.
(a) Subject
to the limitations set forth herein and in Sections 2(b) and 4 below, the
Company shall indemnify Indemnitee against Expenses and Liabilities in
connection with any Proceeding (as hereinafter defined in Section 13) associated
with Indemnitee’s being a director of the Company to the fullest extent
permitted by applicable law, the Articles of Incorporation or the bylaws of the
Company in effect on the date hereof or as such law, Articles of Incorporation
or bylaws may from time to time be amended (but, in the case of any such
amendment, only to the extent such amendment permits the Company to provide
broader indemnification rights than the law, the Articles of Incorporation or
the bylaws permitted the Company to provide before such
amendment). The right to indemnification provided in the Company’s
bylaws shall be presumed to have been relied upon by Indemnitee in serving or
continuing to serve the Company and shall be enforceable as a contract
right. Without diminishing the scope of the indemnification provided
by this Section 2, the Company shall indemnify Indemnitee whenever he is or was
a party or is threatened to be made a party to any Proceeding, including without
limitation any such Proceeding brought by or in the right of the Company,
because he is or was a director of the Company or because of anything done or
not done by him in such capacity, against Expenses and Liabilities actually and
reasonably incurred by Indemnitee or on his behalf in connection with such
Proceeding, including the costs of any investigation, defense, settlement or
appeal. In addition to, and not as a limitation of, the foregoing,
the rights of indemnification of Indemnitee provided under this Agreement shall
include those rights set forth in Sections 3, 7, 8, and 12
below. Notwithstanding the foregoing, the Company shall only be
required to indemnify and hold Indemnitee harmless in connection with a
Proceeding commenced by Indemnitee (other than a Proceeding commenced by
Indemnitee to enforce Indemnitee's rights under this Agreement) if the
commencement of such Proceeding was authorized by the board of directors of the
Company (the “Board of Directors”).
-1-
(b) Notwithstanding
anything in this Agreement to the contrary, the Company shall not be obligated
under this Agreement to continue to indemnify Indemnitee with respect
to:
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(i)
|
any
claim, issue or matter after Indemnitee is finally adjudged to be liable
to the Company by a court of competent jurisdiction due to gross
negligence, fraud, knowing violation of the law or willful misconduct
unless and to the extent that a court in which the action was heard
determines that Indemnitee is entitled to indemnification for such amounts
as the court deems proper; provided, that until such time as a final
adjudication is made as to Indemnitee’s gross negligence, fraud, knowing
violation of law or willful misconduct, the Company shall advance
Indemnitee his Expenses in accordance with Section 3 herein, subject to
repayment as described in Section 3 in the event of a final adjudication
of gross negligence, fraud, knowing violation of law or willful
misconduct;
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(ii)
|
the
reporting or accounting of profits made (1) for an improper personal
profit without full and fair disclosure to the Company of all material
conflicts of interest and not approved thereof by a majority of the
disinterested members of the Board of Directors, or (2) from the purchase
or sale by Indemnitee of securities of the Company within the meaning of
Section 16 of the Securities Exchange Act of 1934 as amended, or similar
provisions of any state statutory or common
law;
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(iii)
|
any
attempt to acquire, or obtain voting rights with respect to, at least
fifty percent (50%) of the then outstanding voting stock of the Company,
whether by tender offer, proxy solicitation or otherwise, if (a)
Indemnitee attempted to acquire or obtain voting rights with respect to
such stock or was or became a member of a group consisting of two or more
persons that had agreed (whether formally or informally and whether or not
in writing) to act together for the purpose of acquiring, obtaining voting
rights with respect to, holding, voting or disposing of, such stock, and
(b) such attempt to acquire or obtain voting rights with respect to such
stock was not approved by a majority of the directors of the Company, for
purposes of determining whether any tender offer, proxy
solicitation or other transaction constituted an attempt by Indemnitee, or
a group (as described above) of which Indemnitee was or became a member,
to acquire or obtain voting rights with respect to at least fifty percent
(50%) of the then outstanding voting stock of the Company, there shall be
counted toward the request number of shares of voting stock any shares
which, immediately prior to the commencement of such tender offer, proxy
solicitation or other transaction, (x) were owned by Indemnitee or any
member of any such group, (y) Indemnitee or any member of any such group
had the right to vote, or (z) Indemnitee or any member of any such group
had the right to acquire;
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-2-
|
|
(iv)
|
any
solicitation of proxies by Indemnitee, or by a group of which he was or
became a member consisting of two or more persons that had agreed (whether
formally or informally and whether or not in writing) to act together for
the purpose of soliciting proxies, in opposition to any solicitation of
proxies approved by the Company’s Board of
Directors;
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(vi)
|
any
act or omission by Indemnitee that constitutes a breach of or default
under any agreement between Indemnitee and the Company;
or
|
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(vii)
|
to
the extent it would be otherwise prohibited by law, if so established by a
court having jurisdiction in the matter in a judgment or other final
adjudication (and, in this respect, both the Company and Indemnitee have
been advised that the U.S. Securities and Exchange Commission believes
that indemnification for liabilities arising under the federal securities
laws is against public policy and is, therefore,
unenforceable).
|
(c) Indemnitee
shall be paid promptly by the Company all amounts necessary to effectuate the
indemnity described in Section 2(a).
3. Advancement of
Expenses. All reasonable
Expenses incurred by or on behalf of Indemnitee shall be advanced from time to
time by the Company to him within thirty (30) days after the receipt by the
Company of a written request for an advance of Expenses, whether prior to or
after final disposition of a proceeding (except to the extent that there has
been a Final Adverse Determination that Indemnitee is not entitled to be
indemnified for such Expenses), including without limitation any proceeding
brought by or in the right of the Company; provided, however, that Indemnitee
shall not be entitled to the advancement of expenses in connection with any
proceeding relating to his termination by or resignation from the Company or
arising out of the circumstances described in Sections 2(b)(ii), 2(b)(iii) or
2(b)(iv). The written request for and advancement of any and all
Expenses under this paragraph shall contain reasonable detail of the Expenses
incurred by Indemnitee and, if required by law at the time of such advance,
shall include or be preceded or accompanied by a written undertaking by or on
behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be
determined by a court of competent jurisdiction that Indemnitee is not entitled
to be indemnified against such Expenses. If required by law at the
time of such advance, Indemnitee hereby agrees to repay any and all Expenses
advanced if it is ultimately determined that Indemnitee is not entitled to be
indemnified pursuant to the terms of the Agreement.
4. Additional
Limitations. The foregoing indemnity and advancement of
Expenses shall apply only to the extent that Indemnitee has not been indemnified
and reimbursed pursuant to such insurance as the Company may maintain for
Indemnitee’s benefit, or otherwise; provided, however, that notwithstanding the
availability of such other indemnification and reimbursement, Indemnitee may
claim indemnification and advancement of Expenses pursuant to this Agreement by
assigning to the Company, at its request, Indemnitee’s claims under such
insurance to the extent Indemnitee has been paid by the
Company.
-3-
5. Insurance and
Funding. Within a commercially reasonable time from the date
hereof, the Company shall purchase and maintain insurance to protect itself
and/or Indemnitee against any Expenses and Liabilities in connection with any
proceeding to the fullest extent permitted by applicable laws. The
Company may create a trust fund, grant and interest in assets or use other means
(including, without limitation, a letter of credit) to ensure the payment of
such amounts as may be necessary to effect indemnification or advancement of
Expenses as provided in this Agreement.
6. Procedure for Determination
of Entitlement to Indemnification.
(a) Whenever
Indemnitee believes that he is entitled to indemnification pursuant to this
Agreement, Indemnitee shall submit a written request for indemnification to the
Company. Any request for indemnification shall include sufficient
documentation or information reasonably available to Indemnitee to support his
claim for indemnification. Indemnitee shall submit his claim for
indemnification within a reasonable time not to exceed five years after any
judgment, order, settlement, dismissal, arbitration award, conviction,
acceptance of a plea of nolo contendere or its equivalent, final termination or
other disposition or partial disposition of any proceeding, whichever is the
later date for which Indemnitee requests indemnification. The
president or the secretary or other appropriate officer of the Company shall,
promptly upon receipt of Indemnitee’s request for indemnification, advise the
Board of Directors of the Company in writing that Indemnitee has made such
request. Determination of Indemnitee’s entitlement to indemnification
shall be made not later than sixty (60) days after the Company’s receipt of the
written request for such indemnification.
(b) The
majority of disinterested directors, or if such majority does not exist, the
full Board of Directors, shall be entitled to select the forum in which
Indemnitee’s request for indemnification will be heard, which selection shall be
transmitted to the Indemnitee in writing. The forum shall be any one
of the following:
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(i)
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The
stockholders of the Company;
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(ii)
|
A
quorum of the Board of Directors consisting of disinterested
directors;
|
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|
(iii)
|
Independent
legal counsel, who shall make the determination in a written opinion;
or
|
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(iv)
|
A
panel of three arbitrators, one selected by the Company, another by
Indemnitee and the third by the first two arbitrators
selected. If for any reason three arbitrators are not selected
within thirty (30) days after the appointment of the first arbitrator,
then selection of additional arbitrators shall be made by the American
Arbitration Association. If any arbitrator resigns or is unable
to serve in such capacity for any reason, the American Arbitration
Association shall select such arbitrator’s replacement. The
arbitration shall be conducted pursuant to the commercial arbitration
rules of the American Arbitration Association now in
effect.
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-4-
(c) Upon
making a request for indemnification, Indemnitee shall be presumed to be
entitled to indemnification under this Agreement and the Company shall have the
burden of proof to overcome that presumption in reaching any contrary
determination. The termination of any proceeding by judgment, order,
settlement, arbitration award or conviction, or upon a plea of nolo contendere
or its equivalent shall not affect this presumption or, except as provided in
Section 2 or 4 hereof, establish a presumption with regard to any factual matter
relevant to determining Indemnitee’s rights to indemnification
hereunder.
7. Fees and Expenses of
Independent Legal Counsel. The Company agrees to pay the
reasonable fees and expenses of independent legal counsel or a panel of three
arbitrators should such counsel or such panel of arbitrators be retained to make
a determination of Indemnitee’s entitlement to indemnification pursuant to
Section 6 of this Agreement, and to fully indemnify such counsel arising out of
or relating to this Agreement or their engagement pursuant hereto, except with
respect to expenses and losses resulting from the negligence or willful
misconduct of such persons.
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8.
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Remedies of
Indemnitee.
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(a) In
the event that (i) a determination pursuant to Section 6 hereof is made that
Indemnitee is not entitled to indemnification, (ii) advances of Expenses are not
made pursuant to this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 60 days after receipt by the Company of the request for indemnification,
or (iv) payment has not been timely made following a determination of
entitlement to indemnification pursuant to this Agreement, Indemnitee shall be
entitled to a final adjudication in any court of competent jurisdiction of his
rights. Indemnitee shall commence such proceeding seeking an
adjudication within 180 days following the date on which Indemnitee first has
the right to commence such proceeding pursuant to this Section
8(a). The Company shall not oppose Indemnitee’s right to seek any
such adjudication.
(b)
In the event that a determination that Indemnitee is not entitled to
indemnification, in whole or in part, has been made pursuant to Section 6
hereof, the decision in the judicial proceeding provided in paragraph (a) of
this Section 8 shall be made de novo and Indemnitee shall not be prejudiced by
reason of a determination that he is not entitled to
indemnification.
(c) If
a determination that Indemnitee is entitled to indemnification has been made
pursuant to Section 6 hereof or otherwise pursuant to the terms of this
Agreement, the Company shall be bound by such determination in the absence of
(i) any misrepresentation of a material fact by Indemnitee or (ii) a specific
finding (which has become final) by a court of competent jurisdiction that all
or any part of such indemnification is expressly prohibited by Delaware
law.
(d) In
any court proceeding pursuant to this Section 8, the Company shall be precluded
from asserting that the procedures and presumptions of this Agreement are not
valid, binding and enforceable. The Company shall stipulate in any
such court that the Company is bound by all provisions of this
Agreement.
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9.
Modification, Waiver,
Termination, and Cancellation. No supplement, modification,
termination, cancellation or amendment of this Agreement shall be binding unless
executed in writing by both of the parties hereto. No waiver of any
of the provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver.
10. Notice by Indemnitee and
Defense of Claim. Indemnitee shall promptly notify the Company
in writing upon being served with any summons, citation, subpoena, complaint,
indictment, information or other document relating to any matter, whether civil,
criminal, administrative or investigative, but the omission to notify the
Company will not relieve the Company from any liability which it may have to
Indemnitee if such omission does not prejudice the Company’s
rights. If such omission does prejudice the Company’s rights, the
Company will be relieved from liability only to the extent of such prejudice,
nor will such omission relieve the Company from any liability which it may have
to Indemnitee otherwise than under this Agreement. With respect to
any proceeding as to which Indemnitee notifies the Company of the commencement
thereof;
(a) The
Company will be entitled to participate therein at its own expense;
and
(b) The
Company jointly with any other indemnifying party similarly notified will be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
Indemnitee; provided, however, that the Company shall not be entitled to assume
the defense of any proceeding if there has been a Change of Control or if
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee with respect to such
proceeding. After notice from the Company to Indemnitee of its
election to assume the defense thereof, the Company will not be liable to
Indemnitee under this Agreement for any Expenses subsequently incurred by
Indemnitee in connection with the defense thereof, other than reasonable costs
of investigation or as otherwise provided below. Indemnitee shall
have the right to employ its own counsel in such proceeding but the fees and
expenses of such counsel incurred after notice from the Company of its
assumption of the defense thereof shall be at the expense of Indemnitee
unless;
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(i)
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The
employment of counsel by Indemnitee has been authorized by the
Company;
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(ii)
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Indemnitee
shall have reasonably concluded on the advice of counsel that there may be
a conflict of interest between the Company and Indemnitee with respect to
such proceeding; or
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(iii)
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The
Company shall not in fact have employed counsel to assume the defense in
such proceeding or shall not in fact have assumed such defense and be
acting in connection therewith with reasonable diligence; in each of which
cases the fees and expenses of such counsel shall be at the expense of the
Company.
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-6-
(c) The
Company shall not be liable to indemnify Indemnitee under this Agreement for any
amounts paid in settlement of any action or claim effected without its written
consent. The Company shall not settle any proceeding in any manner
which would subject Indemnitee to a penalty or cost without Indemnitee’s written
consent. Neither the Company nor Indemnitee will unreasonably
withhold its or his consent to any proposed settlement.
11. Notices. All
notices, requests, demands, and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally or
by overnight courier such as Federal Express, or sent by certified or registered
mail with postage prepaid, addressed
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If
to Indemnitee, to:
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||
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If
to the Company, to:
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Bacterin
International Holdings, Inc.
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600
Cruiser Lane
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Belgrade,
Montana 59714
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Attention:
General Counsel
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Telephone
No.: (406) 388-0480
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Facsimile
No.: (406) 388-1354
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with
a copy to:
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Greenberg
Traurig, LLP
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1200
17th
Street, Suite 2400
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Denver,
Colorado 80202
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Attention:
Marc J. Musyl, Esq.
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Telephone
No.: (303) 572-6585
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Facsimile
No.: (720)
904-7685
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or to
such other address as may have been furnished to Indemnitee by the Company or to
the Company by Indemnitee, as the case may be. Notices given as set
forth herein shall be conclusively deemed to have been received by the party to
whom addressed upon receipt, if delivered personally or by overnight courier,
and three business days after the same is deposited in the United States mail if
sent by certified or registered mail.
12. Nonexclusivity. The
rights of Indemnitee hereunder shall not be deemed exclusive of any other rights
to which Indemnitee may now or in the future be entitled under Delaware
corporation law, the Company’s Articles of Incorporation or bylaws and
amendments thereto, or any agreements, vote of stockholders, resolution of the
Board of Directors or otherwise.
-7-
13. Certain Definitions.
(a) “Change in Control” shall be
deemed to have occurred if:
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(i)
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Any
person (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of stock
of the Company, hereafter becomes the “beneficial owner” (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of the
Company representing more than fifty percent (50%) of the total voting
power represented by the Company’s then outstanding voting securities;
or
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(ii)
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The
stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least eighty percent (80%) of the total voting power
represented by the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation,
or
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(iii)
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The
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company’s assets, provided, however, that any
other provision of this Section 13(a) notwithstanding, the term "Change in
Control" shall not include a transaction, if undertaken at the election of
the Company, the result of which is to sell all or substantially all of
the assets of the Company to another corporation (the "surviving
corporation"); provided that the surviving corporation is owned directly
or indirectly by the stockholders of the corporation immediately following
such transaction in substantially the same proportions as
their ownership of the Company's common stock immediately
preceding such transaction; and provided, further, that the surviving
corporation expressly assumes this
Agreement.
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(b) “Disinterested Director” shall
mean a director of the Company who is not or was not a party to the proceeding
in respect of which indemnification is being sought by Indemnitee.
(c) “Expenses” shall include all
direct and indirect costs (including, without limitation, attorneys fees,
retainers, court costs, transcripts, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, all other disbursements or out of pocket
expenses and reasonable compensation for time spent by Indemnitee for which he
is otherwise not compensated by the Company) actually and reasonably incurred in
connection with a proceeding or establishing or enforcing a right to
indemnification under this Agreement, applicable law or otherwise; provided,
however, that Expenses shall not include any liabilities.
-8-
(d) “Final Adverse Determination”
shall mean that a determination that Indemnitee is not entitled to
indemnification shall have been made pursuant to Section 6 hereof and either (i)
a final adjudication in a court of competent jurisdiction pursuant to Section
8(a) hereof shall have denied Indemnitee’s right to indemnification hereunder,
or (ii) Indemnitee shall have failed to file a complaint in a court of competent
jurisdiction pursuant to Section 8(a) for a period of one hundred eighty (180)
days after the determination made pursuant to Section 6 hereof.
(e) “Indemnification Period” shall
mean the period of time during which Indemnitee shall continue to serve as a
director of the Company, and thereafter so long as Indemnitee shall be subject
to any possible proceeding arising out of acts or omissions
of Indemnitee as a director of the Company.
(f) “Independent Legal Counsel”
shall mean a law firm or a member of a law firm selected by the Company and
approved by Indemnitee (which approval shall not be unreasonably withheld) and
that neither is presently nor in the past five years has been retained to
represent; (i) the Company or any of its subsidiaries or affiliates, or
Indemnitee or any corporation as to which Indemnitee was or is a director,
officer, employee or agent, or any subsidiary or affiliate of such a
corporation, in any material matter, or (ii) any other party to the proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding
the foregoing, the term Independent Legal Counsel shall not include any person
who, under the applicable standards of professional conduct then prevailing,
would have a conflict of interest in representing the Company or Indemnitee in
an action to determine Indemnitee’s right to indemnification under this
Agreement.
(g) “Liabilities” shall mean
liabilities of any type whatsoever including, but not limited to, any judgments,
fines, ERISA excise taxes and penalties, penalties and amounts paid in
settlement (including all interest assessments and other charges paid or payable
in connection with or in respect of such judgments, fines, penalties or amounts
paid in settlement) of any proceeding.
(h) “Proceeding” shall mean any
threatened, pending or completed action, claim, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding whether civil, criminal, administrative or investigative, including
any appeal therefrom.
14. Binding Effect, Duration and
Scope of Agreement. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns (including any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of the
business or assets of the Company), spouses, heirs and personal and legal
representatives. This Agreement shall continue in effect during the
Indemnification Period, regardless of whether Indemnitee continues to serve as a
director.
15. Severability. If
any provision or provisions of this Agreement (or any portion thereof) shall be
held to be invalid, illegal or unenforceable for any reason
whatsoever:
(a) the
validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby; and
-9-
(b) to
the fullest extent legally possible, the provisions of this Agreement shall be
construed so as to give effect to the intent of any provision held invalid,
illegal or unenforceable.
16. Governing Law and
Interpretation of Agreements. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
Delaware applicable to contracts made and to be performed in such state without
giving effect to the principles of conflicts of laws.
17. Consent to
Jurisdiction. The Company and Indemnitee irrevocably consent
to the jurisdiction of the courts of the State of Delaware for all purposes in
connection with any action or proceeding which arises out of or relates to this
Agreement.
18. Attorneys
Fees. In any proceeding brought to enforce any provision of
this Agreement, or to seek damages for a breach of any provision hereof, or when
any provision hereof is validly asserted as a defense, the prevailing party
shall be entitled to receive from the other party all reasonable attorneys fees
and costs in connection therewith.
19. Authorization. Company
has all necessary power and authority to enter into and perform its obligations
under this Agreement, and the execution, delivery and performance of this
Agreement have been duly authorized by all necessary action on the part of the
Company and its officers, directors and shareholders. No
authorization, consent or approval of or filing with any governmental authority
or any other person is required to be obtained or made by Company in connection
with the execution, delivery or performance of this Agreement.
20. Confidentiality. Unless
otherwise required by law, Company agrees to, and shall undertake all necessary
action required to, keep confidential all information which relates to any
Expense or any transaction or defense or indemnity arising out of this Agreement
which relates to Indemnitee.
21. Maintenance of Obligation to
Indemnify. Company hereby covenants and agrees that it shall
not permit the indemnification provided to Indemnitee as set forth in this
Agreement to be compromised, restricted, limited, or eliminated in any manner,
including by way of amendment of Company’s bylaws and other governing
documents.
22. Further
Assurances. Each party shall execute such instruments and
other documents, and take such action as may be required, as the other party may
reasonably request, for the purpose of carrying out or evidencing the
transactions contemplated hereby.
23. Entire
Agreement. This Agreement represents the entire agreement
between the parties hereto, and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter of
this Agreement, except as specifically referred to herein or as provided in
Section 12 hereof.
24. Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall for
all purposes be deemed to be an original but all of which together shall
constitute one and the same Agreement.
[SIGNATURE
PAGE FOLLOWS]
-10-
IN
WITNESS WHEROF, the undersigned have executed this Agreement as of the day and
year first written above.
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COMPANY:
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BACTERIN
INTERNATIONAL HOLDINGS, INC., f/k/a K-KITZ, INC., a Delaware
corporation
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By:
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Name:
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Title:
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INDEMNITEE:
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By:
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Name:
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Title:
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Signature
Page to Indemnification Agreement
EXHIBIT
10.5
BACTERIN
INTERNATIONAL
EQUITY
INCENTIVE PLAN
Effective
June 7, 2010
BACTERIN
INTERNATIONAL
EQUITY
INCENTIVE PLAN
ARTICLE
I
INTRODUCTION
1.1 Establishment. K-Kitz,
Inc., a Delaware corporation, hereby establishes the Bacterin International
Equity Incentive Plan for certain key employees of the Company and certain
directors and consultants to the Company. The Plan permits the grant
of incentive stock options within the meaning of Code § 422, non-qualified
stock options, restricted stock awards, stock appreciation rights, stock
bonuses, restricted stock units and other stock grants to certain key employees
of the Company and to certain directors and consultants to the
Company.
1.2 Purposes. The
purposes of the Plan are to provide those who are selected for participation in
the Plan with added incentives to continue in the long-term service of the
Company and to create in such persons a more direct interest in the future
success of the operations of the Company by relating incentive compensation to
increases in shareholder value, so that the income of those participating in the
Plan is more closely aligned with the income of the Company's
shareholders. The Plan is also designed to provide a financial
incentive that will help the Company attract, retain and motivate the most
qualified employees, directors, and consultants.
ARTICLE
II
DEFINITIONS
2.1 "Affiliated
Corporation" means any corporation or other entity that is affiliated
with the Plan Sponsor through stock ownership or otherwise, provided, however,
that for purposes of Incentive Options granted pursuant to the Plan, an
"Affiliated Corporation" means any parent or subsidiary of the Plan Sponsor as
defined in Code § 424.
2.2 "Award"
means an Option, a Restricted Stock Award, a Stock Appreciation Right, a
Restricted Stock Unit, or grants of Stock issued under the Plan.
2.3 "Board"
means the Board of Directors of the Plan Sponsor.
2.4 "Cause"
shall have the meaning assigned to it by the Participant’s employment agreement,
if the Company has entered into an employment agreement with the Participant;
otherwise termination for "Cause" shall mean termination of employment as a
result of a violation of any Company policy, procedure or guideline, or engaging
in any of the following forms of misconduct: conviction of any felony or of any
misdemeanor involving dishonesty or moral turpitude; theft or misuse of the
Company's property or time; use of alcohol or controlled substances on the
Company's premises or appearing on such premises while intoxicated or under the
influence of drugs not prescribed by a physician, or after having abused
prescribed medications; illegal use of any controlled substance; illegal
gambling on the Company's premises; discriminatory or harassing behavior,
whether or not illegal under federal, state or local law; willful misconduct; or
falsifying any document or making any false or misleading
statement relating to employment by the Company; or injures the
economic or ethical welfare of the Company by misconduct or inattention to
duties and responsibilities, or fails to meet the Company's performance
expectations, as determined by the Company in its sole discretion.
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Bacterin
International Equity Incentive Plan
|
6/4/2010
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2
2.5 "Change in
Control" occurs on the date that:
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(a)
|
any
one person, or more than one person acting as a group, acquires ownership
of stock of the Plan Sponsor that, together with stock held by such person
or group, constitutes more than 50% of the total Fair Market Value or
total voting power of the stock of the Plan Sponsor. However, if any one
person or more than one person acting as a group, is considered to own
more than 50% of the total Fair Market Value or total voting power of the
stock of the Plan Sponsor, the acquisition of additional stock by the same
person or persons is not considered to cause a change in the ownership of
the Plan Sponsor (or to cause a change in the effective control of the
Plan Sponsor. An increase in the percentage of stock owned by any one
person, or persons acting as a group, as a result of a transaction in
which the Plan Sponsor acquires its stock in exchange for property will be
treated as an acquisition of stock for purposes of this
Section.
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(b)
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there
is a change in the effective control of the Plan Sponsor. A change in the
effective control of the Plan Sponsor occurs on the date that
either:
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(i)
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Any
one person, or more than one person acting as a group, acquires (or has
acquired during the 12-month period ending on the date of the most recent
acquisition by such person or persons) ownership of stock of the Plan
Sponsor possessing 30% or more of the total voting power of the stock of
such corporation; or
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(ii)
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a
majority of members of the Plan Sponsor's board of directors is replaced
during any 12-month period by directors whose appointment or election is
not endorsed by a majority of the members of the Plan Sponsor's board of
directors prior to the date of the appointment or
election.
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(c)
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any
one person, or more than one person acting as a group, acquires ownership
of assets of the Plan Sponsor that have a gross fair market value equal to
or more than 40% of the total gross fair market value of all of the assets
of the Plan Sponsor immediately prior to such acquisitions. For
this purpose, gross fair market value means the value of the assets of the
Plan Sponsor, or the value of the assets being disposed of, determined
without regard to any liabilities associates with the
assets.
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Persons Acting as a
Group. Persons will not be considered to be acting as a group solely
because they purchase or own stock of the Plan Sponsor at the same time, or as a
result of the same public offering. However, persons will be considered to be
acting as a group if they are owners of a corporation that enters into a merger,
consolidation, purchase or acquisition of stock, or similar business transaction
with the corporation. If a person, including an entity, owns stock in both
corporations that enter into a merger, consolidation, purchase or acquisition of
stock, or similar transaction, such shareholder is considered to be acting as a
group with other shareholders in a corporation prior to the transaction giving
rise to the change and not with respect to the ownership interest in the other
corporation.
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Bacterin
International Equity Incentive Plan
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6/4/2010
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3
This
Section shall be interpreted in accordance with Treasury guidance for the
definition of Change in Control under Code § 409A.
2.6 "Code"
means the Internal Revenue Code of 1986, as it may be amended from time to
time.
2.7 "Committee"
means a committee established under Article X of the Plan which is empowered to
take actions with respect to the administration of the Plan.
2.8 "Company"
means the Plan Sponsor and the Affiliated Corporations.
2.9 "Disabled"
or "Disability"
shall have the meaning given to such terms in Code § 22(e)(3).
2.10
"Effective
Date" means the effective date of the Plan which is June 7, 2010;
however, the adoption of those provisions of the Plan by the Board which relate
to the grant of Incentive Options are subject to approval and ratification by
the shareholders of the Plan Sponsor within 12 months of the effective
date. Incentive Options granted under the Plan prior to the approval
of the Plan by the shareholders of the Plan Sponsor shall be subject to approval
of the Plan by the shareholders of the Plan Sponsor.
2.11
"Eligible
Employees" means the employees (including, without limitation, officers
and directors who are also employees) of the Company who are selected for
participation in the Plan. For purposes of the Plan, an employee is
an individual whose wages are subject to the withholding of federal income tax
under Code § 3401.
2.12
"Eligible
Individuals" means those consultants to the Company and directors of the
Company who are selected by the Committee for participation in the
Plan.
2.13
"Fair
Market Value" means the closing price, on the Over-The-Counter Bulletin
Board (OTCBB), the principal stock exchange or other market on which the Stock
is traded, on the trading day preceding the grant date. If the price
of the Stock is not reported on any securities exchange or national market
system, the Fair Market Value of the Stock on a particular date shall be as
determined by the Committee in good faith by applying any reasonable valuation
method permitted under Code § 409A to determine fair market value in
accordance with Code § 409A.
2.14
"Incentive
Option" means an Option designated as an incentive stock option and
granted in accordance with Code § 422.
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Bacterin
International Equity Incentive Plan
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6/4/2010
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4
2.15
"Non-Qualified
Option" means any Option other than an Incentive Option.
2.16
"Option"
means a right to purchase Stock at a stated or formula price for a specified
period of time. Options granted under the Plan shall be either
Incentive Options or Non-Qualified Options.
2.17
"Option
Agreement" shall have the meaning given to it in Section
4.3.
2.18
"Option
Holder" means a Participant who has been granted one or more Options
under the Plan.
2.19
"Option
Period" shall have the meaning given to it in Section
4.3(c).
2.20
"Option
Price" means the price at which each Share subject to an Option may be
purchased, determined in accordance with Section 4.3(b).
2.21
"Participant"
means an Eligible Employee or Eligible Individual designated by the Committee
during the term of the Plan to receive one or more Awards under the
Plan.
2.22
"Plan"
means the Bacterin International Equity Incentive Plan.
2.23
"Plan
Sponsor" means K-Kitz, Inc. and any successor thereto.
2.24
"Restricted
Stock Award" means Stock granted to a Participant that is subject to
certain restrictions.
2.25
"Restricted
Stock Award Agreement" shall have the meaning given to it in Section
5.2.
2.26
"Restricted
Stock Unit" means a hypothetical interest in the value of one Share,
denominated in United States dollars.
2.27
"RSU
Agreement" shall have the meaning given to it in Section
6.2.
2.28
"RSU
Holder" means a Participant who has been granted one or more RSUs under
the Plan. The term “RSU Holder” also includes the beneficiary of a
deceased Participant.
2.29
"RSUs"
means Restricted Stock Units.
2.30
"SAR
Agreement" shall have the meaning given to it in Section
7.3.
2.31
"SAR
Holder" means a Participant who has been granted one or more SARs under
the Plan.
2.32
"SAR
Period" shall have the meaning given to it in Section
7.3(c).
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Bacterin
International Equity Incentive Plan
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6/4/2010
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5
2.33
"SARs"
means Stock Appreciation Rights.
2.34
"Section"
or "Subsection" means a reference to a section or subsection of the Plan,
unless another reference specifically applies.
2.35
"Share"
means a share of Stock.
2.36
"Shareholders
Agreement" shall have the meaning given to it in Section
12.4.
2.37
"Stock"
means the common stock of the Plan Sponsor and any stock issued or issuable
subsequent to the Effective Date in substitution for the common
stock.
2.38
"Stock
Appreciation Right" means the right, granted by the Committee pursuant to
the Plan, to receive a payment equal to the increase in the Fair Market Value of
a Share subsequent to the grant of such right.
2.39
"Stock
Bonus" means either an outright grant of Stock or a grant of Stock
subject to and conditioned upon certain employment or performance related
goals.
ARTICLE
III
PARTICIPATION
AND LIMIT ON AWARDS
3.1 Participation. The Committee
shall select the Eligible Employees and Eligible Individuals who are
Participants in the Plan. The Committee shall select the Eligible
Employees who, in the judgment of the Committee, are performing, or during the
term of their incentive arrangement will perform, vital services in the
management, operation and development of the Company, and significantly
contribute, or are expected to significantly contribute, to the achievement of
long-term corporate economic objectives. The Committee shall select
the Eligible Individuals from the non-employee consultants and directors for the
Company who are performing services important to the operation and growth of the
Company. Participants may be granted from time to time one or more
Awards.
3.2 Limit on
Awards. No Participant
shall receive Awards for any calendar year in excess of 2,500,000 Shares and all
Awards for all Participants in any calendar year shall not exceed 5,000,000
Shares.
ARTICLE
IV
OPTIONS
4.1 Grant of
Options. A Participant may be granted one or more
Options. Options shall be granted as of the date specified in the
Option Agreement. The Committee in its sole discretion shall
designate whether an Option is an Incentive Option or a Non-Qualified
Option. Only Non-Qualified Options may be granted to Eligible
Individuals. The Committee may grant both an Incentive Option and a
Non-Qualified Option to an Eligible Employee at the same time or at different
times. Incentive Options and Non-Qualified Options, whether granted
at the same time or at different times, shall be deemed to have been awarded in
separate grants and shall be clearly identified. In no event shall
the exercise of one Option affect the right to exercise any other Option or
affect the number of Shares for which any other Option may be exercised. The
grant of each Option shall be separately approved by the Committee, and the
receipt of one Option shall not result in automatic receipt of any other
Option. Upon determination by the Committee to grant an Option to a
Participant, the Committee shall enter into an Option Agreement with the
Participant.
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International Equity Incentive Plan
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6
4.2 Restrictions on
Incentive Options.
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(a)
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Initial
Exercise. The aggregate Fair Market Value of the Shares
with respect to which Incentive Options are exercisable for the first time
by an Option Holder in any calendar year, under the Plan and any other
plan of the Company, shall not exceed $100,000. For this
purpose, the Fair Market Value of the Shares shall be determined as of the
date of grant of the Option. To the extent the Option Holder
holds two or more Options which become exercisable for the first time in
the same calendar year, the $100,000 limitation shall be applied on the
basis of the order in which the Options are granted. Any Option
or portion thereof that exceeds the $100,000 limit shall be treated as a
Non-Qualified Option, but only to the extent of such
excess.
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(b)
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Ten Percent
Stockholders. Incentive Options granted to an
Option Holder who is the holder of record of 10% or more of the
outstanding Stock of the Plan Sponsor shall have an Option Price equal to
110% of the Fair Market Value of the Shares on the date of grant of the
Option and the Option Period for any such Option shall not exceed five
years.
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(c)
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No
Award of Incentive Options shall be granted after June 6, 2020, the day
before the 10th
year anniversary of the Effective
Date.
|
4.3 Stock Option
Agreements. Each Option granted under the Plan shall be
evidenced by an agreement (an "Option Agreement"). An Option
Agreement shall be issued by the Plan Sponsor in the name of the Option Holder
and in such form as may be approved by the Committee. The Option
Agreement shall incorporate and conform to the conditions in the Plan as well as
any other terms and conditions that are not inconsistent as the Committee may
consider appropriate. In the event of any inconsistency between the provisions
of the Plan and any Option Agreement, the provisions of the Plan shall
govern.
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(a)
|
Number of
Shares. Each Option Agreement shall state that it covers a
specified number of Shares, as determined by the
Committee.
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(b)
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Option
Price. The price at which each Share covered by an Option may be
purchased shall be determined in each case by the Committee and set forth
in the Option Agreement, and shall not be less than 100% of the Fair
Market Value of the Stock on the date the Option is
granted.
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International Equity Incentive Plan
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(c)
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Duration of
Options. Each Option Agreement shall state the period of time,
determined by the Committee, within which the Option may be exercised by
the Option Holder (the "Option Period"). The Option Period must
end not more than ten years from the date the Option is
granted. If the Option Agreement does not specify the Option
Period, the Option Period will end ten years from the date the Option is
granted.
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(d)
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Restrictions
on Exercise. The Option Agreement shall also set forth any
restrictions on Option exercise during the Option Period, if any, as may
be determined by the Committee. Each Option shall become
exercisable (vest) over such period of time, if any, or upon such events,
as determined by the Committee. If the Option Agreement does
not specify the period of time over which the Option becomes exercisable,
the Option shall become exercisable (vest) 20% on each subsequent
anniversary date of the Option grant, so that the Option is 100%
exercisable (vested) on the 5th
anniversary of the date of the Option
grant.
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(e)
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Termination
of Services, Death, or Disability. The Committee may
specify in the Option Agreement the period, if any, after which an Option
may be exercised following termination of the Option Holder's
services. If the Option Agreement does not specify the period
of time following termination of service during which Options may be
exercised, the time periods in this Subsection shall
apply. Once an Option is granted, the Committee may not change
the time period during which an Option may be exercised following
termination of the Option Holder’s services, unless such a change would
not cause additional taxes to be imposed pursuant to Code
§ 409A.
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(i)
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Termination
for Cause. If the
services of the Option Holder are terminated within the Option Period for
Cause, as determined by the Company, the Option shall thereafter be void
for all purposes.
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(ii)
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Disability. If the
Option Holder becomes Disabled and terminates services, the Option may be
exercised by the Option Holder within six months following the Option
Holder's termination of services on account of Disability (provided that
such exercise must occur within the Option Period), but not
thereafter. The Option may be exercised only to the extent the
Option had become exercisable on or before the date of the Option Holder's
termination of services because of
Disability.
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(iii)
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Death. If the
Option Holder dies during the Option Period while still performing
services for the Company or within the six month period referred to in
(ii) above or the three-month period referred to in (iv) below, the Option
may be exercised by those entitled to do so under the Option Holder's will
or by the laws of descent and distribution within six months following the
Option Holder's death, (provided that such exercise must occur within the
Option Period), but not thereafter. The Option may be exercised
only to the extent the Option had become exercisable on or before the date
of the Option Holder's termination of services because of the Option
Holder’s death.
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International Equity Incentive Plan
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6/4/2010
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(iv)
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Termination
for Reasons Other than Cause, Disability or Death. If the
Option Holder is no longer employed by the Company or performing services
for the Company for any reason other than Cause, Disability or the Option
Holder's death, the Option may be exercised by the Option Holder within
three months following the date of termination (provided that the exercise
must occur within the Option Period), but not thereafter. The
Option may be exercised only to the extent the Option had become
exercisable on or before the date of the Option Holder's termination of
services.
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4.4 Transferability. Each
Option shall not be transferable by the Option Holder except by will or pursuant
to the laws of descent and distribution. Each Option is exercisable
during the Option Holder’s lifetime only by him or her, or in the event of
Disability or incapacity, by his or her guardian or legal
representative. The Committee may, however, provide at the time of
grant or thereafter that the Option Holder may transfer a Non-Qualified Option
to a member of the Option Holder’s immediate family, a trust of which members of
the Option Holder’s immediate family are the only beneficiaries, or a
partnership of which members of the Option Holder’s immediate family or trusts
for the sole benefit of the Option Holder’s immediate family are the only
partners. Immediate family means the Option Holder’s spouse, issue
(by birth or adoption), parents, grandparents, and siblings (including half
brothers and sisters and adopted siblings). During the Option
Holder’s lifetime the Option Holder may not transfer an Incentive Option under
any circumstances.
4.5 Manner of
Exercise. The method for exercising each Option granted
hereunder shall be by delivery to the Plan Sponsor of (1) written notice
specifying the number of Shares with respect to which such Option is exercised,
(2) payment in full of the exercise price and any liability the Company may
have for withholding of federal, state or local income or other taxes incurred
by reason of the exercise of the Option, (3) representation meeting the
requirements of Section 12.1 if requested by the Plan Sponsor, and (4) a
Shareholders Agreement meeting the requirements of Section 12.4 if requested by
the Plan Sponsor. The purchase of such Shares shall take place at the
principal offices of the Plan Sponsor within thirty days following delivery of
such notice, at which time the Option Price of the Shares shall be paid in full.
If the Option Price is paid by means of a broker's loan transaction, in whole or
in part, the closing of the purchase of the Stock under the Option shall take
place (and the Option shall be treated as exercised) on the date on which, and
only if, the sale of Stock upon which the broker's loan was based has been
closed and settled, unless the Option Holder makes an irrevocable written
election, at the time of exercise of the Option, to have the exercise treated as
fully effective for all purposes upon receipt of the Option Price by the Plan
Sponsor regardless of whether or not the sale of the Stock by the broker is
closed and settled. A properly executed certificate or certificates
representing the Shares shall be delivered to the Option Holder upon
payment. If Options on less than all shares evidenced by an Option
Agreement are exercised, the Plan Sponsor shall deliver a new Option Agreement
evidencing the Option on the remaining shares upon delivery of the Option
Agreement for the Option being exercised.
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International Equity Incentive Plan
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6/4/2010
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9
4.6 Payment of the
Exercise Price. The exercise price shall be paid by any of the
following methods or any combination of the following methods at the election of
the Option Holder, or by any other method approved by the Committee upon the
request of the Option Holder:
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(a)
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in
cash.
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(b)
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by
certified check, cashier's check or other check acceptable to the Plan
Sponsor, payable to the order of the Plan
Sponsor.
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(c)
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by
delivery to the Plan Sponsor of certificates representing the number of
Shares then owned by the Option Holder, the Fair Market Value of which
equals the purchase price of the Stock purchased pursuant to the Option,
properly endorsed for transfer to the Plan Sponsor. No Option
may be exercised by delivery to the Plan Sponsor of certificates
representing Stock, unless such Stock has been held by the Option Holder
for more than six months. The Fair Market Value of any Shares
delivered in payment of the purchase price upon exercise of the Option
under the Plan shall be the Fair Market Value as of the exercise date. The
exercise date shall be the day of delivery of the certificates for the
Stock used as payment of the Option
Price.
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(d)
|
by
delivery to the Plan Sponsor of a properly executed notice of exercise
together with irrevocable instructions to a broker to deliver to the Plan
Sponsor promptly the amount of the proceeds of the sale of all or a
portion of the Stock or of a loan from the broker to the Option Holder
required to pay the Option Price.
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4.7 Withholding
Requirement. The Plan Sponsor's obligations to deliver Shares
upon the exercise of any Option shall be subject to the Participant's
satisfaction of all applicable federal, state and local income and other tax
withholding requirements.
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(a)
|
Non-Qualified
Options. Upon
exercise of an Option, the Option Holder shall make appropriate
arrangements with the Company to provide for the amount of additional
withholding required by Code §§ 3102 and 3402 and applicable state
income tax laws, including payment of such taxes through delivery of
Shares or by withholding Stock to be issued under the
Option.
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(b)
|
Incentive
Options. If an
Option Holder makes a disposition (as defined in Code § 424(c)) of
any Stock acquired pursuant to the exercise of an Incentive Option prior
to the expiration of two years from the date on which the Incentive Option
was granted or prior to the expiration of one year from the date on which
the Option was exercised, the Option Holder shall send written notice to
the Company at the Company's principal place of business of the date of
such disposition, the number of shares disposed of, the amount of proceeds
received from such disposition and any other information relating to such
disposition as the Company may reasonably request. The Option
Holder shall, in the event of such a disposition, make appropriate
arrangements with the Company to provide for the amount of additional
withholding, if any, required by Code §§ 3102 and 3402 and applicable
state income tax laws.
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International Equity Incentive Plan
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6/4/2010
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4.8 Withholding With
Stock. The Committee may, in its sole discretion, grant the Participant
an election to pay all such amounts of tax withholding, or any part thereof, by
electing to transfer to the Plan Sponsor, or to have the Plan Sponsor withhold
from shares otherwise issuable to the Participant, Shares having a value equal
to the amount required to be withheld or such lesser amount as may be elected by
the Participant. All elections shall be subject to the approval or
disapproval of the Committee. The value of Shares to be withheld
shall be based on the Fair Market Value of the Stock on the date that the amount
of tax to be withheld is to be determined (the "Tax Date"). Any such
elections by Participants to have Shares withheld for this purpose will be
subject to the following restrictions:
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(a)
|
All
elections must be made prior to the Tax
Date.
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(b)
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All
elections shall be
irrevocable.
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(c)
|
If
the Participant is an officer or director of the Plan Sponsor within the
meaning of Section 16 of the 1934 Act ("Section 16"), the Participant must
satisfy the requirements of such Section 16 and any applicable Rules
thereunder with respect to the use of Stock to satisfy such tax
withholding obligation.
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4.9 Shareholder
Privileges. No Option Holder shall have any rights as a
shareholder with respect to any Shares covered by an Option until the Option
Holder becomes the holder of record of such Stock, and no adjustments shall be
made for dividends or other distributions or other rights as to which there is a
record date preceding the date such Option Holder becomes the holder of record
of such Stock, except as provided in the Plan.
4.10
Change in
Control.
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(a)
|
Unless
otherwise determined by the Committee (either at the time an Option is
granted or by subsequent action), the Options shall not be subject to
accelerated vesting at the time of a Change in
Control.
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(b)
|
Upon
the consummation of a Change in Control, all outstanding Options shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) or otherwise continued in effect
pursuant to the terms of the Change in Control transaction. An
Option Holder may make an irrevocable election to exercise an Option that
is contingent upon and effective as of the effective date of the Change in
Control.
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International Equity Incentive Plan
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6/4/2010
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(c)
|
Each
Option which is assumed in connection with a Change in Control or
otherwise continued in effect shall be appropriately adjusted, immediately
after such Change in Control, to apply to the number and class of
securities which would have been issuable to the Option Holder in
consummation of such Change in Control, had the Option been exercised
immediately prior to the Change in Control. Appropriate
adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the
consummation of the Change in Control and (ii) the exercise price
payable per share under each outstanding Option, provided the aggregate
exercise price payable for such securities shall remain the
same. To the extent the actual holders of the Company’s
outstanding Stock receive cash consideration for their Stock in
consummation of the Change in Control, the successor corporation may, in
connection with the assumption of the outstanding options under this Plan,
substitute one or more shares of its own common stock with a fair market
value equivalent to the cash consideration paid per Share in such Change
in Control.
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(d)
|
The
Committee shall have the discretion, exercisable either at the time the
Option is granted or at any time while the Option remains outstanding, to
structure one or more Options so that those Options shall automatically
accelerate and vest in full upon the occurrence of a Change in Control,
whether or not those Options are to be assumed in the Change in Control or
otherwise continued in effect.
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(e)
|
The
portion of any Incentive Option accelerated in connection with a Change in
Control shall remain exercisable as an Incentive Option only to the extent
the applicable $100,000 limitation is not exceeded. To the
extent such dollar limitation is exceeded, the accelerated portion of such
Option shall be exercisable as a Non-Qualified Option under the federal
tax laws.
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ARTICLE
V
RESTRICTED
STOCK
5.1 Persons
Eligible. The Committee, in its sole discretion, may grant a
Participant one or more Restricted Stock Awards consisting of
Shares. The number of Shares granted as a Restricted Stock Award
shall be determined by the Committee.
5.2 Terms of
Award. The Committee shall determine at the time of the grant
of a Restricted Stock Award any other terms that will apply to the Restricted
Stock Award. Each Restricted Stock Award granted under the Plan shall be
evidenced by a written restricted stock agreement (a “Restricted Stock Award
Agreement”). A Restricted Stock Award Agreement shall be issued by
the Plan Sponsor in the name of the Participant and in such form as may be
approved by the Committee. The Restricted Stock Award Agreement shall
incorporate and conform to the conditions in the Plan as well as any other terms
and conditions that are not inconsistent as the Committee may consider
appropriate. In the event of any inconsistency between the provisions of the
Plan and any Restricted Stock Award Agreement, the provisions of the Plan shall
govern.
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|
(a)
|
Number of
Shares of Restricted Stock. Each Restricted Stock Award
Agreement shall state that it covers a specified number of Shares, as
determined by the Committee.
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International Equity Incentive Plan
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(b)
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Restrictions.
The Restricted Stock Award Agreement shall set forth the vesting
restrictions as may be determined by the Committee. Each Share
of Restricted Stock shall vest over such period of time, if any, or upon
such events, as determined by the Committee. If no restrictions
are stated in the Restricted Stock Award Agreement, 20% of the Award shall
vest on the 1st
anniversary of the date of grant and an additional 20% of the Award shall
vest on each subsequent anniversary of the date of grant, so that the
Award is 100% vested on the 5th
anniversary of the date of the
Award.
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|
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(c)
|
Termination
of Services, Death, or Disability. Unless the Restricted
Stock Award Agreement provides otherwise, if a Participant terminates
service for any reason, including death or Disability, the remaining
unvested Award at the date of termination shall be forfeited and shall be
immediately returned to the
Company.
|
5.3 Privileges of a
Stockholder, Transferability. Subject to the terms of the
Restricted Stock Award Agreement, a Participant shall have all voting, dividend,
liquidation and other rights with respect to Stock held pursuant to the
Restricted Stock Award Agreement upon the Participant's becoming the holder of
record of such Stock, except that the Participant may not have the right to
sell, encumber, or otherwise transfer such Stock until the restrictions
lapse.
5.4 Enforcement of
Restrictions. The Committee shall cause a legend to be placed
on the Stock certificates issued pursuant to each Restricted Stock Award
referring to the restrictions of this Article and, in addition, may in its sole
discretion require one or more of the following methods of enforcing the
restrictions of this Article:
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(a)
|
Requiring
the Participant to keep the Stock certificates, duly endorsed, in the
custody of the Company while the restrictions remain in effect;
or
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|
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(b)
|
Requiring
that the Stock certificates, duly endorsed, be held in the custody of a
third party while the restrictions remain in
effect.
|
Any new,
substituted, or additional securities or other property (including money paid
other than as a regular cash dividend) which the Participant may have the right
to receive with respect to the Participant’s unvested Restricted Stock Award by
reason of any stock dividend, stock split, recapitalization, combination of
shares, exchange of shares or other change affecting the Stock as a class
without the Company’s receipt of consideration shall be issued subject to
(i) the same vesting requirements applicable under the Participant’s
Restricted Stock Award Agreement and (ii) such escrow arrangements as the
Committee shall deem appropriate.
5.5 Withholding
Requirement. Upon satisfaction of all restrictions under a
Restricted Stock Award Agreement, the Participant is subject to and shall be
required to pay to the Company all taxes required to be withheld, all government
mandated social benefit contributions, and any other payments required to be
withheld which are applicable to the Participant.
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Bacterin
International Equity Incentive Plan
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6/4/2010
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13
5.6 Change in
Control. Unless otherwise determined by the Committee (either at the time
a Restricted Stock Award is granted or by subsequent action), Restricted Stock
Awards shall not be subject to accelerated vesting at the time of a Change in
Control. Upon the consummation of a Change in Control, any Restricted Stock
Award as to which the period for which services are required or other
restrictions have not been satisfied (or waived or accelerated) shall be
forfeited, and all Shares related thereto shall be immediately returned to the
Company, except to the extent assumed by the successor corporation (or parent
thereof) or otherwise continued in effect pursuant to the terms of the Change in
Control transaction.
The Committee shall have the
discretion, exercisable either at the time the Restricted Stock Award is granted
or at any time while the Restricted Stock Award remains outstanding, to
structure one or more Restricted Stock Awards so that those Restricted Stock
Awards shall automatically accelerate and vest in full upon the occurrence of a
Change in Control, whether or not those Restricted Stock Awards are to be
assumed in the Change in Control or otherwise continued in effect.
ARTICLE
VI
RESTRICTED
STOCK UNITS
6.1 Grant of
RSUs. A Participant may be granted one or more Restricted
Stock Units as determined by the Committee. Restricted Stock Units
shall be granted as of the date specified in the RSU Agreement. RSUs granted may
be 100% vested on the date the Award is granted, or they may be subject to a
vesting schedule. Each Award shall be separately approved by the
Committee, and the receipt of one Award shall not result in automatic receipt of
any other Award. Upon determination by the Committee to grant Restricted Stock
Units to a Participant, the Company, by action of the Committee, shall enter
into an RSU Agreement with the Participant.
6.2 RSU
Agreements. Each Award granted under the Plan shall be
evidenced by a written restricted stock unit agreement (an "RSU
Agreement"). An RSU Agreement shall be issued by the Plan Sponsor in
the name of the Participant to whom the Award is granted and in such form as may
be approved by the Committee. The RSU Agreement shall incorporate and conform to
the conditions in the Plan as well as any other terms and conditions that are
not inconsistent as the Committee may consider appropriate.
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|
(a)
|
Number of
RSUs. Each RSU Agreement shall state that it covers a
specified number of RSUs, as determined by the
Committee.
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|
|
(b)
|
Restrictions.
The RSU Agreement shall set forth the vesting restrictions as may be
determined by the Committee. Each RSU shall vest over such
period of time, if any, or upon such events, as determined by the
Committee, in a manner that does not cause adverse tax consequences under
Code § 409A. If no restrictions are stated in the RSU
Agreement, 20% of the Award shall vest on the 1st
anniversary of the date of grant and an additional 20% of the Award shall
vest on each subsequent anniversary of the date of grant, so that the
Award is 100% vested on the 5th
anniversary of the date of the
Award.
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International Equity Incentive Plan
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6/4/2010
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14
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|
(c)
|
Termination
of Services, Death, or Disability. Unless the RSU
Agreement provides otherwise, if a Participant terminates service for any
reason, including death or Disability, the remaining unvested Award at the
date of termination shall be forfeited and shall be immediately returned
to the Company.
|
6.3 Non-Transferability
of RSUs. No RSU shall be assignable or transferable during the
lifetime of the Participant, either voluntarily or involuntarily, or subjected
to any lien, directly or indirectly, by operation of law, or otherwise,
including execution, levy, garnishment, attachment, pledge or
bankruptcy. In the event of an RSU Holder's death, an RSU Holder's
RSUs shall be automatically transferred to the RSU Holder's beneficiary
designated in accordance with Section 6.4, or if the RSU Holder did not
designate a beneficiary, or if no beneficiary survives the RSU Holder, the RSU
Holder's legal representatives, heirs or legatees.
6.4 Designation of
Beneficiary. Each RSU Holder may designate one or more
beneficiaries (who may be designated contingently or successively) to whom the
RSU payment is payable in the event of the RSU Holder's death. Each
designation will automatically revoke any prior designations by the same RSU
Holder. The beneficiary designation shall be in writing on a form
prescribed by the Committee. Any beneficiary designation will be
effective as of the date on which the written designation is received by the
Committee during the lifetime of the RSU Holder. If the RSU Holder
does not designate a beneficiary, or if a beneficiary does not survive the RSU
Holder, the cash payment (or the portion of the cash payment attributable to a
deceased beneficiary) shall be payable to the RSU Holder’s estate.
6.5 Redemption of
RSUs. As of the date an RSU is vested, the Company shall
redeem the RSU. In no event shall the redemption of RSUs granted under one RSU
Agreement affect the redemption of any RSUs under the same RSU Agreement or any
other RSU Agreement or affect the number of RSUs which may be redeemed.
Following redemption of all RSUs granted under an RSU Agreement, the RSU
Agreement shall be terminated.
|
|
(a)
|
Amount
of RSU Payment. If the RSU Agreement
specifies that payment of the RSU shall be made in cash, the Plan Sponsor
(or the Affiliated Corporation utilizing the services of the RSU Holder)
shall make a cash payment for each RSU equal to the Fair Market Value of a
Share on the date the RSU is vested, less any withholdings (as determined
under Section 6.7). If the RSU Agreement specifies that payment of the RSU
shall be made in Shares, the Plan Sponsor (or the Affiliated Corporation
utilizing the services of the RSU Holder) shall deliver one Share for each
RSU to the RSU Holder, less any withholdings (as determined under Section
6.7). The Plan Sponsor has the right to reduce any payment due
under the Plan by any amounts owed by the RSU Holder to the Company. The
amount of any cash payment shall be calculated and paid in United States
dollars.
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|
|
(b)
|
Timing
of Payment. Unless the
RSU Agreement provides otherwise, the Plan Sponsor (or the Affiliated
Corporation utilizing the services of the RSU Holder) shall make any cash
payment in a single sum payment as soon as administratively practicable
(in accordance with procedures established by the Committee) after the
receipt by the Plan Sponsor of all representations requested by the
Committee pursuant to Section 12.1, but in no event later than the 15th
day of the third month following the end of the calendar year in which the
RSU vests. Unless the RSU Agreement provides otherwise, the
Plan Sponsor (or the Affiliated Corporation utilizing the services of the
RSU Holder) shall deliver any Stock payment as soon as administratively
practicable (in accordance with procedures established by the Committee)
after the receipt by the Plan Sponsor of all representations requested by
the Committee pursuant to Article XI, but in no event later than the
15th
day of the third month following the end of the calendar year in which the
RSU vests.
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International Equity Incentive Plan
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6/4/2010
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15
|
|
(c)
|
Cancellation
of RSUs Redeemed. Upon
redemption of an RSU, the RSU Holder no longer has any rights to any
increase in value of the RSU, and the Participant's RSUs which were
redeemed are canceled.
|
6.6 Cancellation of
RSUs Upon Termination of Service.
|
|
(a)
|
Termination
of Services for Any Reason. If an RSU
Holder voluntarily terminates service or is terminated involuntarily from
service for any reason other than death (including retirement or
disability), all unvested RSUs shall be
forfeited.
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|
|
(b)
|
Definition
of Termination of Services. Termination
of services occurs as of the first day on which the RSU Holder is no
longer performing services for the Company or any entity related to the
Company. Whether an RSU Holder has terminated service shall be
determined by the Committee in its sole
discretion.
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6.7 Withholding
Requirement. All payments under the Plan are subject to
withholding of all taxes, government mandated social benefit contributions, or
other payments required to be withheld which are applicable to the RSU
Holder.
6.8 No Equity Holder
Privileges. No RSU Holder shall have any privileges as an
equity holder with respect to any RSUs.
6.9 Change in
Control. Unless otherwise determined by the Committee (either at the time
a RSU is granted or by subsequent action that does not cause adverse tax
consequences under Code § 409A), RSUs shall not be subject to accelerated
vesting at the time of a Change in Control. Upon the consummation of a Change in
Control, any RSU as to which the period for which services are required or other
restrictions have not been satisfied (or waived or accelerated) shall be
forfeited, except to the extent assumed by the successor corporation (or parent
thereof) or otherwise continued in effect pursuant to the terms of the Change in
Control transaction.
The Committee shall have the
discretion at the time the RSU is granted (or at any time the RSU remains
outstanding, if the action subsequent to the grant date does not cause adverse
tax consequences under Code § 409A) to structure one or more RSUs so that
those RSUs shall automatically accelerate and vest in full upon the occurrence
of a Change in Control, whether or not those RSUs are to be assumed in the
Change in Control or otherwise continued in effect.
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ARTICLE
VII
STOCK
APPRECIATION RIGHTS
7.1 Persons
Eligible. The Committee, in its sole discretion, may grant a
Participant one or more Stock Appreciation Rights.
7.2 Types of Stock
Appreciation Rights. The Committee may grant Stock Appreciation Rights
that are settled in cash under the Plan, or Stock Appreciation Rights that are
settled in Stock.
7.3 Terms of
Grant. The Committee shall determine at the time of the grant
of a Stock Appreciation Right the time period during which the Stock
Appreciation Right may be exercised, the type of Stock Appreciation Right being
granted, and any other terms that will apply to the Stock Appreciation
Right. Each Stock Appreciation Right granted under the Plan shall be
evidenced by a written stock appreciation right agreement (a “SAR
Agreement”). A SAR Agreement shall be issued by the Plan Sponsor in
the name of the SAR Holder and in such form as may be approved by the
Committee. The SAR Agreement shall incorporate and conform to the
conditions in the Plan as well as any other terms and conditions that are not
inconsistent as the Committee may consider appropriate. In the event of any
inconsistency between the provisions of the Plan and any Option Agreement, the
provisions of the Plan shall govern.
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(a)
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Number of
SARs. Each SAR Agreement shall state that it covers a
specified number of Stock Appreciation Rights, as determined by the
Committee.
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(b)
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Stock Price
for Determining Appreciation. Each SAR Agreement shall
state the Fair Market Value of a Share from which appreciation of the SAR
will be measured. The Stock price specified shall not be less than 100% of
the Fair Market Value of the Stock on the date the SAR is
granted.
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(c)
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Duration of
SARs. Each SAR Agreement shall state the period of time,
determined by the Committee, within which the SAR may be exercised by the
SAR Holder (the "SAR Period"). The SAR Period must end not more
than ten years from the date the SAR is granted. If no SAR
Period is stated in the SAR Agreement, the SAR Period shall end on the day
immediately preceding the 10th
anniversary of the date of grant.
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(d)
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Restrictions
on Exercise. The SAR Agreement shall also set forth any
restrictions on SAR exercise during the SAR Period, if any, as may be
determined by the Committee. Each SAR shall become exercisable
(vest) over such period of time, if any, or upon such events, as
determined by the Committee. If the SAR Agreement does not
specify the period of time over which the SAR becomes exercisable, the SAR
shall become exercisable (vest) 20% on each subsequent anniversary date of
the SAR grant, so that the SAR is 100% exercisable (vested) on the 5th
anniversary of the date of the SAR
grant.
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(e)
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Termination
of Services, Death, or Disability. The Committee may
specify the period, if any, after which an SAR may be exercised following
termination of the SAR Holder's services in the SAR
Agreement. If the SAR Agreement does not specify the period of
time following termination of service during which SARs may be exercised,
the time periods in this Subsection shall apply. Once a SAR is
granted, the Committee may not change the time period during which a SAR
may be exercised following termination of the SAR Holder’s services,
unless such a change would not cause additional taxes to be imposed
pursuant to Code § 409A.
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(i)
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Termination
for Cause. If the
services of the SAR Holder are terminated within the SAR Period for Cause,
as determined by the Company, the SAR shall thereafter be void for all
purposes.
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(ii)
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Disability. If the SAR
Holder becomes Disabled and terminates services, the SAR may be exercised
by the SAR Holder within six months following the SAR Holder's termination
of services on account of Disability (provided that such exercise must
occur within the SAR Period), but not thereafter. The SAR may
be exercised only with respect to the extent the SAR had become
exercisable on or before the date of the SAR Holder's termination of
services because of Disability.
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(iii)
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Death. If the SAR
Holder dies during the SAR Period while still performing services for the
Company or within the six month period referred to in (ii) above or the
three-month period referred to in (iv) below, the SAR may be exercised by
those entitled to do so under the SAR Holder's will or by the laws of
descent and distribution within six months following the SAR Holder's
death, (provided that such exercise must occur within the SAR Period), but
not thereafter. The SAR may be exercised only to the extent the
SAR had become exercisable on or before the date of the SAR Holder's
termination of services because of the SAR Holder’s
death.
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(iv)
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Termination
for Reasons Other than Cause, Disability or Death. If the SAR
Holder is no longer employed by the Company or performing services for the
Company for any reason other than Cause, Disability or the SAR Holder's
death, the SAR may be exercised by the SAR Holder within three months
following the date of termination (provided that the exercise must occur
within the SAR Period), but not thereafter. The SAR may be
exercised only to the extent the SAR had become exercisable on or before
the date of termination of
services.
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7.4 Exercise of Stock
Appreciation Rights. Upon vesting in a Stock Appreciation Right, a
Participant shall be permitted to exercise the Stock Appreciation Right at any
time prior to the date the Stock Appreciation Right expires. The
effective date of exercise of a Stock Appreciation Right is the date on which
the Company receives notice from the Participant of the exercise of the Stock
Appreciation Right. Upon the exercise of one or more Stock Appreciation Rights
settled in Stock, the Company will issue to the Participant the number of whole
Shares determined by dividing (i) the number of Stock Appreciation Rights being
exercised, multiplied by the difference in the Fair Market Value of one Share on
the exercise date of the Stock Appreciation Right and the Fair Market Value of
one Share on the grant date in the Stock Appreciation Right by (ii) the
Fair Market Value of one Share on the exercise date. Upon exercise of
one or more Stock Appreciation Rights settled in cash, the Company shall make a
cash payment to the Participant in an amount equal to the total number of vested
Stock Appreciation Rights, multiplied by the difference in the Fair Market Value
of one Share on the grant date of the Stock Appreciation Right and the Fair
Market Value of one Share on the date of exercise, less any
withholdings.
7.5 Withholding
Requirement. All payments under the Plan are subject to
withholding of all taxes, government mandated social benefit contributions, or
other payments required to be withheld which are applicable to the
Participant.
7.6 Effect of
Exercise. The exercise or cash-out of a Stock Appreciation
Right will result in an equal reduction in the number of Stock Appreciation
Rights that were granted.
7.7 No Equity Holder
Privileges. No holder of a Stock Appreciation Right shall have
any privileges as an equity holder with respect to any Stock Appreciation
Rights.
7.8 Change in
Control. Unless otherwise determined by the Committee (either at the time
a SAR is granted or by subsequent action), SARs shall not be subject to
accelerated vesting at the time of a Change in Control. Upon the consummation of
a Change in Control, any SAR as to which the period for which services are
required or other restrictions have not been satisfied (or waived or
accelerated) shall be forfeited, except to the extent assumed by the successor
corporation (or parent thereof) or otherwise continued in effect pursuant to the
terms of the Change in Control transaction.
The Committee shall have the
discretion, exercisable either at the time the SAR is granted or at any time
while the SAR remains outstanding, to structure one or more SARs so that those
SARs shall automatically accelerate and vest in full upon the occurrence of a
Change in Control, whether or not those SARs are to be assumed in the Change in
Control or otherwise continued in effect.
ARTICLE
VIII
STOCK
BONUSES AND OTHER COMMON STOCK GRANTS
The
Committee may award Stock Bonuses to such Participants, subject to such
conditions and restrictions, as it determines in its sole
discretion. Stock Bonuses may be either outright grants of Stock, or
may be grants of Stock subject to and conditioned upon certain employment or
performance related goals.
From time
to time during the duration of this Plan, the Board may, in its sole discretion,
adopt one or more incentive compensation arrangements for Participants pursuant
to which the Participants may acquire Shares, whether by purchase, outright
grant, or otherwise. Any such arrangements shall be subject to the
general provisions of this Plan and all Shares issued pursuant to such
arrangements shall be issued under this Plan.
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ARTICLE
IX
PERFORMANCE
AWARDS
9.1 Performance-Based
Awards. The Company intends that performance-based Awards to certain
Eligible Employees will satisfy the performance-based compensation requirements
of Code § 162(m) so that the Company may deduct any compensation paid under
the Plan for federal income tax purposes without limitation under Code
§ 162(m). If any provision of this Plan or any Award Agreement
would otherwise frustrate or conflict with such intent, that provision, to the
extent possible, shall be interpreted and deemed amended so as to avoid such
conflict.
9.2 Grants of
Performance-Based Awards. The Committee may grant Performance Awards that
grant a specific number of Options, SARs, shares of Restricted Stock, or
Restricted Stock Units that vest in whole or in part upon satisfaction of
specified performance goals. The Committee may also grant Awards that
require the Committee to grant a specific number of shares of Stock, Options,
SARs, shares of Restricted Stock, or Restricted Stock Units upon satisfaction of
specified performance goals. The Committee shall, in its sole
discretion, determine: (a) the type of performance-based Awards to be made,
(b) the time at which performance-based Awards are to be made, (c) the
time at which the performance-based Awards vest or shares are granted under
performance-based Awards, (d) actual performance against targets for
purposes of performance-based Award vesting or granting of Awards,
(e) specific weighing of the components of performance-based Award vesting
or grants, and (f) establish such other terms under the Plan as the
Committee may deem necessary or desirable and consistent with the terms of the
Plan. The Committee shall have the full and exclusive right to grant and
determine terms and conditions of all performance-based Awards granted under the
Plan. The performance goal or goals for a Performance Award shall be established
in writing at the time the Performance Award is granted. The
Committee shall have no power to increase a performance-based Award that has
been granted, but shall have the power to decrease a performance-based
Award.
9.3 Award
Agreements. Award Agreements that are intended to comply with Code
§ 162(m) shall specify the target number of Shares for the
Participant. The maximum vesting for a performance-based Award shall
be 100% of the Award. No performance-based Award shall entitle the
Participant to receive more than the maximum number of Shares in any calendar
year set forth in Article III. Performance-based Awards to all
Participants for any calendar year shall not exceed the maximum number of Shares
set forth in Article III.
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9.4 Preestablished
Performance Goals. The performance criteria for any Award that
is intended to satisfy the requirements for “performance-based compensation”
under Code § 162(m) shall be a measure based on one or more Qualifying
Performance Criteria selected by the Committee and specified at the time the
Performance Award is granted. For purposes of this Plan, the term “Qualifying
Performance Criteria” shall mean any one or more of the following performance
criteria, either individually or in any combination, applied to either the
Company as a whole or to a business unit or Affiliated Corporation, either
individually or in any combination, and measured either annually or cumulatively
over a period of years, on an absolute basis or relative to a pre-established
target, to previous years’ results or to a designated comparison group, in each
case as specified by the Committee in the performance-based Award: (a) cash
flow, (b) earnings per share, (c) earnings before interest, taxes and
amortization, (d) return on equity, (e) total stockholder return, (f) share
price performance, (g) return on capital, (h) return on assets or net assets,
(i) revenue, (j) income or net income, (k) operating income or net
operating income, (l) operating profit or net operating profit, (m) operating
margin or profit margin, (n) return on operating revenue, (o) return on invested
capital, (q) product release schedules, and (r) new product
innovation. The Committee may appropriately adjust any evaluation of performance
under a Qualifying Performance Criteria to exclude any of the following events
that occurs during a performance period: (i) asset write-downs, (ii) litigation
or claim judgments or settlements, (iii) the effect of changes in tax law,
accounting principles or other such laws or provisions affecting reported
results, (iv) accruals for reorganization and restructuring programs and (v) any
extraordinary non-recurring items as described in management’s discussion and
analysis of financial condition and results of operations appearing in the
Company’s Securities Exchange Act filings.
9.5 Committee
Certification. Notwithstanding satisfaction of any Qualifying Performance
Criteria, the number of Stock, Options, SARs, or RSUs under a performance-based
Award to be granted or vested on account of satisfaction of such Qualifying
Performance Criteria may be reduced by the Committee on the basis of such
further considerations as the Committee in its sole discretion shall determine.
The Participant shall not be entitled to vest in or be granted any portion of a
performance-based Award until the Committee certifies in writing that the Holder
has met his or her specific performance goals and determines the portion of the
performance-based Award which is to be vested or granted.
ARTICLE
X
PLAN
ADMINISTRATION
10.1
Committee. The Plan shall be
administered by a Committee appointed by and serving at the pleasure of the
Board of Directors, consisting of not less than two Directors (the "Committee")
and, at any time when the Plan Sponsor is a publicly held corporation,
consisting solely of outside Directors (within the meaning of Code
§ 162(m)(4)(C)(i)). The Board of Directors may from time to time remove
members from or add members to the Committee, and vacancies on the Committee,
howsoever caused, shall be filled by the Board of Directors. At any time when
the Plan Sponsor is a publicly held corporation, the Committee shall be so
constituted at all times as to permit the Plan to comply with Rule 16b-3 or any
successor rule promulgated under the Securities Exchange Act of 1934 (the "1934
Act") and to permit Awards to comply with the performance based compensation
exception of Code § 162(m). Members of the Committee and any
subcommittee or special committee shall be appointed from time to time by the
Board, shall serve at the pleasure of the Board and may resign at any time upon
written notice to the Board.
10.2
Committee
Meetings and Actions. The Committee shall hold meetings at
such times and places as it may determine. A majority of the members
of the Committee shall constitute a quorum, and the acts of the majority of the
members present at a meeting or a consent in writing signed by all members of
the Committee shall be the acts of the Committee and shall be final, binding and
conclusive upon all persons, including the Company, its shareholders, and all
persons having any interest in Options which may be or have been granted
pursuant to the Plan.
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10.3
Powers of
Committee. In accordance with the provisions of the Plan, the
Committee shall, in its sole discretion, select the Participants from among the
Eligible Employees and Eligible Individuals, determine the Awards to be made
pursuant to the Plan, and the time at which such Awards are to be made, fix the
exercise price, period and manner in which an Option or SAR becomes exercisable,
and establish such other terms under the Plan as the Committee may deem
necessary or desirable and consistent with the terms of the Plan. The
Committee shall determine the form or forms of the agreements with Participants
that shall evidence the particular provisions, terms, conditions, rights and
duties of the Plan Sponsor and the Participants with respect to Awards granted
pursuant to the Plan, which provisions need not be identical except as may be
provided herein. The Committee shall have the full and exclusive right to grant
and determine terms and conditions of all Awards granted under the
Plan. In granting Awards, the Committee shall take into consideration
the contribution the Participant has made or may make to the success of the
Company or its subsidiaries and such other factors as the Committee shall
determine. The Committee may from time to time adopt such rules and
regulations for carrying out the purposes of the Plan as it may deem proper and
in the best interests of the Company. The Committee may correct any
defect, supply any omission or reconcile any inconsistency in the Plan or in any
agreement entered into hereunder in the manner and to the extent it shall deem
expedient and it shall be the sole and final judge of such
expediency. No member of the Committee shall be liable for any action
or determination made in good faith. The determinations,
interpretations and other actions of the Committee pursuant to the provisions of
the Plan shall be binding and conclusive for all purposes and on all
persons.
10.4
Options May
Be Assumed. In accordance with the provisions of Code
§ 424(a), the Committee may, in its sole discretion, substitute a new
Option for an outstanding option or assume an outstanding option in connection
with a Corporate Transaction, without the substitution or assumption being
treated as a modification of the existing incentive stock option under Code
§ 424(h) or a modification of an existing option under Code §
409A. If the new substituted Option or assumed Option is intended to
be an Incentive Option, the provisions of this Section apply solely to an
Eligible Employee who is providing services to the Company at the time of the
substitution or assumption (or a former Eligible Employee within the 3-month
period following termination of service). For purposes of this
Section, the term “Corporate Transaction” includes: (a) a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization, or liquidation; (b) a distribution (excluding an ordinary dividend or a
stock split or stock dividend described in Treas. Reg. § 1.424-1(e)(4)(v))
or change in the terms or number of outstanding shares of such corporation; and
(c) any other corporate
events prescribed by the Commissioner in published guidance.
10.5
Interpretation of
Plan. The determination of the Committee as to any disputed
question arising under the Plan, including questions of construction and
interpretation, shall be final, binding and conclusive upon all persons,
including the Company, its shareholders, and all persons having any interest in
Options which may be or have been granted pursuant to the Plan. Stock
Options, Stock Appreciation Rights, Restricted Stock grants, and Stock grants
are intended to be excluded from the requirements of Code § 409A as a
result of the exception for stock rights and the exception for transfers of
property subject to § 83. Restricted Stock Unit grants are
intended to be excluded from the requirements of Code § 409A under the
short-term deferral exception. To the extent that any provision of
the Plan or of any grant Agreement could be interpreted otherwise, the Plan and
all grant Agreements shall be interpreted in a manner that ensures all grants
are excluded from the requirements of Code § 409A. The Company
will amend the Plan as necessary to ensure exclusion of Awards from the
requirements of Code § 409A, or to the extent necessary or appropriate, to
comply with the requirements of Code § 409A.
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10.6 Indemnification. Each person who
is or shall have been a member of the Committee or of the Board of Directors
shall be indemnified and held harmless by the Plan Sponsor against and from any
loss, cost, liability or expense that may be imposed upon or reasonably incurred
in connection with or resulting from any claim, action, suit or proceeding to
which such person may be a party or in which such person may be involved by
reason of any action taken or failure to act under the Plan and against and from
any and all amounts paid in settlement thereof, with the Company's approval, or
paid in satisfaction of a judgment in any such action, suit or proceeding
against him, provided such person shall give the Company an opportunity, at its
own expense, to handle and defend the same before undertaking to handle and
defend it on such person's own behalf. The foregoing right of
indemnification shall not be exclusive of, and is in addition to, any other
rights of indemnification to which any person may be entitled under the Plan
Sponsor's Articles of Incorporation or Bylaws, as a matter of law, or otherwise,
or any power that the Company may have to indemnify them or hold them
harmless.
ARTICLE
XI
STOCK
SUBJECT TO THE PLAN
11.1
Number of
Shares. The number of Shares that are authorized for issuance
under the Plan in accordance with the provisions of the Plan and subject to such
restrictions or other provisions as the Committee may from time to time deem
necessary shall not exceed 6,000,000, subject to the provisions regarding
changes in capital. The Shares may be either authorized and unissued
Shares or previously issued Shares acquired by the Plan Sponsor. This
authorization may be increased from time to time by approval of the Board and by
the stockholders of the Plan Sponsor if, in the opinion of counsel for the Plan
Sponsor, stockholder approval is required. Shares that may be issued
upon exercise of Options under the Plan shall be applied to reduce the maximum
number of Shares remaining available for use under the Plan. The Plan
Sponsor shall at all times during the term of the Plan and while any Awards are
outstanding retain as authorized and unissued Stock at least the number of
Shares from time to time required under the provisions of the Plan, or otherwise
assure itself of its ability to perform its obligations hereunder.
11.2
Unused
Stock. Any Shares that are subject to an Award that expires or
for any reason is terminated and any Shares withheld for the payment of taxes or
received by the Plan Sponsor as payment of the exercise price of an Award shall
automatically become available for use under the Plan.
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11.3
Adjustments
for Stock Splits and Stock Dividends. If the Plan Sponsor
shall at any time increase or decrease the number of its outstanding Shares or
change in any way the rights and privileges of such Shares by means of the
payment of a stock dividend or any other distribution upon such Shares payable
in Stock, or through a stock split, subdivision, consolidation, combination,
reclassification or recapitalization involving the Stock, then in relation to
the Stock that is affected by one or more of the above events, the numbers,
rights and privileges of the following shall be increased, decreased or changed
in like manner (in accordance with the rules governing modifications,
extensions, substitutions and assumptions of stock rights described in Treas.
Reg. § 1.409A-1(b)(5)(v)(D)) as if they had been issued and outstanding,
fully paid and nonassessable at the time of such occurrence: (i) the
Shares as to which Awards may be granted under the Plan and (ii) the Shares then
included in each outstanding Award granted hereunder.
11.4
Other
Distributions and Changes in the Stock. If the Plan Sponsor
distributes assets or securities of persons other than the Plan Sponsor
(excluding cash or distributions referred to in Section 11.3) with respect to
the Stock, or if the Plan Sponsor grants rights to subscribe pro rata for
additional Shares or for any other securities of the Plan Sponsor to the holders
of its Stock, or if there is any other change (except as described in Section
11.3) in the number or kind of outstanding Shares or of any stock or other
securities into which the Stock will be changed or for which it has been
exchanged, and
if the Committee in its discretion determines that the event equitably requires
an adjustment in the number or kind of Shares subject to an Award, an adjustment
in the exercise price or the taking of any other action by the Committee,
including without limitation, the setting aside of any property for delivery to
the Participant upon the exercise of an Award or the full vesting of an Award,
then such adjustments shall be made, or other action shall be taken, by the
Committee (in accordance with the rules governing modifications, extensions,
substitutions and assumptions of stock rights described in Treas. Reg.
§ 1.409A-1(b)(5)(v)(D)) and shall be effective for all purposes of the Plan
and on each outstanding Award.
11.5
General
Adjustment Rules. No adjustment or substitution provided for
in this Article shall require the Plan Sponsor to sell a fractional Share under
any Award, or otherwise issue a fractional Share, and the total substitution or
adjustment with respect to each Award shall be limited by deleting any
fractional Share. In the case of any such substitution or adjustment,
the aggregate exercise price for the total number of Shares then subject to an
Option shall remain unchanged but the exercise price per Share under each such
Option shall be equitably adjusted by the Committee to reflect the greater or
lesser number of Shares or other securities into which the Stock subject to the
Option may have been changed, and appropriate adjustments shall be made to other
Awards to reflect any such substitution or adjustment. In the case of
any such substitution or adjustment, such Option shall be equitably adjusted by
the Committee in accordance with the rules governing modifications, extensions,
substitutions and assumptions of stock rights described in Treas. Reg.
§ 1.409A-1(b)(5)(v)(D).
11.6
Determination by
the Committee. Adjustments under this Article shall be made by
the Committee, whose determinations shall be final and binding upon all
parties.
ARTICLE
XII
GENERAL
RESTRICTIONS
12.1
Investment
Representations. The Plan Sponsor may require any person to
whom an Award is granted, as a condition of receiving Stock pursuant to the
Award, to give written assurances in substance and form satisfactory to the Plan
Sponsor and its counsel to the effect that such person is acquiring the Stock
for his own account for investment and not with any present intention of selling
or otherwise distributing the same, and to such other effects as the Plan
Sponsor deems necessary or appropriate in order to comply with federal and
applicable state securities laws. Legends evidencing such
restrictions may be placed on the Stock certificates.
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12.2
Compliance
with Securities Laws. Each Award shall be subject to the
requirement that, if at any time counsel to the Plan Sponsor shall determine
that the listing, registration or qualification of the Shares subject to such
Award upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is necessary as a
condition of, or in connection with, the issuance or purchase of shares
thereunder, such Award may not be accepted or exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained on conditions acceptable to the
Committee. Nothing herein shall be deemed to require the Plan Sponsor
to apply for or to obtain such listing, registration or
qualification.
12.3
Changes in
Accounting Rules. Except as provided otherwise at the time an
Award is granted, notwithstanding any other provision of the Plan to the
contrary, if, during the term of the Plan, any changes in the financial or tax
accounting rules applicable to Awards shall occur which, in the sole judgment of
the Committee, may have a material adverse effect on the reported earnings,
assets or liabilities of the Plan Sponsor, the Committee shall have the right
and power to modify as necessary, any then outstanding Awards as to which the
applicable services or other restrictions have not been satisfied.
12.4
Shareholders
Agreement. Upon demand by the Plan Sponsor, the Participant
shall execute and deliver to the Plan Sponsor a shareholders agreement in such
form as the Company may provide at the time of the Participant is receiving
Stock pursuant to the Plan (“Shareholders Agreement”). The
Shareholders Agreement may include, without limitation, restrictions upon the
Participant's right to transfer shares, including the creation of an irrevocable
right of first refusal in the Plan Sponsor and its designees, and provisions
requiring the Participant to transfer the Shares to the Plan Sponsor or the Plan
Sponsor's designees upon a termination of employment. Upon such
demand, execution of the Shareholders Agreement by the Participant prior to the
transfer or delivery of any shares and prior to the expiration of the option
period shall be a condition precedent to the right to purchase such Shares,
unless such condition is expressly waived in writing by the Plan
Sponsor.
ARTICLE
XIII
REQUIREMENTS
OF LAW
13.1
Requirements of
Law. The issuance of Stock and the payment of cash pursuant to
the Plan shall be subject to all applicable laws, rules and
regulations.
13.2
Federal
Securities Law Requirements. If a Participant is an officer or
director of the Plan Sponsor within the meaning of Section 16, Awards granted
hereunder shall be subject to all conditions required under Rule 16b-3, or any
successor rule promulgated under the 1934 Act, to qualify the Award for any
exception from the provisions of Section 16(b) of the 1934 Act available under
that Rule. Such conditions shall be set forth in the agreement with
the Participant which describes the Award or other document evidencing or
accompanying the Award.
|
Bacterin
International Equity Incentive Plan
|
6/4/2010
|
25
13.3
Governing
Law. The Plan and all agreements hereunder shall be construed
in accordance with and governed by the laws of the State of
Colorado.
ARTICLE
XIV
PLAN
AMENDMENT, MODIFICATION AND TERMINATION
The Board
may at any time terminate, and from time to time may amend or modify the Plan
provided, however, that no amendment or modification may become effective
without approval of the amendment or modification by the shareholders if
shareholder approval is required to enable the Plan to satisfy any applicable
statutory or regulatory requirements, or if the Plan Sponsor, on the advice of
counsel, determines that shareholder approval is otherwise necessary or
desirable.
No
amendment, modification or termination of the Plan shall in any manner adversely
affect any Award previously granted under the Plan, without the consent of the
Participant holding such Award.
ARTICLE
XV
MISCELLANEOUS
15.1
Gender and
Number. Except when otherwise indicated by the context, the
masculine gender shall also include the feminine gender, and the definition of
any term herein in the singular shall also include the plural.
15.2
No Right to
Continued Employment. Nothing contained in the Plan or in any
Award granted under the Plan shall confer upon any Participant any right with
respect to the continuation of his employment by, or consulting relationship
with, the Company, or interfere in any way with the right of the Company,
subject to the terms of any separate employment agreement or other contract to
the contrary, at any time to terminate such services or to increase or decrease
the compensation of the Participant from the rate in existence at the time of
the grant of an Award. Nothing in this Plan shall limit or impair the Company's
right to terminate the employment of any employee, to terminate the consulting
services of any consultant, or to terminate the services of any
director. Whether an authorized leave of absence, or absence in
military or government service, shall constitute a termination of service shall
be determined by the Committee at the time.
15.3
Nontransferability. Except
as provided otherwise at the time of grant or as otherwise provided in the Plan,
no right or interest of any Participant in an Award granted pursuant to the Plan
shall be assignable or transferable during the lifetime of the Participant,
either voluntarily or involuntarily, or subjected to any lien, directly or
indirectly, by operation of law, or otherwise, including execution, levy,
garnishment, attachment, pledge or bankruptcy. In the event of a
Participant's death, a Participant's rights and interests in Awards shall, to
the extent provided in the Plan, be transferable by will or the laws of descent
and distribution, and payment of any amounts due under the Plan shall be made
to, and exercise of any Awards may be made by, the Participant's legal
representatives, heirs or legatees. Notwithstanding the foregoing,
the Option Holder may not transfer an Incentive Option during the Option
Holder's lifetime. If in the opinion of the Committee a person
entitled to payments or to exercise rights with respect to the Plan is disabled
from caring for his affairs because of mental condition, physical condition or
age, payment due such person may be made to, and such rights shall be exercised
by, such person's guardian, conservator or other legal personal representative
upon furnishing the Committee with evidence satisfactory to the Committee of
such status.
|
Bacterin
International Equity Incentive Plan
|
6/4/2010
|
26
15.4
No Plan
Funding. Obligations to Participants under the Plan will not
be funded, trusteed, insured or secured in any manner. The
Participants under the Plan shall have no security interest in any assets of the
Company, and shall be only general creditors of the Company.
15.5
Other
Employee Benefits. The amount of any compensation deemed to be
received by a Participant as a result of Awards under the Plan shall not
constitute "earnings" or "compensation" with respect to which any other employee
benefits of such employee are determined, including without limitation benefits
under any pension, profit sharing, 401(k), life insurance or salary continuation
plan.
IN
WITNESS WHEREOF, the Plan Sponsor has caused this Plan to be duly executed,
effective as of the Effective Date.
|
K-KITZ,
INC.
|
|
|
Plan
Sponsor
|
|
|
By:
|
/s/
Jennifer Jarvis
|
|
Title:
|
President, CEO, and CFO |
|
Date:
|
June 11, 2010 |
|
Bacterin
International Equity Incentive Plan
|
6/4/2010
|
27
EXHIBIT
10.6
EMPLOYMENT
AGREEMENT
This
agreement made and entered into this 1st day of
January, 2006 by and between Bacterin International, Inc., of Belgrade, MT,
hereinafter referred to as “employer”, and Guy Cook, of Bozeman, MT, hereinafter
refereed to as “employee”.
The
parties recite that:
A.
Employer is engaged in the coating of medical devices and maintains business
premises at 600 Cruiser Lane, Belgrade, MT 59714.
B.
Employee is willing to be employed by employer, and employer is willing to
employ employee, on the terms and conditions hereinafter set
forth.
For the
reasons set forth above, and in consideration of the mutual covenants and
promises of the parties hereto, employer and employee covenant and agree as
follows:
AGREEMENT
TO EMPLOY AND BE EMPLOYED
Employer
hereby employs employee as CEO and President at the above-mentioned premises,
and the employee hereby accepts and agrees to such employment.
DESCRIPTION
OF EMPLOYEE’S DUTIES
Subject
to the supervision and pursuant to the orders, advice, and direction of
employer, employee shall perform such duties as are customarily performed by one
holding such position in other businesses or enterprises of the same or similar
nature as that engaged in by the employer. Employee shall additionally
render such other and unrelated services and duties as may be assigned to him or
her from time to time by employer.
MANNER
OF PERFORMANCE OF EMPLOYEE’S DUTIES
Employee
shall at all times faithfully, industriously, and to the best of his ability,
experience, and talent, perform all duties that may be require of and from him
or her pursuant to the express and implicit terms hereof, to the reasonable
satisfaction of employer. Such duties shall be rendered at the above
mentioned premises and at such other place or places as employer shall in good
faith require or as the interests, needs, business, and opportunities of
employer shall require or make advisable.
DURATION
OF EMPLOYMENT
The term
of employment shall commence on January 1, 2006. Voluntary termination is
determined by the employee, but is subject, however, to termination procedures
as provided in Section 8 and 9 hereof and in the Employee Handbook. This
employment agreement ends Dec. 31, 2011.
COMPENSATION;
REIMBURSEMENT
Employer
shall pay employee and employee agrees to accept from employer, in full payment
for employee’s services hereunder, compensation at the rate of Twenty Thousand
and 00/100’s Dollars ($20,000) per month, payable bi-weekly, and commencing
January 1, 2006. In addition to the foregoing, employer will
reimburse for any and all necessary, customary, and usual expenses incurred by
him or her while traveling for and on behalf of the employer pursuant to
employer’s directions.
INTELLECTUAL
PROPERTY
The
Company will be entitled to and will own all the results and proceeds of the
Employee's services under this Agreement, including, without limitation, all
rights throughout the world to any copyright, patent, trademark or other right
and to all ideas, inventions, products, programs, procedures, formats and other
materials of any kind created or developed or worked on by the Employee during
his/her employment by the Company, and one year after termination, that pertains
to Company business; the same shall be the sole and exclusive property of the
Company; and the Employee will not have any right, title or interest of any
nature or kind therein. Without limiting the foregoing, it will be presumed that
any copyright, patent, trademark or other right and any idea, invention,
product, program, procedure, format or material created, developed or worked on
by the Employee at any time during the term of her employment will be a result
or proceed of the Employee's services under this Agreement. The Employee will
take such action and execute such documents as the Company may request to
warrant and confirm the Company's title to and ownership of all such results and
proceeds and to transfer and assign to the Company any rights which the Employee
may have therein.
EMPLOYEE’S
LOYALTY TO EMPLOYER’S INTERESTS
Employee
shall devote all of his or her time, attention, knowledge, and skill solely and
exclusively to the business and interests of employer, and employer shall be
entitled to all benefits, emoluments, profits, or other issues arising from or
incident to any and all work, services, and advice of employee. Employee
expressly agrees that during the term hereof he or she will not be interested,
directly or indirectly, in any form, fashion, or manner, as partner, officer,
director, stockholder, advisor, employee, or in any form or capacity, in any
other business similar to employer’s business or any allied trade, except that
nothing herein contained shall be deemed to prevent or limit the right of
employee to invest any of his or her surplus funds in the capital stock or other
securities of any corporation whose stock or securities are publicly owned or
are regularly traded on any public exchange, nor shall anything herein contained
by deemed to prevent employee from investing or limit employee’s right to invest
his or her surplus funds in real estate.
NONDISCLOSURE
OF INFORMATION CONCERNING BUSINESS
Employee
will not at any time, in any fashion, form, or manner, either directly or
indirectly divulge, disclose, or communicate to any person, firm, or corporation
in any manner whatsoever any information of any kind, nature, or description
concerning any matters affecting or relating to the business of employer,
including, without limitation, the names of any of it’s customers, the prices it
obtains or has obtained, or at which it sells or has sold its products, or any
other information concerning the business of employer, its manner of operation,
or its plans, processes, or other date of any kind, nature, or description
without regard to whether any or all of the foregoing matters would be deemed
confidential, material, or important. The parties hereby stipulate that,
as between them, the foregoing matters are important, material, and
confidential, and gravely affect the effective and successful conduct of the
business of employer, and its good will, and that any breach of the terms of
this section is a material breach of this agreement.
OPTION
TO TERMINATE ON PERMANENT DISABILITY OF EMPLOYEE
Notwithstanding
anything in this agreement to the contrary, employer is hereby given the option
to terminate this agreement in the event that during the term hereof employee
shall become permanently disabled, as the term “permanently disabled” is
hereinafter fixed and defined. Such option shall be exercised by employer
giving notice to employee by registered mail, addressed to him or her in care of
employer at the above stated address, or at such other address as employee shall
designate in writing, of its intention to terminate this agreement on the last
day of the month during which such notice is mailed.
On
the giving of such notice this agreement and the term hereof shall cease and
come to an end on the last day of the month in which the notice is mailed, with
the same force and effect as if such last day of the month were the date
originally set forth as the termination date. For purposes of this
agreement, employee shall be deemed to have become permanently disabled if,
during any year of the term hereof, because of ill health, physical or mental
disability, or for other causes beyond his or her control, he or she shall have
been continuously unable or unwilling or have failed to perform his or her
duties hereunder for thirty (30) consecutive days, or if, during any year of the
term hereof, he or she shall have been unable or unwilling or have failed to
perform his or her duties for a total period of thirty (30) days, whether
consecutive or not. For the purposes hereof, the term “any year of the
term hereof” is defined to mean any period of 12 calendar months commencing on
the first day of January and terminating on the last day of December of the
following year during the term hereof.
DISCONTINUANCE
OF BUSINESS AS TERMINATION OF EMPLOYMENT
Anything
herein contained to the contrary notwithstanding, in the event that employer
shall discontinue operations at the premises mentioned above, then this
agreement shall cease and terminate as of the last day of the month in which
operations cease with the same force and effect as if such last day of the month
were originally set forth as the termination date hereof..
EMPLOYEE’S
COMMITMENTS BINDING ON EMPLOYER ONLY ON WRITTEN CONSENT
Employee
shall not have the right to make any contracts or other commitments for or on
behalf of employer within the written consent of the employer.
CONTRACT
TERMS TO BE EXCLUSIVE
This
written agreement contains the sole and entire agreement between the parties,
and supersedes any and all other agreements between them. The parties
acknowledge and agree that neither of them has made any representation with
respect to the subject matter of this agreement or any representations inducing
the execution and delivery hereof except such representations as are
specifically set forth herein, and each party acknowledges that he, she or it
has relied on his, her or its own judgment in entering into the agreement.
The parties further acknowledge that any statements or representations that may
have heretofore been made by either of them to the other are void and of no
effect and that neither of them has relied thereon on connection with his, her
or its dealings with the other.
WAIVER
OR MODIFICATION INEFFECTIVE UNLESS IN WRITING
No waiver
or modification of this agreement or of its covenant, condition, or limitation
herein contained shall be valid unless in writing and duly executed by the party
to be charged therewith. Furthermore, no evidence of any waiver or
modification shall be offered or received in evidence in any proceeding,
arbitration, or litigation between the parties arising out of or affecting this
agreement, or the rights or obligations of any party hereunder, unless such
waiver or modification is in writing, duly executed as aforesaid. The
provisions of this paragraph may not be waived except as herein set
forth.
CONTRACT
GOVERNED BY LAW
This
agreement and performance hereunder and all suits and special proceedings
hereunder shall be construed in accordance with the laws of the State of
Montana.
GUARANTOR
OF COMPANY DEBT
Employee,
as personal guarantor of company debt, can, at any time, demand full and
immediate payment of such loans in event of termination. At any time
during his employ, employee may borrow at 2% below prime rate from the employer
any amount equal to the total dollar amount currently guaranteed by
employee.
BINDING
EFFECT OF AGREEMENT
This
agreement shall be binding on and inure to the benefit of the respective parties
and their respective heirs, legal representatives, successors, and
assigns.
Executed
on the date first above written.
|
/s/ Guy Cook
|
/s/ Guy Cook
|
||
|
“Employee”
|
“Employer”
|
||
EXHIBIT
10.7
EMPLOYMENT
AGREEMENT
This
agreement made and entered into this 24 day of November 2004 by and
between Bacterin, Inc., of Bozeman, MT, hereinafter referred to as "employer",
and Mitch Godfrey of Bozeman, hereinafter refereed to as
"employee".
The
parties recite that:
|
|
A.
|
Employer
is engaged in the coating of medical devices and maintains business
premises at 600 Cruiser Lane, Belgrade, MT
59714.
|
|
|
B.
|
Employee
is willing to be employed by employer, and employer is willing to employ
employee, on the terms and conditions hereinafter set
forth.
|
For the
reasons set forth above, and in consideration of the mutual covenants and
promises of the parties hereto, employer and employee covenant and agree as
follows:
AGREEMENT
TO EMPLOY AND BE EMPLOYED
Employer
hereby employs employee as CFO at the above-mentioned premises, and the employee
hereby accepts and agrees to such employment.
DESCRIPTION
OF EMPLOYEE'S DUTIES
Subject
to the supervision and pursuant to the orders, advice, and direction of
employer, employee shall perform such duties as are customarily performed by one
holding such position in other businesses or enterprises of the same or similar
nature as that engaged in by the employer. Employee shall
additionally render such other and unrelated services and duties as may be
assigned to him or her from time to time by employer.
MANNER
OF PERFORMANCE OF EMPLOYEE'S DUTIES
Employee
shall at all times faithfully, industriously, and to the best of his ability,
experience, and talent, perform all duties that may be require of and from him
or her pursuant to the express and implicit terms hereof, to the reasonable
satisfaction of employer. Such duties shall be rendered at the above mentioned
premises and at such other place or places as employer shall in good faith
require or as the interests, needs, business, and opportunities of employer
shall require or make advisable.
DURATION
OF EMPLOYMENT
The term
of employment shall commence on October 1, 2003. Voluntary
termination is determined by the employee, but is subject, however, to
termination procedures as provided in Section 8 and 9 hereof and in the Employee
Handbook.
COMPENSATION;
REIMBURSEMENT
Employer
shall pay employee and employee agrees to accept from employer, in full payment
for employee's services hereunder, compensation at the rate
of Dollars ($60,000) per year, payable
bi-weekly. In addition to the foregoing, employer will reimburse for any and all
necessary, customary, and usual expenses incurred by him or her while traveling
for and on behalf of the employer pursuant to employer's
directions.
1
INTELLECTUAL
PROPERTY
The
Company will be entitled to and will own all the results and proceeds of the
Employee's services under this Agreement, including, without limitation, all
rights throughout the world to any copyright, patent, trademark or other right
and to all ideas, inventions, products, programs, procedures, formats and other
materials of any kind created or developed or worked on by the Employee during
her employment by the Company; the same shall be the sole and exclusive property
of the Company; and the Employee will not have any right, title or interest of
any nature or kind therein. Without limiting the foregoing, it will be presumed
that any copyright, patent, trademark or other right and any idea, invention,
product, program, procedure, format or material created, developed or worked on
by the Employee at any time during the term of her employment will be a result
or proceed of the Employee's services under this Agreement. The Employee will
take such action and execute such documents as the Company may request to
warrant and confirm the Company's title to and ownership of all such results and
proceeds and to transfer and assign to the Company any rights which the Employee
may have therein.
EMPLOYEE'S
LOYALTY TO EMPLOYER'S INTERESTS
Employee
shall devote all of his or her time, attention, knowledge, and skill solely and
exclusively to the business and interests of employer, and employer shall be
entitled to all benefits, emoluments, profits, or other issues arising from or
incident to any and all work, services, and advice of employee. Employee
expressly agrees that during the term hereof he or she will not be interested,
directly or indirectly, in any form, fashion, or manner, as partner, officer,
director, stockholder, advisor, employee, or in any form or capacity, in any
other business similar to employer's business or any allied trade, except that
nothing herein contained shall be deemed to prevent or limit the right of
employee to invest any of his or her surplus funds in the capital stock or other
securities of any corporation whose stock or securities are publicly owned or
are regularly traded on any public exchange, nor shall anything herein contained
by deemed to prevent employee from investing or limit employee's right to invest
his or her surplus funds in real estate.
NONDISCLOSURE
OF INFORMATION CONCERNING BUSINESS
Employee
will not at any time, in any fashion, form, or manner, either directly or
indirectly divulge, disclose, or communicate to any person, firm, or corporation
in any manner whatsoever any information of any kind, nature, or description
concerning any matters affecting or relating to the business of employer,
including, without limitation, the names of any of it's customers, the prices it
obtains or has obtained, or at which it sells or has sold its products, or any
other information concerning the business of employer, its manner of operation,
or its plans, processes, or other date of any kind, nature, or description
without regard to whether any or all of the foregoing matters would be deemed
confidential, material, or important. The parties hereby stipulate that, as
between them, the foregoing matters are important, material, and confidential,
and gravely affect the effective and successful conduct of the business of
employer, and its good will, and that any breach of the terms of this section is
a material breach of this agreement.
OPTION
TO TERMINATE ON PERMANENT DISABILITY OF EMPLOYEE
Notwithstanding
anything in this agreement to the contrary, employer is hereby given the option
to terminate this agreement in the event that during the term hereof employee
shall become permanently disabled, as the term "permanently disabled" is
hereinafter fixed and defined. Such option shall be exercised by employer giving
notice to employee by registered mail, addressed to him or her in care of
employer at the above stated address, or at such other address as employee shall
designate in writing, of its intention to terminate this agreement on the last
day of the month during which such notice is mailed.
2
On the
giving of such notice this agreement and the term hereof shall cease and come to
an end on the last day of the month in which the notice is mailed, with the same
force and effect as if such last day of the month were the date originally set
forth as the termination date. For purposes of this agreement, employee shall be
deemed to have become permanently disabled if, during any year of the term
hereof, because of ill health, physical or mental disability, or for other
causes beyond his or her control, he or she shall have been continuously unable
or unwilling or have failed to perform his or her duties hereunder for thirty
(30) consecutive days, or if, during any year of the term hereof, he or she
shall have been unable or unwilling or have failed to perform his or her duties
for a total period of thirty (30) days, whether consecutive or
not. For the purpose hereof, the term "any year of the term hereof'
is defined to mean any period of 12 calendar months commencing on the first day
of January and terminating on the last day of December of the
following year during the term hereof.
DISCONTINUANCE
OF BUSINESS AS TERMINATION OF EMPLOYMENT
Anything
herein contained to the contrary notwithstanding, in the event that employer
shall discontinue operations at the premises mentioned above, then this
agreement shall cease and terminate as of the last day of the month in which
operations cease with the same force and effect as if such last day of the month
were originally set forth as the termination date hereof.
EMPLOYEE'S
COMMITMENTS BINDING ON EMPLOYER ONLY
ON
WRITTEN CONSENT
Employee
shall not have the right to make any contracts or other commitments for or on
behalf of employer within the written consent of the employer.
CONTRACT
TERMS TO BE EXCLUSIVE
This
written agreement contains the sole and entire agreement between the parties,
and supersedes any and all other agreements between them. The parties
acknowledge and agree that neither of them has made any representation with
respect to the subject matter of this agreement or any representations inducing
the execution and delivery hereof except such representations as are
specifically set forth herein, and each party acknowledges that he, she or it
has relied on his, her or its own judgment in entering into the agreement. The
parties further acknowledge that any statements or representations that may have
heretofore been made by either of them to the other are void and of no effect
and that neither of them has relied thereon on connection with his, her or its
dealings with the other.
WAIVER
OR MODIFICATION INEFFECTIVE UNLESS IN WRITING
No waiver
or modification of this agreement or of its covenant, condition, or limitation
herein contained shall be valid unless in writing and duly executed by the party
to be charged therewith. Furthermore, no evidence of any waiver or modification
shall be offered or received in evidence in any proceeding, arbitration, or
litigation between the parties arising out of or affecting this agreement, or
the rights or obligations of any party hereunder, unless such waiver or
modification is in writing, duly executed as aforesaid. The provisions of this
paragraph may not be waived except as herein set forth.
CONTRACT
GOVERNED BY LAW
This
agreement and performance hereunder and all suits and special proceedings
hereunder shall be construed in accordance with the laws of the State of
Montana.
3
BINDING
EFFECT OF
AGREEMENT
This
agreement shall be binding on and inure to the benefit of the respective parties
and their respective heirs, legal representatives, successors, and
assigns.
|
/s/ Mitchell Godfrey
|
/s/ Guy Cook
|
|
|
“Employee”
|
|
“Employer”
|
Employee
benefit package shall include the following items:
Stock:
100,000 shares at .05 cents
Bonus: $5,000/quarter
as per handbook
Other:
4
EXHIBIT
10.8
EMPLOYMENT
AGREEMENT
This
agreement made and entered into this 3rd day of June, 2010 by and between
Bacterin, Inc., of Belgrade, MT, hereinafter referred to as “employer”, and John
P. Gandolfo, of Wayne, New Jersey, hereinafter refereed to as
“employee”.
The
parties recite that:
|
A.
|
Employer
is engaged in the coating of medical devices and processing biologics and
maintains business premises at 600 and 664 Cruiser Lane, Belgrade, MT
59714.
|
|
B.
|
Employee
is willing to be employed by employer, and employer is willing to employ
employee, on the terms and conditions hereinafter set
forth.
|
For the
reasons set forth above, and in consideration of the mutual covenants and
promises of the parties hereto, employer and employee covenant and agree as
follows:
AGREEMENT
TO EMPLOY AND BE EMPLOYED
Employer
hereby employs employee as the Chief Financial Officer at the above-mentioned
premises, and the employee hereby accepts and agrees to such
employment.
DESCRIPTION
OF EMPLOYEE’S DUTIES
Subject
to the supervision and pursuant to the orders, advice, and direction of
employer, employee shall perform such duties as are customarily performed by one
holding such position in other businesses or enterprises of the same or similar
nature as that engaged in by the employer. Employee shall additionally
render such other and unrelated services and duties as may be assigned to him or
her from time to time by employer.
MANNER
OF PERFORMANCE OF EMPLOYEE’S DUTIES
Employee
shall at all times faithfully, industriously, and to the best of his or her
ability, experience, and talent, perform all duties that may be require of and
from him or her pursuant to the express and implicit terms hereof, to the
reasonable satisfaction of employer. Such duties shall be rendered in the
New York Metropolitan area and at such other place or places as employer shall
in good faith require or as the interests, needs, business, and opportunities of
employer shall require or make advisable.
DURATION
OF EMPLOYMENT
Full time
employment shall commence on July 6, 2010; provided, however,
that employee shall be available to Company on a part-time basis beginning June
4, 2010 and July 5, 2010 and shall be compensated for his time on an hourly
basis, at an hourly rate of $140 per hour. Voluntary termination is
determined by the employer and/or employee, but is subject, however, to
termination procedures as provided in Section 8 and 9 hereof and in the Employee
Handbook.
COMPENSATION;
REIMBURSEMENT
Employer
shall pay employee and employee agrees to accept from employer, in full payment
for employee’s services hereunder, base compensation of Two Hundred Ninety
Thousand Dollars ($290,000) per year, payable bi-weekly. Employee may also
receive a bonus in the amount of 30% of his annual base compensation, if the
following criteria are met: half the bonus amount ($43,500) shall be
payable if Employer’s annual revenue goal is met or exceeded and half the bonus
amount ($43,500) shall be payable if Employer’s annual earnings goal is met or
exceeded.
1
Employee
shall also receive a grant of stock options subject to the Bacterin
International, Inc. 2004 Stock Incentive Plan as outlined in that
certain Stock Option Agreement dated June 3, 2010, attached hereto as Exhibit A and
incorporated herein by this reference.
If
employee’s employment is terminated by the Company without “Cause,” Employee
shall be entitled to receive his Base Salary for a period of six months, if the
Employee has delivered to the Company a complete release of any claims against
the Company and its directors, officers, Subsidiaries and Affiliates ( other
than the severance payments described in this Section) in form and substance
reasonably satisfactory to the Company and if Employee has not breached any
section of this employment agreement. The severance payments payable
to the Employee pursuant to this paragraph will be paid biweekly through
automatic deposits; provided that the initial payment of any severance hereunder
shall begin on the eighth day after the Employee has signed the aforementioned
release. For purposes of this Agreement, “Cause” shall mean (i) the commission
of a felony or other crime involving moral turpitude or the commission of any
other act or omission involving theft, dishonesty, disloyalty or fraud with
respect to the Company or any of their customers or suppliers, (ii) reporting to
work under the influence of alcohol or illegal drugs, the use of illegal drugs
(whether or not at the workplace) or other conduct causing the Company or any of
its Subsidiaries substantial public disgrace or disrepute or economic harm,
(iii) substantial and repeated failure to perform duties as reasonably directed
by the Company which is not cured to
the Company’s reasonable satisfaction within 30 days after written notice
thereof to Employee, to the extent that such breach is capable of being cured,
(iv) breach of fiduciary duty, gross negligence or willful misconduct with
respect to the Company or (v) any other material breach of this Agreement which
is not cured to the Company’s reasonable satisfaction within 15 days after
written notice thereof to Employee, to the extent that such breach is capable of
being cured.
If
Employee’s employment with the company is terminated by the Company in
connection with a “Change of “Control” Employee shall be eligible to receive 12
months’ salary as severance, if the Employee has delivered to the Company a
complete release of any claims against the Company and its directors, officers,
Subsidiaries and Affiliates ( other than the severance payments described in
this Section) in form and substance reasonably satisfactory to the Company and
if Employee has not breached any section of this employment
agreement. The severance payments payable to the Employee pursuant to
this paragraph will be paid biweekly through automatic deposits; provided that
the initial payment of any severance hereunder shall begin on the eighth day
after the Employee has signed the aforementioned release. A “Change
of Control” shall consist of either Guy Cook no longer serving as the Chief
Executive Officer or a sale of all or substantially all of the assets of the
Company.
INTELLECTUAL
PROPERTY
The
Company will be entitled to and will own all the results and proceeds of the
Employee's services under this Agreement, including, without limitation, all
rights throughout the world to any copyright, patent, trademark or other right
and to all ideas, inventions, products, programs, procedures, formats and other
materials of any kind created or developed or worked on by the Employee during
his/her employment by the Company, and one year after termination, that pertains
to Company business; the same shall be the sole and exclusive property of the
Company; and the Employee will not have any right, title or interest of any
nature or kind therein. Without limiting the foregoing, it will be presumed that
any copyright, patent, trademark or other right and any idea, invention,
product, program, procedure, format or material created, developed or worked on
by the Employee at any time during the term of her employment will be a result
or proceed of the Employee's services under this Agreement. The Employee will
take such action and execute such documents as the Company may request to
warrant and confirm the Company's title to and ownership of all such results and
proceeds and to transfer and assign to the Company any rights which the Employee
may have therein.
2
EMPLOYEE’S
LOYALTY TO EMPLOYER’S INTERESTS
Employee
shall devote all of his or her time, attention, knowledge, and skill solely and
exclusively to the business and interests of employer, and employer shall be
entitled to all benefits, emoluments, profits, or other issues arising from or
incident to any and all work, services, and advice of employee. Employee
expressly agrees that during the term hereof he or she will not be interested,
directly or indirectly, in any form, fashion, or manner, as partner, officer,
director, stockholder, advisor, employee, or in any form or capacity, in any
other business similar to employer’s business or any allied trade, except that
nothing herein contained shall be deemed to prevent or limit the right of
employee to invest any of his or her surplus funds in the capital stock or other
securities of any corporation whose stock or securities are publicly owned or
are regularly traded on any public exchange, nor shall anything herein contained
by deemed to prevent employee from investing or limit employee’s right to invest
his or her surplus funds in real estate.
NONDISCLOSURE
OF INFORMATION CONCERNING BUSINESS
Employee
will not at any time, in any fashion, form, or manner, either directly or
indirectly divulge, disclose, or communicate to any person, firm, or corporation
in any manner whatsoever any information of any kind, nature, or description
concerning any matters affecting or relating to the business of employer,
including, without limitation, the names of any of it’s customers, the prices it
obtains or has obtained, or at which it sells or has sold its products, or any
other information concerning the business of employer, its manner of operation,
or its plans, processes, or other date of any kind, nature, or description
without regard to whether any or all of the foregoing matters would be deemed
confidential, material, or important. The parties hereby stipulate that,
as between them, the foregoing matters are important, material, and
confidential, and gravely affect the effective and successful conduct of the
business of employer, and its good will, and that any breach of the terms of
this section is a material breach of this agreement.
OPTION
TO TERMINATE ON PERMANENT DISABILITY OF EMPLOYEE
Notwithstanding
anything in this agreement to the contrary, employer is hereby given the option
to terminate this agreement in the event that during the term hereof employee
shall become permanently disabled, as the term “permanently disabled” is
hereinafter fixed and defined. Such option shall be exercised by employer
giving notice to employee by registered mail, addressed to him or her in care of
employer at the above stated address, or at such other address as employee shall
designate in writing, of its intention to terminate this agreement on the last
day of the month during which such notice is mailed.
On the
giving of such notice this agreement and the term hereof shall cease and come to
an end on the last day of the month in which the notice is mailed, with the same
force and effect as if such last day of the month were the date originally set
forth as the termination date. For purposes of this agreement, employee
shall be deemed to have become permanently disabled if, during any year of the
term hereof, because of ill health, physical or mental disability, or for other
causes beyond his or her control, he or she shall have been continuously unable
or unwilling or have failed to perform his or her duties hereunder for thirty
(30) consecutive days, or if, during any year of the term hereof, he or she
shall have been unable or unwilling or have failed to perform his or her duties
for a total period of thirty (30) days, whether consecutive or not. For
the purposes hereof, the term “any year of the term hereof” is defined to mean
any period of 12 calendar months commencing on the first day of January and
terminating on the last day of December of the following year during the term
hereof.
DISCONTINUANCE
OF BUSINESS AS TERMINATION OF EMPLOYMENT
Anything
herein contained to the contrary notwithstanding, in the event that employer
shall discontinue operations at the premises mentioned above, then this
agreement shall cease and terminate as of the last day of the month in which
operations cease with the same force and effect as if such last day of the month
were originally set forth as the termination date hereof..
3
EMPLOYEE’S
COMMITMENTS BINDING ON EMPLOYER ONLY ON WRITTEN CONSENT
Employee
shall not have the right to make any contracts or other commitments for or on
behalf of employer without the written consent of the employer.
CONTRACT
TERMS TO BE EXCLUSIVE
This
written agreement contains the sole and entire agreement between the parties,
and supersedes any and all other agreements between them. The parties
acknowledge and agree that neither of them has made any representation with
respect to the subject matter of this agreement or any representations inducing
the execution and delivery hereof except such representations as are
specifically set forth herein, and each party acknowledges that he, she or it
has relied on his, her or its own judgment in entering into the agreement.
The parties further acknowledge that any statements or representations that may
have heretofore been made by either of them to the other are void and of no
effect and that neither of them has relied thereon on connection with his, her
or its dealings with the other.
WAIVER
OR MODIFICATION INEFFECTIVE UNLESS IN WRITING
No waiver
or modification of this agreement or of its covenant, condition, or limitation
herein contained shall be valid unless in writing and duly executed by the party
to be charged therewith. Furthermore, no evidence of any waiver or
modification shall be offered or received in evidence in any proceeding,
arbitration, or litigation between the parties arising out of or affecting this
agreement, or the rights or obligations of any party hereunder, unless such
waiver or modification is in writing, duly executed as aforesaid. The
provisions of this paragraph may not be waived except as herein set
forth.
CONTRACT
GOVERNED BY LAW
This
agreement and performance hereunder and all suits and special proceedings
hereunder shall be construed in accordance with the laws of the State of
Montana.
BINDING
EFFECT OF AGREEMENT
This
agreement shall be binding on and inure to the benefit of the respective parties
and their respective heirs, legal representatives, successors, and
assigns.
Executed
on the date first above written.
|
/s/ John Gandolfo
|
/s/ Guy Cook
|
|
|
“Employee”
|
“Employer”
|
Additional
Benefits as outlined in the employee manual:
4
Exhibit
A
Stock Option Grant
Agreement
5
EXHIBIT
10.9
EMPLOYMENT
AGREEMENT
This
agreement made and entered into this __1st__ day
of April, 2008 by and between Bacterin, Inc., of Bozeman, MT, hereinafter
referred to as “employer”, and Jesus Hernandez, of Bozeman, MT , hereinafter
refereed to as “employee”.
The
parties recite that:
A.
Employer is engaged in the coating of medical devices and processing biologics
and maintains business premises at 600 and 664 Cruiser Lane, Belgrade, MT
59714.
B.
Employee is willing to be employed by employer, and employer is willing to
employ employee, on the terms and conditions hereinafter set
forth.
For the
reasons set forth above, and in consideration of the mutual covenants and
promises of the parties hereto, employer and employee covenant and agree as
follows:
AGREEMENT
TO EMPLOY AND BE EMPLOYED
Employer
hereby employs employee as Vice President of Biologics
at the above-mentioned premises, and the employee hereby accepts and agrees to
such employment.
DESCRIPTION
OF EMPLOYEE’S DUTIES
Subject
to the supervision and pursuant to the orders, advice, and direction of
employer, employee shall perform such duties as are customarily performed by one
holding such position in other businesses or enterprises of the same or similar
nature as that engaged in by the employer. Employee shall additionally
render such other and unrelated services and duties as may be assigned to him or
her from time to time by employer.
MANNER
OF PERFORMANCE OF EMPLOYEE’S DUTIES
Employee
shall at all times faithfully, industriously, and to the best of his ability,
experience, and talent, perform all duties that may be require of and from him
or her pursuant to the express and implicit terms hereof, to the reasonable
satisfaction of employer. Such duties shall be rendered at the above
mentioned premises and at such other place or places as employer shall in good
faith require or as the interests, needs, business, and opportunities of
employer shall require or make advisable.
DURATION
OF EMPLOYMENT
The term
of employment shall commence on April 1st,
2008. Voluntary termination is determined by the employee, but is subject,
however, to termination procedures as provided in Section 8 and 9 hereof and in
the Employee Handbook.
COMPENSATION;
REIMBURSEMENT
Employer
shall pay employee and employee agrees to accept from employer, in full payment
for employee’s services hereunder, compensation at the rate of One-Hundred Ninety Thousand
Dollars ($ 190,000.00)
per year, payable bi-weekly.
STOCK
OPTIONS
Employer
will transfer One Million (1,100,000) shares of Bacterin International, Inc.
common stock, based on approximately 55 million shares outstanding. These shares
will be distributed as follows: Seven Hundred Thousand (700,000) shares will
vest upon signing of this agreement. The remainder Four Hundred
Thousand (400,000) shares will vest at Two Hundred Thousand (200,000) shares per
year upon the Employee’s anniversary date of employment with a strike price of
sixty seven cents (.67) per share.
Notwithstanding
the above, all 1,100,000 options shall be deemed fully earned and vested
immediately on an accelerated basis upon either of the following events: An IPO
resulting in either net cash proceeds of at least $10 million USD or gross cash
proceeds of $ 8 million USD, or a change in ownership or control of at least 25%
of the company stock currently held (i.e., excludes option and warrant grants)
by Guy Cook.
In the
event there is a change in ownership or control of at least 25% of the company
stock currently held (i.e., excludes option and warrant grants) by Guy Cook,
then employee will receive a one time bonus of $ 737,000 which can only be used
to elect a cashless exercise of the options through a registered broker
dealer.
INTELLECTUAL
PROPERTY
The
Company will be entitled to and will own all the results and proceeds of the
Employee's services under this Agreement, including, without limitation, all
rights throughout the world to any copyright, patent, trademark or other right
and to all ideas, inventions, products, programs, procedures, formats and other
materials of any kind created or developed or worked on by the Employee during
his/her employment by the Company, and one year after termination, that pertains
to Company business; the same shall be the sole and exclusive property of the
Company; and the Employee will not have any right, title or interest of any
nature or kind therein. Without limiting the foregoing, it will be presumed that
any copyright, patent, trademark or other right and any idea, invention,
product, program, procedure, format or material created, developed or worked on
by the Employee at any time during the term of her employment will be a result
or proceed of the Employee's services under this Agreement. The Employee will
take such action and execute such documents as the Company may request to
warrant and confirm the Company's title to and ownership of all such results and
proceeds and to transfer and assign to the Company any rights which the Employee
may have therein.
EMPLOYEE’S
LOYALTY TO EMPLOYER’S INTERESTS
Employee
shall devote all of his or her time, attention, knowledge, and skill solely and
exclusively to the business and interests of employer, and employer shall be
entitled to all benefits, emoluments, profits, or other issues arising from or
incident to any and all work, services, and advice of employee. Employee
expressly agrees that during the term hereof he or she will not be interested,
directly or indirectly, in any form, fashion, or manner, as partner, officer,
director, stockholder, advisor, employee, or in any form or capacity, in any
other business similar to employer’s business or any allied trade, except that
nothing herein contained shall be deemed to prevent or limit the right of
employee to invest any of his or her surplus funds in the capital stock or other
securities of any corporation whose stock or securities are publicly owned or
are regularly traded on any public exchange, nor shall anything herein contained
by deemed to prevent employee from investing or limit employee’s right to invest
his or her surplus funds in real estate.
NONDISCLOSURE
OF INFORMATION CONCERNING BUSINESS
Employee
will not at any time, in any fashion, form, or manner, either directly or
indirectly divulge, disclose, or communicate to any person, firm, or corporation
in any manner whatsoever any information of any kind, nature, or description
concerning any matters affecting or relating to the business of employer,
including, without limitation, the names of any of it’s customers, the prices it
obtains or has obtained, or at which it sells or has sold its products, or any
other information concerning the business of employer, its manner of operation,
or its plans, processes, or other date of any kind, nature, or description
without regard to whether any or all of the foregoing matters would be deemed
confidential, material, or important. The parties hereby stipulate that,
as between them, the foregoing matters are important, material, and
confidential, and gravely affect the effective and successful conduct of the
business of employer, and its good will, and that any breach of the terms of
this section is a material breach of this agreement.
OPTION
TO TERMINATE ON PERMANENT DISABILITY OF EMPLOYEE
Notwithstanding
anything in this agreement to the contrary, employer is hereby given the option
to terminate this agreement in the event that during the term hereof employee
shall become permanently disabled, as the term “permanently disabled” is
hereinafter fixed and defined. Such option shall be exercised by employer
giving notice to employee by registered mail, addressed to him in care of
employer at the above stated address, or at such other address as employee shall
designate in writing, of its intention to terminate this agreement on the last
day of the month during which such notice is mailed.
On
the giving of such notice this agreement and the term hereof shall cease and
come to an end on the last day of the month in which the notice is mailed, with
the same force and effect as if such last day of the month were the date
originally set forth as the termination date. For purposes of this
agreement, employee shall be deemed to have become permanently disabled if,
during any year of the term hereof, because of ill health, physical or mental
disability, or for other causes beyond his or her control, he or she shall have
been continuously unable or unwilling or have failed to perform his or her
duties hereunder for thirty (30) consecutive days, or if, during any year of the
term hereof, he or she shall have been unable or unwilling or have failed to
perform his or her duties for a total period of thirty (30) days, whether
consecutive or not. For the purposes hereof, the term “any year of the
term hereof” is defined to mean any period of 12 calendar months commencing on
the first day of January and terminating on the last day of December of the
following year during the term hereof.
DISCONTINUANCE
OF BUSINESS AS TERMINATION OF EMPLOYMENT
Anything
herein contained to the contrary notwithstanding, in the event that employer
shall discontinue operations at the premises mentioned above, then this
agreement shall cease and terminate as of the last day of the month in which
operations cease with the same force and effect as if such last day of the month
were originally set forth as the termination date hereof..
EMPLOYEE’S
COMMITMENTS BINDING ON EMPLOYER ONLY ON WRITTEN CONSENT
Employee
shall not have the right to make any contracts or other commitments for or on
behalf of employer without the written consent of the employer.
CONTRACT
TERMS TO BE EXCLUSIVE
This
written agreement contains the sole and entire agreement between the parties,
and supersedes any and all other agreements between them. The parties
acknowledge and agree that neither of them has made any representation with
respect to the subject matter of this agreement or any representations inducing
the execution and delivery hereof except such representations as are
specifically set forth herein, and each party acknowledges that he, she or it
has relied on his, her or its own judgment in entering into the agreement.
The parties further acknowledge that any statements or representations that may
have heretofore been made by either of them to the other are void and of no
effect and that neither of them has relied thereon on connection with his, her
or its dealings with the other.
WAIVER
OR MODIFICATION INEFFECTIVE UNLESS IN WRITING
No waiver
or modification of this agreement or of its covenant, condition, or limitation
herein contained shall be valid unless in writing and duly executed by the party
to be charged therewith. Furthermore, no evidence of any waiver or
modification shall be offered or received in evidence in any proceeding,
arbitration, or litigation between the parties arising out of or affecting this
agreement, or the rights or obligations of any party hereunder, unless such
waiver or modification is in writing, duly executed as aforesaid. The
provisions of this paragraph may not be waived except as herein set
forth.
CONTRACT
GOVERNED BY LAW
This
agreement and performance hereunder and all suits and special proceedings
hereunder shall be construed in accordance with the laws of the State of
Montana.
BINDING
EFFECT OF AGREEMENT
This
agreement shall be binding on and inure to the benefit of the respective parties
and their respective heirs, legal representatives, successors, and
assigns.
Executed
on the date first above written.
|
/s/ Jesus Hernandez
|
/s/ Guy Cook
|
||
|
“Employee”
|
“Employer”
|
||
|
Title
|
Title
|
EXHIBIT
10.10
EMPLOYMENT
AGREEMENT
This
agreement made and entered into this 29th day of December, 2008 by and between
Bacterin, Inc., of Belgrade, MT, hereinafter referred to as “employer”, and
Darrel Holmes, of Bozeman, MT, hereinafter refereed to as
“employee”.
The
parties recite that:
A.
Employer is engaged in the coating of medical devices and processing biologics
and maintains business premises at 600 and 664 Cruiser Lane, Belgrade, MT
59714.
B.
Employee is willing to be employed by employer, and employer is willing to
employ employee, on the terms and conditions hereinafter set
forth.
For the
reasons set forth above, and in consideration of the mutual covenants and
promises of the parties hereto, employer and employee covenant and agree as
follows:
AGREEMENT
TO EMPLOY AND BE EMPLOYED
Employer
hereby employs employee as Vice President of Devices at the above-mentioned
premises, and the employee hereby accepts and agrees to such
employment.
DESCRIPTION
OF EMPLOYEE’S DUTIES
Subject
to the supervision and pursuant to the orders, advice, and direction of
employer, employee shall perform such duties as are customarily performed by one
holding such position in other businesses or enterprises of the same or similar
nature as that engaged in by the employer. Employee shall additionally
render such other and unrelated services and duties as may be assigned to her
from time to time by employer.
MANNER
OF PERFORMANCE OF EMPLOYEE’S DUTIES
Employee
shall at all times faithfully, industriously, and to the best of her ability,
experience, and talent, perform all duties that may be require of and from her
pursuant to the express and implicit terms hereof, to the reasonable
satisfaction of employer. Such duties shall be rendered at the above
mentioned premises and at such other place or places as employer shall in good
faith require or as the interests, needs, business, and opportunities of
employer shall require or make advisable.
DURATION
OF EMPLOYMENT
The term
of employment shall commence on December 29, 2008. Voluntary termination
is determined by the employer and/or employee, but is subject, however, to
termination procedures as provided in Section 8 and 9 hereof and in the Employee
Handbook.
COMPENSATION;
REIMBURSEMENT
Employer
shall pay employee and employee agrees to accept from employer, in full payment
for employee’s services hereunder, compensation at the rate of One Hundred
Thousand Dollars ($1000,000) per year, payable bi-weekly. In addition to
the foregoing, employer will reimburse for any and all necessary, customary, and
usual expenses incurred by her while traveling for and on behalf of the employer
pursuant to employer’s directions.
1
INTELLECTUAL
PROPERTY
The
Company will be entitled to and will own all the results and proceeds of the
Employee's services under this Agreement, including, without limitation, all
rights throughout the world to any copyright, patent, trademark or other right
and to all ideas, inventions, products, programs, procedures, formats and other
materials of any kind created or developed or worked on by the Employee during
her employment by the Company, and one year after termination, that pertains to
Company business; the same shall be the sole and exclusive property of the
Company; and the Employee will not have any right, title or interest of any
nature or kind therein. Without limiting the foregoing, it will be presumed that
any copyright, patent, trademark or other right and any idea, invention,
product, program, procedure, format or material created, developed or worked on
by the Employee at any time during the term of her employment will be a result
or proceed of the Employee's services under this Agreement. The Employee will
take such action and execute such documents as the Company may request to
warrant and confirm the Company's title to and ownership of all such results and
proceeds and to transfer and assign to the Company any rights which the Employee
may have therein.
EMPLOYEE’S
LOYALTY TO EMPLOYER’S INTERESTS
Employee
shall devote all of her time, attention, knowledge, and skill solely and
exclusively to the business and interests of employer, and employer shall be
entitled to all benefits, emoluments, profits, or other issues arising from or
incident to any and all work, services, and advice of employee. Employee
expressly agrees that during the term hereof he or she will not be interested,
directly or indirectly, in any form, fashion, or manner, as partner, officer,
director, stockholder, advisor, employee, or in any form or capacity, in any
other business similar to employer’s business or any allied trade, except that
nothing herein contained shall be deemed to prevent or limit the right of
employee to invest any of her surplus funds in the capital stock or other
securities of any corporation whose stock or securities are publicly owned or
are regularly traded on any public exchange, nor shall anything herein contained
by deemed to prevent employee from investing or limit employee’s right to invest
her surplus funds in real estate.
NONDISCLOSURE
OF INFORMATION CONCERNING BUSINESS
Employee
will not at any time, in any fashion, form, or manner, either directly or
indirectly divulge, disclose, or communicate to any person, firm, or corporation
in any manner whatsoever any information of any kind, nature, or description
concerning any matters affecting or relating to the business of employer,
including, without limitation, the names of any of it’s customers, the prices it
obtains or has obtained, or at which it sells or has sold its products, or any
other information concerning the business of employer, its manner of operation,
or its plans, processes, or other date of any kind, nature, or description
without regard to whether any or all of the foregoing matters would be deemed
confidential, material, or important. The parties hereby stipulate that,
as between them, the foregoing matters are important, material, and
confidential, and gravely affect the effective and successful conduct of the
business of employer, and its good will, and that any breach of the terms of
this section is a material breach of this agreement.
OPTION
TO TERMINATE ON PERMANENT DISABILITY OF EMPLOYEE
Notwithstanding
anything in this agreement to the contrary, employer is hereby given the option
to terminate this agreement in the event that during the term hereof employee
shall become permanently disabled, as the term “permanently disabled” is
hereinafter fixed and defined. Such option shall be exercised by employer
giving notice to employee by registered mail, addressed to her in care of
employer at the above stated address, or at such other address as employee shall
designate in writing, of its intention to terminate this agreement on the last
day of the month during which such notice is mailed.
2
On
the giving of such notice this agreement and the term hereof shall cease and
come to an end on the last day of the month in which the notice is mailed, with
the same force and effect as if such last day of the month were the date
originally set forth as the termination date. For purposes of this
agreement, employee shall be deemed to have become permanently disabled if,
during any year of the term hereof, because of ill health, physical or mental
disability, or for other causes beyond her control, he or she shall have been
continuously unable or unwilling or have failed to perform her duties hereunder
for thirty (30) consecutive days, or if, during any year of the term hereof, he
or she shall have been unable or unwilling or have failed to perform her duties
for a total period of thirty (30) days, whether consecutive or not. For
the purposes hereof, the term “any year of the term hereof” is defined to mean
any period of 12 calendar months commencing on the first day of January and
terminating on the last day of December of the following year during the term
hereof.
DISCONTINUANCE
OF BUSINESS AS TERMINATION OF EMPLOYMENT
Anything
herein contained to the contrary notwithstanding, in the event that employer
shall discontinue operations at the premises mentioned above, then this
agreement shall cease and terminate as of the last day of the month in which
operations cease with the same force and effect as if such last day of the month
were originally set forth as the termination date hereof..
EMPLOYEE’S
COMMITMENTS BINDING ON EMPLOYER ONLY ON WRITTEN CONSENT
Employee
shall not have the right to make any contracts or other commitments for or on
behalf of employer without the written consent of the employer.
CONTRACT
TERMS TO BE EXCLUSIVE
This
written agreement contains the sole and entire agreement between the parties,
and supersedes any and all other agreements between them. The parties
acknowledge and agree that neither of them has made any representation with
respect to the subject matter of this agreement or any representations inducing
the execution and delivery hereof except such representations as are
specifically set forth herein, and each party acknowledges that she or it has
relied on her or its own judgment in entering into the agreement. The
parties further acknowledge that any statements or representations that may have
heretofore been made by either of them to the other are void and of no effect
and that neither of them has relied thereon on connection with her or its
dealings with the other.
WAIVER
OR MODIFICATION INEFFECTIVE UNLESS IN WRITING
No waiver
or modification of this agreement or of its covenant, condition, or limitation
herein contained shall be valid unless in writing and duly executed by the party
to be charged therewith. Furthermore, no evidence of any waiver or
modification shall be offered or received in evidence in any proceeding,
arbitration, or litigation between the parties arising out of or affecting this
agreement, or the rights or obligations of any party hereunder, unless such
waiver or modification is in writing, duly executed as aforesaid. The
provisions of this paragraph may not be waived except as herein set
forth.
CONTRACT
GOVERNED BY LAW
This
agreement and performance hereunder and all suits and special proceedings
hereunder shall be construed in accordance with the laws of the State of
Montana.
3
BINDING
EFFECT OF AGREEMENT
This
agreement shall be binding on and inure to the benefit of the respective parties
and their respective heirs, legal representatives, successors, and
assigns.
Executed
on the date first above written.
|
/s/ Darrel Holmes
|
/s/ Guy Cook
|
|
|
“Employee”
|
|
“Employer”
|
Additional
Benefits include:
Stock
Options as follows:
30,000
shares of stock options at a strike price of .05/share for the first 3 years of
employment for a total of 90,000
shares. Oct.
9th,
2004 = 30,000 shares
Oct.
9th,
2005 = 30,000 shares
Oct.
9th,
2006 = 30,000 shares
30,000
shares of stock options at a strike price of .67/share for years 4 and 5 of
employment for a total of 60,000
shares. Oct
9th,
2007 = 30,000 shares
Oct
9th,
2008 = 30,000 shares
30,000
shares of stock options at a strike price of .75/ share for years 6 through year
10 of employment for a total of 150,000 stock options
Dec
29th, 2009 =
36,575.34
Dec
29th
2010 = 23,424.66
Dec 29h
2011 = 30,000
Dec
29th
2012 = 30,000
Dec
29th
2013 = 30,000
For
the complete 10 years of employment Darrel will vest a total of 300,000.00
shares.
Vacation,
bonus and other benefits as outlined in the employee manual.
4
EXHIBIT
21.1
Subsidiaries
of Bacterin, Inc.
|
Subsidiary
|
Stockholder
|
Percent
Owned
|
State/Jurisdiction of
Incorporation
|
|||
|
Bacterin
International, Inc.
|
Bacterin
International Holdings, Inc.
|
100%
|
Nevada
|
Exhibit
99.1
BACTERIN
INTERNATIONAL, INC.
DECEMBER
31, 2009 AND 2008
 |
|
Salt
Lake Office:
5296
South Commerce Drive, Suite 300
Salt
Lake City, Utah 84107-5370
Telephone:
(801)281-4700
Kaysville
Office:
1284
Flint Meadow Drive, Suite D
Kaysville,
Utah 84037-9590
Telephone:
(801)927-1337
|
Bacterin
International, Inc.
Financial
Statements
December
31, 2009 and 2008
Contents
|
Page
|
||
|
Balance
Sheets
|
4
|
|
|
Statements
of Operations
|
5
|
|
|
Statement
of Changes in Stockholders' Equity
|
6
|
|
|
Statements
of Cash Flows
|
7
|
|
|
Notes
to Financial Statements
|
8
|
 |
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
The Board of Directors and Stockholders of
Bacterin
International, Inc.
600
Cruiser Lane
Belgrade,
MT 59714
We
have audited the accompanying balance sheets of Bacterin International,
Inc. (the Company) as of December 31, 2009 and 2008, and the related
statements of operations, changes in stockholders’ equity and cash flows
for the years ended December 31, 2009 and 2008. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States 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. The company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bacterin International,
Inc. as of December 31, 2009 and 2008, and the results of its operations
and its cash flows for the years ended December 31, 2009 and 2008, in
conformity with accounting principles generally accepted in the United
States of America.
Child,
Van Wagoner & Bradshaw, PLLC
Salt
Lake City, Utah
June
18, 2010
|
BACTERIN
INTERNATIONAL, INC.
Balance
Sheets
As
of December 31, 2009 and 2008
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 54,155 | $ | 238,895 | ||||
|
Restricted
cash and cash equivalents
|
- | 1,000,000 | ||||||
|
Accounts
receivable, net of allowance of $81,803 and $92,881,
respectively
|
1,314,418 | 564,134 | ||||||
|
Notes
receivable-trade
|
270,565 | 189,387 | ||||||
|
Notes
receivable from stockholder
|
- | 138,280 | ||||||
|
Inventories,
net
|
5,000,713 | 4,158,690 | ||||||
|
Prepaid
and other current assets
|
30,000 | 61,267 | ||||||
|
|
6,669,851 | 6,350,653 | ||||||
|
Property
& equipment, net
|
3,248,096 | 3,802,139 | ||||||
|
Intangible
assets, net
|
554,268 | 548,772 | ||||||
|
Other
assets
|
13,675 | 26,490 | ||||||
| $ | 10,485,890 | $ | 10,728,054 | |||||
|
LIABILITIES
& STOCKHOLDERS' EQUITY
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
payable
|
$ | 1,403,950 | $ | 1,253,601 | ||||
|
Accrued
liabilities
|
463,633 | 253,538 | ||||||
|
Warrants
derivative liability
|
75,231 | - | ||||||
|
Notes
payable
|
1,126,690 | 1,000,000 | ||||||
|
Notes
payable to stockholders
|
183,461 | 154,032 | ||||||
|
Current
portion of capital lease obligations
|
85,071 | 190,989 | ||||||
|
Current
portion of convertible notes payable ($890,000 net of debt discount of
$69,213)
|
820,787 | - | ||||||
|
Current
portion of long-term debt
|
1,202,574 | 1,286,571 | ||||||
|
|
5,361,397 | 4,138,731 | ||||||
|
Capital
lease obligation, less current portion
|
27,074 | 62,673 | ||||||
|
Convertible
notes payable, less current portion
|
- | 2,340,000 | ||||||
|
Long-term
debt, less current portion
|
412,545 | 563,878 | ||||||
|
|
5,801,016 | 7,105,282 | ||||||
|
Stockholders'
Equity
|
||||||||
|
Preferred
stock, $.0001 par value; 15,000,000 shares authorized; No shares issued
and outstanding
|
- | - | ||||||
|
Common
stock, $.00001 par value; 85,000,000 shares authorized; 56,540,919 shares
issued and 56,423,125 shares outstanding in 2009 and 50,718,134 shares
issued and outstanding in 2008
|
565 | 507 | ||||||
|
Additional
paid-in capital
|
22,238,210 | 16,973,858 | ||||||
|
Treasury
stock, 117,794 shares
|
(76,566 | ) | - | |||||
|
Retained
deficit
|
(17,477,335 | ) | (13,351,593 | ) | ||||
|
|
4,684,874 | 3,622,772 | ||||||
| $ | 10,485,890 | $ | 10,728,054 | |||||
See
Accompanying Notes to Financial Statements.
4
BACTERIN
INTERNATIONAL, INC.
Statements
of Operations
For
the Years Ended December 31, 2009 and 2008
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
REVENUE:
|
||||||||
|
Product
sales
|
$ | 7,101,357 | $ | 8,031,611 | ||||
|
Royalties
and other
|
292,136 | 180,848 | ||||||
|
TOTAL
REVENUE
|
7,393,493 | 8,212,459 | ||||||
|
Cost
of product sales
|
2,318,142 | 1,522,658 | ||||||
|
GROSS
PROFIT
|
5,075,351 | 6,689,801 | ||||||
|
OPERATING
EXPENSES:
|
||||||||
|
Selling,
general, and administrative
|
4,161,941 | 3,417,904 | ||||||
|
Compensation
expense
|
4,535,964 | 2,157,450 | ||||||
|
TOTAL
OPERATING EXPENSES
|
8,697,905 | 5,575,354 | ||||||
|
INCOME
(LOSS) FROM OPERATIONS
|
(3,622,554 | ) | 1,114,447 | |||||
|
INTEREST
AND OTHER INCOME (EXPENSE)
|
||||||||
|
Interest
expense
|
(513,934 | ) | (1,374,360 | ) | ||||
|
Other
|
10,746 | 20,601 | ||||||
|
TOTAL
INTEREST AND OTHER INCOME (EXPENSE), NET
|
(503,188 | ) | (1,353,759 | ) | ||||
|
NET
INCOME (LOSS) BEFORE BENEFIT (PROVISION) FOR INCOME TAXES
|
(4,125,742 | ) | (239,312 | ) | ||||
|
BENEFIT
(PROVISION) FOR INCOME TAXES
|
- | - | ||||||
|
NET
INCOME (LOSS)
|
$ | (4,125,742 | ) | $ | (239,312 | ) | ||
|
Net
income (loss) per share:
|
||||||||
|
Basic
|
$ | (.08 | ) | $ | (.00 | ) | ||
|
Shares
used in the computation:
|
||||||||
|
Basic
|
52,911,010 | 49,428,393 | ||||||
See
Accompanying Notes to Financial Statements.
5
BACTERIN
INTERNATIONAL, INC.
Statements
of Changes in Stockholders’ Equity
For
the Years Ended December 31, 2009 and 2008
|
Total
|
||||||||||||||||||||||||||||
|
Common
Stock
|
APIC
Options/
|
Additional
|
Retained
|
Treasury
|
stockholders'
|
|||||||||||||||||||||||
|
Shares
|
Amount
|
Warrants
|
paid-in
capital
|
Deficit
|
Stock
|
equity
|
||||||||||||||||||||||
|
Balance
at December 31, 2007
|
48,154,701 | $ | 481 | $ | 2,220,747 | $ | 12,074,104 | $ | (13,112,281 | ) | $ | - | $ | 1,183,051 | ||||||||||||||
|
Issuance
of common stock, options and warrants:
|
||||||||||||||||||||||||||||
|
Private
placement
|
2,283,433 | 23 | 348,117 | 930,374 | - | - | 1,278,514 | |||||||||||||||||||||
|
Warrants
issued on convertible debt
|
- | - | 368,787 | - | - | - | 368,787 | |||||||||||||||||||||
|
Stock
based compensation
|
300,000 | 3 | 235,974 | 224,997 | - | - | 460,974 | |||||||||||||||||||||
|
Warrants
for debt/equity issuance
|
- | - | 279,198 | - | - | - | 279,198 | |||||||||||||||||||||
|
Warrants
for short-term note guarantee
|
- | - | 291,560 | - | - | - | 291,560 | |||||||||||||||||||||
|
Net
income
|
- | - | - | - | (239,312 | ) | - | (239,312 | ) | |||||||||||||||||||
|
Balance
at December 31, 2008
|
50,738,134 | 507 | 3,744,383 | 13,229,475 | (13,351,593 | ) | - | 3,622,772 | ||||||||||||||||||||
|
Issuance
of common stock, options and warrants:
|
||||||||||||||||||||||||||||
|
Private
placement
|
2,437,500 | 24 | 13,601 | 1,936,375 | - | - | 1,950,000 | |||||||||||||||||||||
|
Conversion
of notes to common stock
|
3,020,285 | 30 | - | 2,414,847 | - | - | 2,414,877 | |||||||||||||||||||||
|
Purchase
of treasury stock
|
(117,794 | ) | - | - | - | - | (76,566 | ) | (76,566 | ) | ||||||||||||||||||
|
Warrants
for debt issuance
|
- | - | 62,183 | - | - | - | 62,183 | |||||||||||||||||||||
|
Stock-based
compensation
|
345,000 | 4 | 561,355 | 275,991 | - | - | 837,350 | |||||||||||||||||||||
|
Net
loss
|
- | - | - | - | (4,125,742 | ) | - | (4,125,742 | ) | |||||||||||||||||||
|
Balance
at December 31, 2009
|
56,423,125 | $ | 565 | $ | 4,381,522 | $ | 17,856,688 | $ | (17,477,335 | ) | $ | (76,566 | ) | $ | 4,684,874 | |||||||||||||
See Accompanying Notes to Financial
Statements.
6
BACTERIN
INTERNATIONAL, INC.
Statements
of Cash Flows
For
the Years Ended December 31, 2009 and 2008
|
Year Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Operating
activities:
|
||||||||
|
Net
income (loss)
|
$ | (4,125,742 | ) | $ | (239,312 | ) | ||
|
Noncash
adjustments:
|
||||||||
|
Depreciation
and amortization
|
707,926 | 685,715 | ||||||
|
Stock/option
awards for services
|
837,350 | 460,974 | ||||||
|
Provision
for losses on accounts receivable and inventory
|
(2,078 | ) | 94,171 | |||||
|
Non-cash
interest expense
|
183,078 | 939,545 | ||||||
|
(Gain)
Loss on disposal of assets
|
(5,250 | ) | 1,051 | |||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(739,206 | ) | 346,984 | |||||
|
Notes
receivable-trade
|
(81,178 | ) | (68,344 | ) | ||||
|
Inventories
|
(851,023 | ) | (2,259,125 | ) | ||||
|
Prepaid
and other current assets
|
44,082 | (1,385 | ) | |||||
|
Accounts
payable
|
150,349 | 582,756 | ||||||
|
Accrued
liabilities
|
210,096 | (41,022 | ) | |||||
|
Net
cash provided by (used in) operating activities
|
(3,671,596 | ) | 502,008 | |||||
|
Investing
activities:
|
||||||||
|
Purchases
of property and equipment
|
(42,089 | ) | (649,507 | ) | ||||
|
Note
receivable from stockholder
|
138,280 | (138,280 | ) | |||||
|
Intangible
asset additions
|
(51,576 | ) | (167,905 | ) | ||||
|
Proceeds
on sale of fixed assets
|
5,250 | 2,400 | ||||||
|
Acquisition
of entity under common control
|
- | 1,158 | ||||||
|
Net
cash used by investing activities
|
49,865 | (952,134 | ) | |||||
|
Financing
activities:
|
||||||||
|
Restricted
cash
|
- | (1,000,000 | ) | |||||
|
Release
of restriction on cash
|
1,000,000 | - | ||||||
|
(Payments
on) long-term debt
|
(235,330 | ) | (2,018,536 | ) | ||||
|
Proceeds
from issuance of convertible debt
|
550,000 | 2,340,000 | ||||||
|
(Payments
on) notes payable
|
(500,000 | ) | - | |||||
|
Proceeds
from notes payable
|
926,690 | 1,000,000 | ||||||
|
(Payments
on) capital leases
|
(207,232 | ) | (216,092 | ) | ||||
|
Proceeds
from issuance of common stock
|
1,950,000 | 1,278,514 | ||||||
|
Payments
on notes payable to shareholders
|
(47,137 | ) | (838,717 | ) | ||||
|
Net
cash provided by financing activities
|
3,436,991 | 545,169 | ||||||
|
Increase
(decrease) in cash
|
(184,740 | ) | 95,043 | |||||
|
Cash
and cash equivalents at beginning of period
|
238,895 | 143,852 | ||||||
|
Cash
and cash equivalents at end of period
|
$ | 54,155 | $ | 238,895 | ||||
|
Supplemental
disclosure of cash flow information (see note 19)
|
||||||||
See
Accompanying Notes to Financial Statements.
7
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements
Years
ended December 31, 2009 and 2008
|
(1)
|
Business
Description and Summary of Significant Accounting
Policies
|
Business
Description
Bacterin
International, Inc. (“the “Company” or
“Bacterin”) develops, manufactures
and markets biologics products to domestic and international markets and is a
leader in the field of biomaterials research, device development and
commercialization. Bacterin’s proprietary methods optimize the growth
factors in human allografts to create the ideal stem cell scaffold and promote
bone and other tissue growth. These products are used in a variety of
applications including enhancing fusion in spine surgery, relief of back pain
with a facet joint stabilization, promotion of bone growth in foot and ankle
surgery, promotion of skull healing following neurosurgery and cartilage
regeneration in knee and other joint surgeries.
Bacterin’s
device division develops anti-microbial coatings to inhibit infection based upon
proprietary knowledge of the phenotypical changes made by microbes as they sense
and adapt to changes in their environment. Bacterin develops, employs, and
licenses bioactive coatings for various medical device
applications. Bacterin’s strategic coating initiatives include the
inhibition of biofilm formation, local (as opposed to systemic) drug delivery,
local (as opposed to systemic) pain management, and anti-thrombotic factors for
medical device applications.
Certain
Risks and Concentrations
The
Company's revenue is derived principally from the sale or license of its medical
products, coatings and device implants. The markets in which the Company
competes are highly competitive and rapidly changing. Significant technological
advances, changes in customer requirements, or the emergence of competitive
products with new capabilities or technologies could adversely affect the
Company's operating results. The Company's business could be harmed by a decline
in demand for, or in the prices of, its products or as a result of, among other
factors, any change in pricing or distribution model, increased price
competition, changes in government regulations or a failure by the Company to
keep up with technological change. Further, a decline in available
tissue donors could have an adverse impact on the business.
Financial
instruments subjecting the Company to concentrations of credit risk are accounts
and notes receivable. The Company maintains cash, cash equivalents, and
short-term investments with various domestic financial institutions. From time
to time, the Company's cash balances with its financial institutions may exceed
insurance limits.
The
Company's customers are worldwide with approximately 91% of sales in the United
States in 2009 and 2008. One customer accounted for 12% of revenue in
2009. One customer accounted for 37% and another customer accounted
for 10.2% of the Company's revenue in 2008. No single customer
represented more than 10% of accounts receivable at December 31, 2009 and one
customer represented 10.4% of accounts receivable at December 31,
2008.
Revenue
by geographical region is as follows:
|
Year
Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
United
States
|
$ | 6,708,027 | $ | 7,485,988 | ||||
|
Rest
of World
|
685,466 | 726,471 | ||||||
| $ | 7,393,493 | $ | 8,212,459 | |||||
Use
of Estimates
The
preparation of the financial statements requires management of the Company to
make a number of estimates and assumptions relating to the reported amount of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the period; the carrying amount of property and equipment and
intangible assets; valuation allowances for receivables and deferred income tax
assets; and estimates of expected term and volatility in determining stock-based
compensation expense. Actual results could differ from those
estimates.
8
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(1)
|
Business
Description and Summary of Significant Accounting Policies
(Continued)
|
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original
maturity date of three months or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates market value. As
of December 31, 2008, a $1,000,000 certificate of deposit was pledged as
collateral for the two $500,000 notes payable to Flathead Bank. The
certificate of deposit was released as collateral during 2009.
Accounts
Receivable and Notes Receivable
Accounts
receivable represents amounts due from customers for which revenue has been
recognized. Normal terms on trade accounts receivable are net 30 days and some
customers are offered discounts for quick pay. Notes receivable
include amounts due from West Coast Tissue Service, a supplier of donors to the
Company. The Company performs credit evaluations when considered necessary, but
generally does not require collateral to extend credit.
The
allowance for doubtful accounts is the Company's best estimate of the amount of
probable credit losses in the Company's existing receivables. The Company
determines the allowance based on factors such as historical collection
experience, customer's current creditworthiness, customer concentration, age of
accounts receivable balance and general economic conditions that may affect a
customer's ability to pay. Actual customer collections could differ from
estimates. Account balances are charged to the allowance after all means of
collection have been exhausted and the potential for recovery is considered
remote. Provisions to the allowance for doubtful accounts are charged to
expense. The Company does not have any off-balance sheet credit exposure related
to its customers.
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined using
the specific identification method and includes materials, labor and
overhead.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization is computed using the straight-line method over
the estimated useful lives of the assets, generally three to seven years for
computers and equipment, and 30 years for buildings. Repairs and maintenance are
expensed as incurred.
Intangible
Assets
Intangible
assets include costs to acquire and protect Company patents and are carried at
cost less accumulated amortization. The Company amortizes these assets on a
straight-line basis over their estimated useful lives of 15 years.
Grants
As part
of the Company’s efforts to build the development of new technologies, tissue
donation and expansion of tissue supply, the Company, may, from time-to-time
either provide or receive grants. These grants receipts are used for
research and development efforts.
9
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(1)
|
Business
Description and Summary of Significant Accounting Policies
(Continued)
|
Revenue
Recognition
Revenue
is recognized when all of the following criteria are met: a) the Company
has entered into a legally binding agreement with the customer; b) the
products or services have been delivered; c) the Company's fee for
providing the products and services is fixed and determinable; and
d) collection of the Company’s fee is probable.
The
Company’s policy is to record revenue net of any applicable sales, use, or
excise taxes. If an arrangement includes a right of acceptance or a
right to cancel, revenue is recognized when acceptance is received or the right
to cancel has expired.
The
Company sells to certain customers under consignment arrangements whereby the
Company ships product to be stored by the customer. The customer is
required to report the use to the Company and upon such notice the Company
invoices the customer.
Research
and development services revenue is recognized as performed, based on the
incurrence of qualifying costs or achievement of milestones as prescribed in the
arrangement.
Research
and Development
Research
and development costs, which are principally related to internal costs for the
development of new technologies and processes for tissue and coatings, are
expensed as incurred.
Income
Taxes
The
Company records income taxes under the asset and liability method as prescribed
under FASB Accounting Standards Codification ASC 740, Accounting for Income
Taxes. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. When applicable, a
valuation allowance is established to reduce any deferred tax asset when it is
determined that it is more likely than not that some portion of the deferred tax
asset will not be realized.
Impairment
of Long-Lived Assets
Long-lived
assets, including intangible assets, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the estimated fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. No impairments of long-lived assets
have been identified in any of the periods presented.
Net
Income (Loss) Per Share
A
reconciliation of the denominator used in the calculation of basic and diluted
net income (loss) per share is as follows:
|
Net
Income (Loss) Per Share:
|
Year
Ended December 31,
|
|||||||
|
2009
(restated)
|
2008
|
|||||||
|
Net
Income (Loss)
|
(4,125,742 | ) | $ | (239,312 | ) | |||
|
Weighted
average common shares outstanding for basic net income (loss) per
share
|
52,911,010 | 49,428,393 | ||||||
Dilutive
earnings per share are not reported as their effects are
anti-dilutive.
10
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(1)
|
Business
Description and Summary of Significant Accounting Policies
(Continued)
|
Stock-Based
Compensation
On
January 1, 2006, the Company adopted the provisions of ASC 718-40, for its
stock-based compensation plans. Under ASC 718, stock-based
compensation costs are recognized based on the estimated fair value at the grant
date for all stock-based awards. The Company estimates grant date
fair values using the Black-Scholes-Merton option pricing model, which requires
assumptions of the life of the award and the stock price volatility over the
term of the award. The Company records compensation cost of
stock-based awards using the straight line method, which is recorded into
earnings over the vesting period of the award. Pursuant to the income
tax provisions included in ASC 718-740, the Company has elected the “short cut
method” of computing its hypothetical pool of additional paid-in capital that is
available to absorb future tax benefit shortfalls.
Comprehensive
Income (Loss)
Comprehensive
loss includes net income or loss, as well as other changes in stockholders'
equity that result from transactions and economic events other than those with
stockholders. The Company currently does not have any transactions that qualify
for accounting and inclusion as other comprehensive income (loss).
Fair
Value of Financial Instruments
The
carrying values of financial instruments, including accounts receivable, notes
receivable, accounts payable and other accrued expenses, approximate their fair
values.
|
(2)
|
Notes
Receivable
|
Notes
receivable consist of the following:
|
Year
Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
West
Coast Tissue Service, Inc.
|
$ | 270,565 | $ | 189,387 | ||||
West
Coast Tissue Service, Inc. is a non-profit corporation organized under Section
501(c)(3) of the Internal Revenue Code. The Company has contracted
with West Coast Tissue Service to acquire their donor tissue for use in the
Company’s production. If the Company were unable to continue to
receive donor tissue, it may have a material effect on Bacterin’s financial
statements and results of operations. The notes are non-interest
bearing and are expected to be repaid during 2010.
|
(3)
|
Inventories
|
Inventories
consist of the following:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Raw
materials
|
$ | 178,754 | $ | 145,186 | ||||
|
Raw
materials
|
1,100,252 | 1,291,179 | ||||||
|
Work
in process
|
1,282,080 | 735,916 | ||||||
|
Finished
goods
|
2,499,627 | 2,037,409 | ||||||
| 5,060,713 | 4,209,690 | |||||||
|
Reserve
|
60,000 | 51,000 | ||||||
| $ | 5,000,713 | $ | 4,158,690 | |||||
11
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(4)
|
Property
and Equipment, Net
|
Property
and equipment, net are as follows:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Buildings
|
$ | 1,613,628 | $ | 1,590,475 | ||||
|
Equipment
|
2,542,855 | 2,553,053 | ||||||
|
Computer
equipment
|
235,566 | 202,035 | ||||||
|
Computer
software
|
140,071 | 127,867 | ||||||
|
Furniture
and fixtures
|
75,007 | 75,007 | ||||||
|
Leasehold
improvements
|
898,248 | 881,938 | ||||||
|
Vehicles
|
101,110 | 101,110 | ||||||
|
Total
cost
|
5,606,485 | 5,551,485 | ||||||
|
Less:
accumulated depreciation
|
(2,358,389 | ) | (1,729,346 | ) | ||||
| $ | 3,248,096 | $ | 3,802,139 | |||||
Maintenance
and repairs expense for the years ended December 31, 2009 and 2008, was $43,328
and $67,863, respectively. Depreciation expense related to property,
plant and equipment, including property under capital lease, for the years ended
December 31, 2009 and 2008 was $661,847 and $508,392,
respectively. Depreciation included in inventory and cost of goods
sold for the years ended December 31, 2009 and 2008 was $192,500 and $251,076,
respectively.
|
(5)
|
Intangible
assets
|
Bacterin
has been issued various patents with regards to processes for their
products.
The
following table sets forth information regarding intangible assets:
|
Intellectual
|
||||
|
Property
|
||||
|
As
of December 31, 2008:
|
||||
|
Gross
carrying value
|
$ | 658,895 | ||
|
Accumulated
amortization
|
(110,123 | ) | ||
|
Net
carrying value
|
$ | 548,772 | ||
|
As
of December 31, 2009:
|
||||
|
Gross
carrying value
|
$ | 710,471 | ||
|
Accumulated
amortization
|
(156,203 | ) | ||
|
Net
carrying value
|
$ | 554,268 | ||
|
Aggregate
amortization expense:
|
||||
|
2008
|
$ | 38,889 | ||
|
2009
|
$ | 46,080 | ||
|
Estimated
amortization expense:
|
||||
|
2010
|
$ | 47,364 | ||
|
2011
|
$ | 47,364 | ||
|
2012
|
$ | 47,364 | ||
|
2013
|
$ | 47,364 | ||
|
2014
|
$ | 47,364 | ||
12
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(6)
|
Accrued
Liabilities
|
Accrued
liabilities consist of the following:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Credit
cards
|
$ | 10,764 | $ | 16,182 | ||||
|
Accrued
interest payable
|
45,382 | 112,536 | ||||||
|
Wages
payable
|
377,484 | 40,439 | ||||||
|
Other
accrued expenses
|
- | 84,381 | ||||||
| $ | 463,630 | $ | 253,538 | |||||
|
(7)
|
Notes
Payable
|
Notes
payable consist of the following:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Note
payable Kevin Daly
|
$ | 200,000 | $ | - | ||||
|
Note
payable Hamilton Group
|
426,693 | - | ||||||
|
Notes
payable Flathead Bank
|
500,000 | 1,000,000 | ||||||
| $ | 1,126,693 | $ | 1,000,000 | |||||
The note
payable to Kevin Daly was a 30-day note payable bearing interest at 15% and was
repaid in January 2009. The notes payable Flathead Bank are 6.5% short-term
notes with monthly payments of $3,728 and maturing on June 25,
2010. The notes payable Hamilton Group is a note due under a
factoring contract, secured by accounts receivable.
|
(8)
|
Convertible
Notes Payable
|
|
December
31,
|
||||||||
|
2009
(restated)
|
2008
|
|||||||
|
12%
convertible note payable, maturing in 2010, extendable by the Company for
two additional three month terms, secured by intellectual property and the
raw material inventory, convertible into the securities offered in a
future qualified offering, defined as the sale of debt or equity
securities generating aggregate gross proceeds of at least
$7,000,000, equal to the lower of $0.80 per share or ninety
percent (90%) of the per share price of the securities sold to
investors in the Qualified Financing if one occurs or convertible anytime
into common stock at $1.00 per share, restrictive covenants were in
compliance as of December 31, 2009 (net of debt discount). The
debt discount
is the value of the warrants that were issued.
|
$ | 480,787 | $ | - | ||||
|
10%
convertible notes payable, maturing in 2010, secured by all assets after
subordination to other creditors with pre-existing rights to those assets,
convertible into shares of common stock – notes were repaid in January and
February 2010
|
340,000 | 2,340,000 | ||||||
| $ | 820,787 | $ | 2,340,000 | |||||
13
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(9)
|
Long-Term
Debt
|
Long-term
debt consists of the following:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
6.5%
loan payable to Flathead Bank, $7,278 monthly payments including interest,
maturing June 25, 2010, secured by building
|
$ | 976,218 | $ | 993,996 | ||||
|
8.50%
loan payable to Flathead Bank, $9,329 monthly payments, including
interest, maturing in 2012, secured by equipment
|
293,052 | 367,376 | ||||||
|
5.00%
loan payable to the City of Belgrade, $3,653 monthly payments, including
interest, maturing in 2012, secured by equipment
|
141,215 | 149,158 | ||||||
|
5.00%
loan payable to the City of Belgrade, $6,982 monthly payments, including
interest, maturing in 2010, secured by equipment
|
39,044 | 118,557 | ||||||
|
5.00%
loan payable to Valley Bank of Belgrade, $4,140 monthly payments including
interest, secured by building
|
165,590 | 187,303 | ||||||
|
8.00%
loan payable to Valley Bank of Belgrade, $4,140 monthly payments including
interest, secured by building
|
- | 34,059 | ||||||
| 1,615,119 | 1,850,449 | |||||||
|
Less:
Current portion
|
(1,202,574 | ) | (1,286,571 | ) | ||||
| $ | 412,545 | $ | 563,878 | |||||
The
following is a summary of maturities due on the long-term debt as of December
31, 2009:
|
2010
|
$ | 1,202,574 | ||
|
2011
|
190,238 | |||
|
2012
|
180,029 | |||
|
2013
|
42,278 | |||
|
Thereafter
|
- | |||
|
Total
|
$ | 1,615,119 |
14
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(10)
|
Capital
Leasing Transactions
|
Future
minimum capital and operating lease payments are as follows:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
2009
|
$ | - | $ | 212,019 | ||||
|
2010
|
93,752 | 39,519 | ||||||
|
2011
|
28,920 | 30,055 | ||||||
|
2012
|
- | - | ||||||
|
Thereafter
|
- | - | ||||||
|
Total
minimum lease payments
|
122,672 | 281,593 | ||||||
|
Less
interest portion of payments
|
(10,527 | ) | (27,931 | ) | ||||
|
Present
value of future minimum lease payments
|
112,145 | 253,662 | ||||||
|
Less
current maturities of capital lease obligation
|
(85,071 | ) | (190,989 | ) | ||||
|
Capital
lease obligation
|
$ | 27,074 | $ | 62,673 | ||||
|
(11)
|
Notes
Payable to Shareholders
|
Notes
payable to shareholders consist of the following:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Note
payable shareholders
|
$ | 76,969 | $ | - | ||||
|
Note
payable Mitch Godfrey
|
106,492 | 154,032 | ||||||
| $ | 183,461 | $ | 154,032 | |||||
During
2009, the Company repurchased stock from two shareholders pursuant to a tender
process. These notes were given in payment for the stock and accrued interest at
six percent during the initial term with a maturity of September 29, 2009. When
the notes were not paid on the initial maturity date, they were automatically
extended for an additional four months with a new interest rate of eight
percent. If not paid at the second maturity date, these notes will automatically
extend for an additional four months at an interest rate of ten percent. The
note payable to Mitch Godfrey does not have specified payment terms and bears 6%
interest per annum.
|
(12)
|
Related
Party Transaction – ReGenCell, Inc.
|
ReGenCell,
Inc. is a Montana corporation owned 100% by Guy Cook. On January 1,
2008, Bacterin International, Inc. acquired all of the assets of ReGenCell,
Inc.:
| $ | 1,158 | |||
|
Employee
receivable – Guy Cook
|
32,700 | |||
|
Employee
receivable – Mitchell Godfrey
|
17,763 | |||
|
Employee
receivable – other
|
31,267 | |||
|
Fixed
assets (at cost)
|
88,975 | |||
|
Accounts
receivable – Bacterin International, Inc.
|
30,000 | |||
|
Notes
receivable – Bacterin International, Inc.
|
59,055 | |||
|
Total
assets purchased
|
$ | 260,918 | ||
|
Bacterin
assumed Valley Bank note payable
|
(327,466 | ) | ||
|
Bacterin
assumed miscellaneous payables
|
(2,200 | ) | ||
| 68,748 | ||||
| $ | 0 |
Guy Cook
agreed to reduce his note receivable from Bacterin by the difference between the
liabilities assumed and the assets purchased ($68,748). Upon
acquisition of the employee receivables, Bacterin reduced its notes payable to
Guy Cook and Mitchell Godfrey by $32,700 and $17,763,
respectively.
15
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(13)
|
Stock-Based
Compensation
|
The
Company’s 2004 Stock Incentive Plan provides for stock awards, including options
and performance stock awards, to be granted to employees, consultants,
independent contractors, officers and directors. Awards are granted
at the discretion of the Company’s board of directors, at an exercise price and
term determined by the board. However, exercise prices are not less
than the fair market value at the date of grant, and the term of the options is
not greater than ten years. Options generally vest annually over a
period of five years. At December 31, 2009, the Company had
approximately 12 million shares available for issuance under the equity
plan.
Compensation
expense recognized in the statement of operations for the year ended December
31, 2009 and 2008 is based on awards ultimately expected to vest and reflects an
estimate of awards that will be forfeited. ASC 718 requires
forfeitures to be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates.
Compensation
expense recognized and capitalized for the years ended December 31, 2009 and
2008 was $597,355 and $235,974 respectively.
The
estimated fair value of stock options granted is done using the Black-Sholes
method applied to individual grants. Key assumptions used to estimate
the fair value of stock awards are as follows:
Risk Free Rate: The risk-free
rate is determined by reference to U.S. Treasury yields at or near the time of
grant for time periods similar to the expected term of the award.
Expected Term: The Company
does not have adequate history to estimate an expected term of stock-based
awards, and accordingly, uses the short-cut method as prescribed by Staff
Accounting Bulletin 107 to determine an expected term.
Volatility: Since the
Company’s stock is not publicly-traded, the Company estimates expected
volatility based on peer-companies as prescribed by ASC 718.
Dividend Yield: The dividend
yield assumption is based on the Company’s history and expectation of dividend
payouts and was 0% as of December 31, 2009 and 2008.
Activity
under the Company’s stock option plans was as follows:
|
2009
|
2008
|
|||||||||||||||
|
Weighted
|
Weighted
|
|||||||||||||||
|
Average
|
Average
|
|||||||||||||||
|
Exercise
|
Exercise
|
|||||||||||||||
|
Shares
|
Price
|
Shares
|
Price
|
|||||||||||||
|
Outstanding
at Jan. 1,
|
3,998,326 | $ | 0.59 | 3,414,744 | $ | 0.55 | ||||||||||
|
Granted
|
2,995,000 | 0.76 | 1,384,083 | 0.75 | ||||||||||||
|
Exercised
|
0.05 | |||||||||||||||
|
Cancelled
or expired
|
(286,334 | ) | 0.59 | (800,501 | ) | 0.87 | ||||||||||
|
Outstanding
at December 31,
|
6,706,992 | $ | 0.67 | 3,998,326 | $ | 0.59 | ||||||||||
|
Exercisable
at December 31,
|
3,006,901 | $ | 0.56 | 1,939,911 | $ | 0.44 | ||||||||||
16
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(14)
|
Stock-Based
Compensation (continued)
|
The
following table summarizes information concerning non-vested option transactions
for the year ended December 31, 2009:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Grant
Date
|
||||||||
|
|
Fair
Value
|
|||||||
|
Nonvested
Options
|
Shares
|
Per
Share
|
||||||
|
Nonvested
at January 1, 2009
|
2,058,415 | $ | 0.61 | |||||
|
Granted
|
2,995,000 | 0.76 | ||||||
|
Vested
|
(1,172,138 | ) | 0.73 | |||||
|
Forfeited
|
(181,186 | ) | 0.77 | |||||
|
Nonvested
at December 31, 2009
|
3,700,091 | $ | 0.75 | |||||
From time
to time the Company may grant stock options to consultants. The
Company accounts for consultant stock options in accordance with ASC
505-50. Compensation expense for the grant of stock options to
consultants is determined based on the estimated fair value of the warrants at
the measurement date as defined in ASC 505-50 and is recognized over the vesting
period.
In
connection with private placements of convertible debt, short-term debt, and
common stock, the Company issued warrants to purchase shares of common stock at
an exercise price of between $0.5565 and $1.25 per share. During 2009, 80,000
warrants were issued with private placements of common stock, 180,000 warrants
were issued with the placement of short-term debt and 220,000 warrants were
issued with the placement of convertible notes. In 2008, 1,390,607,
100,000 and 976,288 warrants were issued in connection with convertible debt,
short-term debt and common stock, respectively. The warrants were
exercisable five to seven years from the date of grant. Warrants issued with
common stock were recorded as additional paid in capital at the estimated fair
market value of $13,601 in 2009 and $348,117 in 2008. The warrants
issued with convertible debt and short-term loans were recorded as interest
expense over the term of the debt at the estimated fair value of $62,183 in 2009
and $939,545 in 2008 using the following assumptions:
|
2009
|
2008
|
|||||||
|
Value
of underlying common stock (per share)
|
$ | .80 | $ | 0.75 | ||||
|
Risk
free rate
|
2.20 | % | 1.87 | % | ||||
|
Expected
term
|
2.5-5
years
|
5-7
years
|
||||||
|
Dividend
yield
|
0 | % | 0 | % | ||||
|
Volatility
|
44-61 | % | 86 | % | ||||
17
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(15)
|
Commitments
and Contingencies
|
Operating
Leases
The
Company leases office facilities under a non-cancelable operating lease
agreement with an expiration date in 2013. The Company has the option to extend
the lease for another ten year term and has right of first refusal on any
sale. The Company leases additional office facilities under
month-to-month arrangements. Future minimum payments for the next
five years and thereafter as of December 31, 2009, under these leases, are
as follows:
|
2010
|
$ | 120,000 | ||
|
2011
|
$ | 120,000 | ||
|
2012
|
$ | 120,000 | ||
|
2013
|
$ | 72,258 | ||
|
Thereafter
|
$ | - |
Rent
expense was $162,766 and $124,200 in 2009 and 2008,
respectively. Rent expense is determined using the straight-line
method of the minimum expected rent paid over the term of the
agreement. The Company has no contingent rent
agreements.
Warranties
and Indemnification
The
Company's arrangements generally include certain provisions for indemnifying
customers against liabilities if its products or services infringe a
third-party's intellectual property rights. To date, the Company has not
incurred any material costs as a result of such indemnifications and has not
accrued any liabilities related to such obligations in the accompanying
financial statements.
The
Company has also agreed to indemnify its directors and executive officers for
costs associated with any fees, expenses, judgments, fines and settlement
amounts incurred by any of these persons in any action or proceeding to which
any of those persons is, or is threatened to be, made a party by reason of the
person's service as a director or officer, including any action by the Company,
arising out of that person's services as the Company's director or officer or
that person's services provided to any other company or enterprise at the
Company's request.
Litigation
From time
to time, the Company is involved in legal proceedings arising in the ordinary
course of business. The Company believes that the resolution of these matters
will not have a material effect on the Company's financial position, results of
operations or liquidity. Legal fees are charged to expense as
incurred, unless the probability of incurring a loss is high and the amount can
be reasonably estimated, in which case the estimated loss is
accrued.
18
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(16)
|
Income
Taxes
|
The
components of income (loss) before provision for income taxes consist of the
following:
|
Year
Ended December 31,
|
||||||||
|
2009
(restated)
|
2008
|
|||||||
|
United
States
|
$ | (4,125,742 | ) | $ | (239,312 | ) | ||
| $ | (4,125,742 | ) | $ | (239,312 | ) | |||
The
components of the income tax provision are as follows:
|
Year
Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Current:
|
||||||||
|
Federal
|
$ | - | $ | - | ||||
|
State
|
- | - | ||||||
|
Total
current
|
- | - | ||||||
|
Deferred:
|
||||||||
|
Federal
|
- | - | ||||||
|
State
|
- | - | ||||||
|
Total
deferred
|
- | - | ||||||
| $ | - | $ | - | |||||
The
reconciliation of income tax attributable to operations computed at the U.S.
Federal statutory income tax rate of 35% to income tax expense is as
follows:
|
Year
Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Statutory
Federal tax rate
|
$ | (1,444,010 | ) | $ | (83,759 | ) | ||
|
Valuation
allowance
|
1,733,385 | 94,532 | ||||||
|
State
income taxes, net of Federal benefit
|
(289,452 | ) | (16,513 | ) | ||||
|
Nondeductible
meals & entertainment expense
|
24,301 | 5,740 | ||||||
|
Other
|
- | - | ||||||
| $ | - | $ | - | |||||
19
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(17)
|
Income
Taxes (continued)
|
Deferred
tax components are as follows:
|
At
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Accrued
liability for vacation
|
$ | 85,734 | $ | 35,355 | ||||
|
Accrued
commission expense
|
48,318 | - | ||||||
|
Bad
debt reserve
|
34,275 | 38,917 | ||||||
|
Inventory
reserve
|
25,140 | 21,369 | ||||||
|
Net
operating loss carryovers
|
3,654,421 | 2,401,066 | ||||||
|
Stock
warrant expense
|
843,321 | 843,321 | ||||||
|
Debt
issuance expense
|
817,461 | 766,977 | ||||||
|
Stock
compensation
|
661,296 | 411,005 | ||||||
|
Total
deferred tax assets
|
6,169,966 | 4,518,010 | ||||||
|
Valuation
allowance
|
(6,028,262 | ) | (4,324,140 | ) | ||||
|
Net
deferred tax assets
|
141,704 | 193,870 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Depreciation
|
(179,774 | ) | (232,478 | ) | ||||
|
Amortization
|
38,070 | 38,608 | ||||||
|
Total
deferred tax liabilities
|
(141,704 | ) | (193,870 | ) | ||||
|
Net
deferred tax assets
|
$ | - | $ | - | ||||
The
ultimate realization of deferred tax assets is dependent upon the existence, or
generation, of taxable income in the periods when those temporary differences
and net operating loss carryovers are deductible. Management considers the
scheduled reversal of deferred tax liabilities, taxes paid in carryover years,
projected future taxable income, available tax planning strategies, and other
factors in making this assessment. Based on available evidence, management
does not believe it is more likely than not that all of the deferred tax assets
will be realized. Accordingly, the Company has established a valuation allowance
equal to the net realizable deferred tax assets. The valuation allowance
increased by $1,704,122 and $93,399 in 2009 and 2008, respectively.
At
December 31, 2009 and 2008, the Company had total domestic Federal and state net
operating loss carryovers of approximately $8,652,555 and $5,758,769,
respectively. Federal net operating loss carryovers expire at various dates
between 2027 and 2029, while state net operating loss carryovers expire between
2024 and 2029.
Under the
Tax Reform Act of 1986, as amended, the amounts of and benefits from net
operating loss carryovers and research and development credits may be impaired
or limited in certain circumstances. Events which cause limitations in the
amount of net operating losses that the Company may utilize in any one year
include, but are not limited to, a cumulative ownership change of more than 50%,
as defined, over a three year period. The Company does not believe that such an
ownership change has occurred in 2009 or 2008.
The 2006
through 2008 tax years remain open to examination by the Internal Revenue
Service and the 2004 to 2008 tax years remain open to the Montana Department of
Revenue. These taxing authorities have the authority to examine those tax years
until the applicable statute of limitations expire.
20
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(18)
|
Employee
Benefit Plans
|
The
Company has a SIMPLE IRA retirement plan established for qualified
employees. Qualified employees may defer their salary and the
deferrals are matched up to 3% of eligible compensation by the
Company. The plan covers substantially all full-time employees. Under
the terms of the plan, participants may contribute up to the lower of $10,500 of
their salary or the statutorily prescribed limit to the plan. Employees are
eligible the first January after their hire date. The Company
made matching contributions during 2009 and 2008 of $131,709 and $46,993,
respectively.
|
(19)
|
Supplemental
Disclosure of Cash Flow Information
|
Supplemental
cash flow information is as follows:
|
Year
Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Supplemental
disclosure of cash flow information
|
||||||||
|
Cash
paid during the period for:
|
||||||||
|
Interest
|
$ | 276,074 | $ | 308,881 | ||||
|
Income
taxes
|
- | - | ||||||
|
Non-cash
investing and financing activities:
|
||||||||
|
Acquisition
of receivables/equipment with assumed debt (see note 12)
|
$ | - | $ | 259,760 | ||||
|
Acquisition
of property and equipment under capital lease
|
$ | 65,715 | $ | - | ||||
|
Acquisition
of treasury stock using notes payable
|
$ | 76,566 | $ | - | ||||
|
Conversion
of convertible notes payable into common stock
|
$ | 2,000,000 | $ | - | ||||
|
(20)
|
Subsequent
Events
|
In
January and February 2010, the Company issued an additional $2,450,000 of
convertible notes on the same terms as the $550,000 of convertible notes issued
in December 2009. The Company also renegotiated the convertible note
agreements issued in December 2009 to include additional warrants as incentives
for entering into these agreements so that all note agreements issued have the
same terms and incentives.
In
January and February 2010, the Company repaid all $340,000 of the 2008
convertible notes payable that were outstanding as of December 31,
2009.
21
EXHIBIT
99.2
BACTERIN
INTERNATIONAL, INC.
Balance
Sheets
As
of March 31, 2010 and December 31, 2009
|
March 31,
|
December 31,
|
|||||||
|
2010
|
2009
|
|||||||
|
|
(unaudited)
|
|||||||
|
ASSETS
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 280,103 | $ | 54,155 | ||||
|
Accounts
receivable, net of allowance of $88,164 and $81,803,
respectively
|
1,558,944 | 1,314,418 | ||||||
|
Notes
receivable - trade
|
426,565 | 270,565 | ||||||
|
Notes
receivable from stockholder
|
22,178 | - | ||||||
|
Inventories,
net
|
5,556,378 | 5,000,713 | ||||||
|
Prepaid
and other current assets
|
40,000 | 30,000 | ||||||
| 7,884,168 | 6,669,851 | |||||||
|
Property
& equipment, net
|
3,136,498 | 3,248,096 | ||||||
|
Intangible
assets, net
|
557,627 | 554,268 | ||||||
|
Other
assets
|
13,675 | 13,675 | ||||||
| $ | 11,591,968 | $ | 10,485,890 | |||||
|
LIABILITIES
& STOCKHOLDERS' EQUITY
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Warrant
derivative liability
|
$ | 515,227 | $ | 75,231 | ||||
|
Accounts
payable
|
1,252,695 | 1,403,950 | ||||||
|
Accrued
liabilities
|
571,750 | 463,630 | ||||||
|
Notes
payable
|
740,615 | 1,126,693 | ||||||
|
Notes
payable to stockholders
|
183,461 | 183,461 | ||||||
|
Current
portion of capital lease obligations
|
69,584 | 85,071 | ||||||
|
Convertible
notes payable ($3,825,000 net of debt discount of
$308,837)
|
3,516,163 | 820,787 | ||||||
|
Current
portion of long-term debt
|
1,193,591 | 1,202,574 | ||||||
| 8,043,086 | 5,361,397 | |||||||
|
Capital
lease obligation, less current portion
|
17,474 | 27,074 | ||||||
|
Long-term
debt, less current portion
|
333,548 | 412,545 | ||||||
| 8,394,108 | 5,801,016 | |||||||
|
Stockholders'
Equity
|
||||||||
|
Preferred
stock, $.0001 par value; 15,000,000 shares authorized; No shares issued
and outstanding
|
- | - | ||||||
|
Common
stock, $.00001 par value; 135,000,000 shares authorized; 56,501,130 issued
and outstanding shares on March 31 2010 and 56,423,125 issued
and outstanding shares on December 31, 2009
|
565 | 565 | ||||||
|
Additional
paid-in capital
|
22,394,210 | 22,238,210 | ||||||
|
Treasury
stock, 117,794 shares
|
( 76,566 | ) | (76,566 | ) | ||||
|
Retained
deficit
|
(19,120,349 | ) | (17,477,335 | ) | ||||
| 3,197,860 | 4,684,874 | |||||||
| $ | 11,591,968 | $ | 10,485,890 | |||||
See
Accompanying Notes to Financial Statements.
1
BACTERIN
INTERNATIONAL, INC.
Statements of Operations
(unaudited)
For
the Three Months Ended March 31, 2010 and 2009
|
March
31,
|
||||||||
|
2010
|
2009
|
|||||||
|
REVENUE:
|
||||||||
|
Product
sales
|
$ | 2,707,124 | $ | 1,984,676 | ||||
|
Royalties
and other
|
29,309 | 113,765 | ||||||
|
TOTAL
REVENUE
|
2,736,433 | 2,098,441 | ||||||
|
Cost
of product sales
|
604,622 | 483,640 | ||||||
|
GROSS
PROFIT
|
2,131,811 | 1,614,801 | ||||||
|
OPERATING
EXPENSES:
|
||||||||
|
Selling,
general, and administrative
|
1,671,081 | 793,032 | ||||||
|
Compensation
expense
|
1,483,871 | 720,446 | ||||||
|
TOTAL
OPERATING EXPENSES
|
3,154,952 | 1,513,478 | ||||||
|
INCOME
(LOSS) FROM OPERATIONS
|
(1,023,141 | ) | 101,323 | |||||
|
INTEREST
AND OTHER INCOME (EXPENSE)
|
||||||||
|
Interest
expense
|
(625,797 | ) | (96,161 | ) | ||||
|
Other
|
5,924 | 10,867 | ||||||
|
TOTAL
INTEREST AND OTHER INCOME (EXPENSE), NET
|
(619,873 | ) | (85,294 | ) | ||||
|
NET
INCOME (LOSS) BEFORE BENEFIT (PROVISION) FOR INCOME TAXES
|
(1,643,014 | ) | 16,029 | |||||
|
BENEFIT
(PROVISION) FOR INCOME TAXES
|
- | - | ||||||
|
NET
INCOME (LOSS)
|
$ | (1,643,014 | ) | $ | 16,029 | |||
|
Net
income (loss) per share:
|
||||||||
|
Basic
|
$ | (.03 | ) | $ | .00 | |||
|
Shares
used in the computation:
|
||||||||
|
Basic
|
56,461,755 | 51,217,984 | ||||||
See Accompanying Notes to Financial
Statements.
2
BACTERIN
INTERNATIONAL, INC.
Statements
of Changes in Stockholders’ Equity (Deficit) (unaudited)
For
the Three Months Ended March 31, 2009 and Year Ended December 31,
2009
|
Total
|
||||||||||||||||||||||
|
Common
Stock
|
APIC
Options/
|
Additional
|
Retained
|
Treasury
|
stockholders'
|
|||||||||||||||||
|
Shares
|
Amount
|
Warrants
|
paid-in
capital
|
Deficit
|
Stock
|
equity
(deficit)
|
||||||||||||||||
|
Balance
at December 31, 2008
|
50,738,134 | $ | 507 | $ | 3,744,383 | $ | 13,229,475 | $ | (13,351,593 | ) | $ | - | $ | 3,622,772 | ||||||||
|
Private
placement
|
2,437,500 | 24 | 13,601 | 1,936,375 | - | - | 1,950,000 | |||||||||||||||
|
Conversion
of notes to common stock
|
3,020,285 | 30 | - | 2,414,847 | - | - | 2,414,877 | |||||||||||||||
|
Purchase
of treasury stock
|
(117,794 | ) | - | - | - | - | (76,566 | ) | (76,566 | ) | ||||||||||||
|
Warrants
for debt issuance
|
- | - | 62183 | - | - | - | 62,183 | |||||||||||||||
|
Stock-based
compensation
|
345,000 | 4 | 561,355 | 275,991 | - | - | 837,350 | |||||||||||||||
|
Net
loss
|
- | - | - | - | (4,125,742 | )) | - | (4,125,742 | ) | |||||||||||||
|
Balance
at December 31, 2009
|
56,423,125 | $ | 565 | $ | 4,381,522 | $ | 17,856,688 | $ | (17,477,335 | ) | (76,566 | ) | $ | 4,684,874 | ||||||||
|
Issuance
of common stock, options and warrants:
|
||||||||||||||||||||||
|
Private
placement
|
12,500 | - | - | 10,000 | - | - | 10,000 | |||||||||||||||
|
Conversion
of notes/interest to common stock
|
65,505 | - | - | 52,404 | - | - | 52,404 | |||||||||||||||
|
Stock
based compensation
|
- | - | 93,596 | - | - | - | 93,596 | |||||||||||||||
|
Warrants
for debt/equity issuance
|
- | - | - | - | - | - | - | |||||||||||||||
|
Net
income
|
- | - | - | - | (1,643,014 | ) | - | (1,643,014 | ) | |||||||||||||
|
Balance
at March 31, 2010
|
56,501,130 | 565 | 4,475,118 | 17,919,092 | (19,120,349 | ) | (76,566 | ) | 3,197,860 | |||||||||||||
See Accompanying Notes to Financial
Statements.
3
BACTERIN
INTERNATIONAL, INC.
Statements
of Cash Flows (unaudited)
For
the Three Months Ended March 31, 2010 and 2009
|
Three
Months Ended March 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Operating
activities:
|
||||||||
|
Net
income (loss)
|
$ | (1,643,014 | ) | $ | 16,029 | |||
|
Noncash
adjustments:
|
||||||||
|
Depreciation
and amortization
|
164,578 | 174,766 | ||||||
|
Stock/option
awards for services
|
93,596 | 155,794 | ||||||
|
Provision
for losses on accounts receivable and inventory
|
17,117 | 4,000 | ||||||
|
Non-cash
interest expense
|
252,776 | 5,909 | ||||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(250,887 | ) | (325,432 | ) | ||||
|
Notes
receivable - trade
|
(156,000 | ) | (74,702 | ) | ||||
|
Inventories
|
(566,421 | ) | (361,584 | ) | ||||
|
Prepaid
and other current assets
|
(10,000 | ) | 3,803 | |||||
|
Accounts
payable
|
(151,255 | ) | (128,813 | ) | ||||
|
Accrued
liabilities
|
108,120 | (48,536 | ) | |||||
|
Net
cash provided by operating activities
|
(2,141,390 | ) | (578,766 | ) | ||||
|
Investing
activities:
|
||||||||
|
Purchases
of property and equipment
|
(40,903 | ) | (112,988 | ) | ||||
|
Notes
receivable from stockholder
|
(22,178 | ) | (27,169 | ) | ||||
|
Intangible
asset additions
|
(15,436 | ) | (13,817 | ) | ||||
|
Proceeds
on sale of fixed assets
|
- | - | ||||||
| (78,517 | ) | (153,974 | ) | |||||
|
Financing
activities:
|
||||||||
|
Release
on restriction on cash
|
- | 1,000,000 | ||||||
|
Payments
on long-term debt
|
(87,980 | ) | (23,955 | ) | ||||
|
Proceeds
from issuance of convertible debt
|
3,275,000 | - | ||||||
|
Payments
on convertible debt
|
(340,000 | ) | - | |||||
|
Payments
on notes payable
|
(386,078 | ) | (500,000 | ) | ||||
|
(Payments
on) capital leases
|
(25,087 | ) | (58,695 | ) | ||||
|
Proceeds
from issuance of common stock
|
10,000 | 470,000 | ||||||
|
Payments
on notes payable to shareholders
|
- | (5,171 | ) | |||||
| 2,445,855 | 882,179 | |||||||
| 225,948 | 149,439 | |||||||
|
Cash
and cash equivalents at beginning of period
|
54,155 | 238,895 | ||||||
|
Cash
and cash equivalents at end of period
|
$ | 280,103 | $ | 388,334 | ||||
See Accompanying Notes to Financial
Statements.
4
BACTERIN
INTERNATIONAL, INC.
Notes
to Unaudited Financial Statements
For
the Three Months Ended March 31, 2010 and 2009
|
(1)
|
Business
Description and Summary of Significant Accounting
Policies
|
Business
Description
Bacterin
International, Inc. (“the “Company” or
“Bacterin”) develops, manufactures
and markets biologics products to domestic and international
markets. Bacterin’s proprietary methods optimize the growth factors
in human allografts to create the ideal stem cell scaffold and promote bone and
other tissue growth. These products are used in a variety of
applications including enhancing fusion in spine surgery, relief of back pain
with a facet joint stabilization, promotion of bone growth in foot and ankle
surgery, promotion of skull healing following neurosurgery and cartilage
regeneration in knee and other joint surgeries.
Bacterin’s
device division develops anti-microbial coatings to inhibit infection based upon
proprietary knowledge of the phenotypical changes made by microbes as they sense
and adapt to changes in their environment. Bacterin develops, employs, and
licenses bioactive coatings for various medical device
applications. Bacterin’s strategic coating initiatives include the
inhibition of biofilm formation, local (as opposed to systemic) drug delivery,
local (as opposed to systemic) pain management, and anti-thrombotic factors for
medical device applications.
Certain
Risks and Concentrations
The
Company's revenue is derived principally from the sale or license of its medical
products, coatings and device implants. The markets in which the Company
competes are highly competitive and rapidly changing. Significant technological
advances, changes in customer requirements, or the emergence of competitive
products with new capabilities or technologies could adversely affect the
Company's operating results. The Company's business could be harmed by a decline
in demand for, or in the prices of, its products or as a result of, among other
factors, any change in pricing or distribution model, increased price
competition, changes in government regulations or a failure by the Company to
keep up with technological change. Further, a decline in available
tissue donors could have an adverse impact on the business.
Financial
instruments subjecting the Company to concentrations of credit risk are accounts
and notes receivable. The Company maintains cash, cash equivalents, and
short-term investments with various domestic financial institutions. From time
to time, the Company's cash balances with its financial institutions may exceed
insurance limits.
The
Company's customers are worldwide with approximately 93% of sales in the United
States for the three months ended March 31, 2010. One customer
accounted for 15% of revenue for the three months ended March 31,
2010. One customer accounted for 13% of the Company's
revenue for the three months ended March 31, 2009. One customer
represented 13% of accounts receivable at March 31, 2010 and one customer
represented 13% of accounts receivable at March 31, 2009.
Revenue
by geographical region is as follows:
|
For the three months ended
March 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
United
States
|
$ | 2,545,661 | $ | 1,901,264 | ||||
|
Rest
of World
|
192,794 | 200,402 | ||||||
| $ | 2,738,455 | $ | 2,101,666 | |||||
Use
of Estimates
The
preparation of the financial statements requires management of the Company to
make a number of estimates and assumptions relating to the reported amount of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the period; the carrying amount of property and equipment and
intangible assets; valuation allowances for receivables and deferred income tax
assets; and estimates of expected term and volatility in determining stock-based
compensation expense. Actual results could differ from those
estimates.
5
BACTERIN
INTERNATIONAL, INC.
Notes
to Unaudited Financial Statements (continued)
For
the Three Months Ended March 31, 2010 and 2009
|
(1)
|
Business
Description and Summary of Significant Accounting Policies
(Continued)
|
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original
maturity date of three months or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates market value.
Accounts
Receivable and Notes Receivable - Trade
Accounts
receivable represents amounts due from customers for which revenue has been
recognized. Normal terms on trade accounts receivable are net 30 days and some
customers are offered discounts for quick pay. Notes receivable
include amounts due from West Coast Tissue Service, a supplier of donors to the
Company. The Company performs credit evaluations when considered necessary, but
generally does not require collateral to extend credit.
The
allowance for doubtful accounts is the Company's best estimate of the amount of
probable credit losses in the Company's existing receivables. The Company
determines the allowance based on factors such as historical collection
experience, customer's current creditworthiness, customer concentration, age of
accounts receivable balance and general economic conditions that may affect a
customer's ability to pay. Actual customer collections could differ from
estimates. Account balances are charged to the allowance after all means of
collection have been exhausted and the potential for recovery is considered
remote. Provisions to the allowance for doubtful accounts are charged to
expense. The Company does not have any off-balance sheet credit exposure related
to its customers.
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined using
the specific identification method and includes materials, labor and
overhead.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization is computed using the straight-line method over
the estimated useful lives of the assets, generally three to seven years for
computers and equipment, and 30 years for buildings. Repairs and maintenance are
expensed as incurred.
Intangible
Assets
Intangible
assets include costs to acquire and protect Company patents and are carried at
cost less accumulated amortization. The Company amortizes these assets on a
straight-line basis over their estimated useful lives of 15 years.
Grants
As part
of the Company’s efforts to build the development of new technologies, tissue
donation and expansion of tissue supply, the Company, may, from time-to-time
either provide or receive grants. These grants receipts are used for
research and development efforts.
6
BACTERIN
INTERNATIONAL, INC.
Notes
to Unaudited Financial Statements (continued)
For
the Three Months Ended March 31, 2010 and 2009
|
(1)
|
Business
Description and Summary of Significant Accounting Policies
(Continued)
|
Revenue
Recognition
Revenue
is recognized when all of the following criteria are met: a) the Company
has entered into a legally binding agreement with the customer; b) the
products or services have been delivered; c) the Company's fee for
providing the products and services is fixed and determinable; and
d) collection of the Company’s fee is probable.
The
Company’s policy is to record revenue net of any applicable sales, use, or
excise taxes. If an arrangement includes a right of acceptance or a
right to cancel, revenue is recognized when acceptance is received or the right
to cancel has expired.
The
Company sells to certain customers under consignment arrangements whereby the
Company ships product to be stored by the customer. The customer is
required to report the use to the Company and upon such notice the Company
invoices the customer.
Research
and development services revenue is recognized as performed, based on the
incurrence of qualifying costs or achievement of milestones as prescribed in the
arrangement.
Research
and Development
Research
and development costs, which are principally related to internal costs for the
development of new technologies and processes for tissue and coatings, are
expensed as incurred.
Income
Taxes
The
Company records income taxes under the asset and liability method as prescribed
under FASB Accounting Standards Codification ASC 740, Accounting for Income
Taxes. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. When applicable, a
valuation allowance is established to reduce any deferred tax asset when it is
determined that it is more likely than not that some portion of the deferred tax
asset will not be realized.
Impairment
of Long-Lived Assets
Long-lived
assets, including intangible assets, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the estimated fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. No impairments of long-lived assets
have been identified in any of the periods presented.
Net
Income (Loss) Per Share
A
reconciliation of the denominator used in the calculation of basic and diluted
net income (loss) per share is as follows:
|
Net
Income (Loss) Per Share:
|
March
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Net
Income (Loss)
|
(1,643,014 | ) | $ | 16,030 | ||||
|
Weighted
average common shares outstanding for basic net income (loss) per
share
|
56,461,755 | 51,217,984 | ||||||
Dilutive
earnings per share are not reported as their effects are
anti-dilutive.
7
BACTERIN
INTERNATIONAL, INC.
Notes
to Unaudited Financial Statements (continued)
For
the Three Months Ended March 31, 2010 and 2009
|
(1)
|
Business
Description and Summary of Significant Accounting Policies
(Continued)
|
Stock-Based
Compensation
On
January 1, 2006, the Company adopted the provisions of ASC 718-40, for its
stock-based compensation plans. Under ASC 718, stock-based
compensation costs are recognized based on the estimated fair value at the grant
date for all stock-based awards. The Company estimates grant date
fair values using the Black-Scholes-Merton option pricing model, which requires
assumptions of the life of the award and the stock price volatility over the
term of the award. The Company records compensation cost of
stock-based awards using the straight line method, which is recorded into
earnings over the vesting period of the award. Pursuant to the income
tax provisions included in ASC 718-740, the Company has elected the “short cut
method” of computing its hypothetical pool of additional paid-in capital that is
available to absorb future tax benefit shortfalls.
Comprehensive
Income (Loss)
Comprehensive
loss includes net income or loss, as well as other changes in stockholders'
equity that result from transactions and economic events other than those with
stockholders. The Company currently does not have any transactions that qualify
for accounting and inclusion as other comprehensive income (loss).
Fair
Value of Financial Instruments
The
carrying values of financial instruments, including accounts receivable, notes
receivable, accounts payable and other accrued expenses, approximate their fair
values.
|
(2)
|
Notes
Receivable - Trade
|
Notes
receivable consist of the following:
|
March
31, 2010
|
December
31, 2009
|
|||||||
|
West
Coast Tissue Service, Inc.
|
$ | 426,565 | $ | 270,565 | ||||
West
Coast Tissue Service, Inc. is a non-profit corporation organized under Section
501(c)(3) of the Internal Revenue Code. The Company has contracted
with West Coast Tissue Service to acquire their donor tissue for use in the
Company’s production. If the Company were unable to continue to
receive donor tissue, it may have a material effect on Bacterin’s financial
statements and results of operations. The notes are non-interest
bearing and are expected to be repaid during 2010.
|
(3)
|
Inventories
|
Inventories
consist of the following:
|
March
31,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Raw
materials
|
$ | 178,754 | $ | 178.754 | ||||
|
Raw
materials
|
1,047,966 | 1,100,252 | ||||||
|
Work
in process
|
1,321,402 | 1,282,080 | ||||||
|
Finished
goods
|
3,079,012 | 2,499,627 | ||||||
| 5,627,134 | 5,060,713 | |||||||
|
Reserve
|
70,756 | 60,000 | ||||||
| $ | 5,556,378 | $ | 5,000,713 | |||||
8
BACTERIN
INTERNATIONAL, INC.
Notes
to Unaudited Financial Statements (continued)
For
the Three Months Ended March 31, 2010 and 2009
|
(4)
|
Property
and Equipment, Net
|
Property
and equipment, net are as follows:
|
March
31,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Buildings
|
$ | 1,613,628 | $ | 1,613,628 | ||||
|
Equipment
|
2,616,562 | 2,575,659 | ||||||
|
Computer
equipment
|
235,566 | 235,566 | ||||||
|
Computer
software
|
140,071 | 140,071 | ||||||
|
Furniture
and fixtures
|
75,007 | 75,007 | ||||||
|
Leasehold
improvements
|
898,248 | 898,248 | ||||||
|
Vehicles
|
68,306 | 68,306 | ||||||
|
Total
cost
|
5,647,388 | 5,606,485 | ||||||
|
Less:
accumulated depreciation
|
(2,510,890 | ) | (2,358,389 | ) | ||||
| $ | 3,136,498 | $ | 3,248,096 | |||||
Maintenance
and repairs expense for the three months ended March 31, 2010 and December 31,
2009, was $25,661 and $43,328, respectively. Depreciation expense
related to property, plant and equipment, including property under capital
lease, for the three months ended March 31, 2010 and 2009 was $152,501 and
$163,575, respectively.
|
(5)
|
Intangible
assets
|
Bacterin
has been issued various patents with regards to processes for their
products.
The
following table sets forth information regarding intangible assets:
|
Intellectual
|
||||
|
Property
|
||||
|
As
of December 31, 2009:
|
||||
|
Gross
carrying value
|
$ | 710,471 | ||
|
Accumulated
amortization
|
(156,203 | ) | ||
|
Net
carrying value
|
$ | 554,268 | ||
|
As
of March 31, 2010:
|
||||
|
Gross
carrying value
|
$ | 725,907 | ||
|
Accumulated
amortization
|
(168,280 | ) | ||
|
Net
carrying value
|
$ | 557,627 | ||
|
Aggregate
amortization expense:
|
||||
|
December
31, 2009
|
$ | 46,080 | ||
|
March
31, 2010
|
$ | 12,077 | ||
|
Estimated
amortization expense:
|
||||
|
2010
|
$ | 47,364 | ||
|
2011
|
$ | 47,364 | ||
|
2012
|
$ | 47,364 | ||
|
2013
|
$ | 47,364 | ||
|
2014
|
$ | 47,364 | ||
9
BACTERIN
INTERNATIONAL, INC.
Notes
to Unaudited Financial Statements (continued)
For
the Three Months Ended March 31, 2010 and 2009
|
(6)
|
Accrued
Liabilities
|
Accrued
liabilities consist of the following:
|
March
31,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Credit
cards
|
$ | - | $ | 10,764 | ||||
|
Accrued
interest payable
|
26,073 | 75,382 | ||||||
|
Wages
payable
|
545,677 | 377,484 | ||||||
|
Other
accrued expenses
|
- | - | ||||||
| $ | 571,750 | $ | 463,630 | |||||
|
(7)
|
Notes
Payable
|
Notes
payable consist of the following:
|
March
31,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Note
payable Kevin Daly
|
$ | - | $ | 200,000 | ||||
|
Note
payable Hamilton Group
|
240,615 | 426,693 | ||||||
|
Notes
payable Flathead Bank
|
500,000 | 500,000 | ||||||
| $ | 740,615 | $ | 1,126,693 | |||||
The note
payable to Kevin Daly was a 30-day note payable bearing interest at 15% and was
repaid in January 2010. The notes payable Flathead Bank are 6.5% short-term
notes with monthly payments of $3,728 and maturing on June 25,
2010. The notes payable Hamilton Group is a note due under a
factoring contract, secured by accounts receivable.
|
(8)
|
Convertible
Notes Payable
|
|
March
31,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
12%
convertible note payable, maturing in 2010, extendable by the Company for
two additional three month terms, secured by intellectual property and the
raw material inventory, convertible into the securities offered in a
future qualified offering, defined as the sale of debt or equity
securities generating aggregate gross proceeds of at least
$7,000,000, equal to the lower of $0.80 per share or ninety
percent (90%) of the per share price of the securities sold to
investors in the Qualified Financing if one occurs or convertible anytime
into common stock at $1.00 per share, restrictive covenants were in
compliance as of December 31, 2009
|
$ | 3,825,000 | $ | 890,000 | ||||
|
Less:
debt discount
|
308,837 | 69,213 | ||||||
| $ | 3,516,163 | $ | 820,787 | |||||
10
BACTERIN
INTERNATIONAL, INC.
Notes
to Unaudited Financial Statements (continued)
For
the Three Months Ended March 31, 2010 and 2009
|
(9)
|
Long-Term
Debt
|
Long-term
debt consists of the following:
|
March 31,
|
December 31,
|
|||||||
|
2010
|
2009
|
|||||||
|
6.5%
loan payable to Flathead Bank, $7,278 monthly payments including interest,
maturing June 25, 2010, secured by building
|
$ | 974,274 | $ | 976,218 | ||||
|
8.50%
loan payable to Flathead Bank, $9,329 monthly payments, including
interest, maturing in 2012, secured by equipment
|
269,264 | 293,052 | ||||||
|
5.00%
loan payable to the City of Belgrade, $3,653 monthly payments, including
interest, maturing in 2012, secured by equipment
|
118,011 | 141,215 | ||||||
|
5.00%
loan payable to the City of Belgrade, $6,982 monthly payments, including
interest, maturing in 2010, secured by equipment
|
- | 39,044 | ||||||
|
5.00%
loan payable to Valley Bank of Belgrade, $4,140 monthly payments including
interest, secured by building
|
165,590 | 165,590 | ||||||
|
8.00%
loan payable to Valley Bank of Belgrade, $4,140 monthly payments including
interest, secured by building
|
- | - | ||||||
| 1,527,139 | 1,615,119 | |||||||
|
Less:
Current portion
|
(1,193,591 | ) | (1,202,574 | ) | ||||
| $ | 333,548 | $ | 412,545 | |||||
The
following is a summary of maturities due on the long-term debt as of March 31,
2010:
|
2010
|
$ | 1,193,591 | ||
|
2011
|
195,608 | |||
|
2012
|
137,940 | |||
|
2013
|
- | |||
|
Thereafter
|
- | |||
|
Total
|
$ | 1,527,139 |
11
BACTERIN
INTERNATIONAL, INC.
Notes
to Unaudited Financial Statements (continued)
For
the Three Months Ended March 31, 2010 and 2009
|
(10)
|
Capital
Leasing Transactions
|
Future
minimum capital and operating lease payments are as follows:
|
2010
|
93,752 | |||
|
2011
|
28,920 | |||
|
2012
|
- | |||
|
Thereafter
|
- |
|
(11)
|
Notes
Payable to Shareholders
|
Notes
payable to shareholders consist of the following:
|
March
31,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Note
payable shareholders
|
$ | 76,969 | $ | 76,969 | ||||
|
Note
payable Mitch Godfrey
|
106,492 | 106,492 | ||||||
| $ | 183,461 | $ | 183,461 | |||||
During
2009, the Company repurchased stock from two shareholders pursuant to a tender
process. These notes were given in payment for the stock and accrued interest at
six percent during the initial term with a maturity of September 29, 2009. When
the notes were not paid on the initial maturity date, they were automatically
extended for an additional four months with a new interest rate of eight
percent. If not paid at the second maturity date, these notes will automatically
extend for an additional four months at an interest rate of ten percent. The
note payable to Mitch Godfrey does not have specified payment terms and bears 6%
interest per annum.
12
BACTERIN
INTERNATIONAL, INC.
Notes
to Unaudited Financial Statements (continued)
For
the Three Months Ended March 31, 2010 and 2009
|
(12)
|
Stock-Based
Compensation
|
The
Company’s 2004 Stock Incentive Plan provides for stock awards, including options
and performance stock awards, to be granted to employees, consultants,
independent contractors, officers and directors. Awards are granted
at the discretion of the Company’s board of directors, at an exercise price and
term determined by the board. However, exercise prices are not less
than the fair market value at the date of grant, and the term of the options is
not greater than ten years. Options generally vest annually over a
period of five years. At March 31, 2010, the Company had
approximately 12 million shares available for issuance under the equity
plan.
Compensation
expense recognized in the statement of operations for the three months ended
March 31, 2010 and 2009 is based on awards ultimately expected to vest and
reflects an estimate of awards that will be forfeited. ASC 718
requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates.
The
estimated fair value of stock options granted is done using the Black-Sholes
method applied to individual grants. Key assumptions used to estimate the fair
value of stock awards are as follows:
Risk Free Rate: The risk-free
rate is determined by reference to U.S. Treasury yields at or near the time of
grant for time periods similar to the expected term of the award.
Expected Term: The Company
does not have adequate history to estimate an expected term of stock-based
awards, and accordingly, uses the short-cut method as prescribed by Staff
Accounting Bulletin 107 to determine an expected term.
Volatility: Since the
Company’s stock is not publicly-traded, the Company estimates expected
volatility based on peer-companies as prescribed by ASC 718.
Dividend Yield: The dividend
yield assumption is based on the Company’s history and expectation of dividend
payouts and was 0% as of March 31, 2010 and 2009.
Activity
under the Company’s stock option plans was as follows:
|
Three months ended March 31,
2010
|
Three months ended March 31, 2009
|
|||||||||||||||
|
Weighted
|
Weighted
|
|||||||||||||||
|
Average
|
Average
|
|||||||||||||||
|
Exercise
|
Exercise
|
|||||||||||||||
|
|
Shares
|
Price
|
Shares
|
Price
|
||||||||||||
|
Outstanding
at Jan. 1,
|
6,706,992 | $ | 0.67 | 3,998,326 | $ | 0.59 | ||||||||||
|
Granted
|
145,000 | 0.48 | 2,050,000 | 0.40 | ||||||||||||
|
Exercised
|
0.05 | |||||||||||||||
|
Cancelled
or expired
|
(152,500 | ) | 0.43 | (106,186 | ) | 0.043 | ||||||||||
|
Outstanding
at March 31,
|
6,699,492 | $ | 0.67 | 5,942,140 | $ | 0.64 | ||||||||||
|
Exercisable
at March 31,
|
3,112,401 | $ | 0.56 | 1,975,308 | $ | 0.44 | ||||||||||
13
BACTERIN
INTERNATIONAL, INC.
Notes
to Unaudited Financial Statements (continued)
For
the Three Months Ended March 31, 2010 and 2009
|
(13)
|
Stock-Based
Compensation (continued)
|
The
following table summarizes information concerning non-vested option transactions
for the year ended December 31, 2009:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Grant
Date
|
||||||||
|
Fair
Value
|
||||||||
|
Nonvested
Options
|
Shares
|
Per
Share
|
||||||
|
Nonvested
at January 1, 2009
|
3,700,091 | $ | 0.43 | |||||
|
Granted
|
145,000 | 0.48 | ||||||
|
Vested
|
(115,500 | ) | 0.40 | |||||
|
Forfeited
|
(142,500 | ) | 0.43 | |||||
|
Nonvested
at December 31, 2009
|
3,587,091 | $ | 0.43 | |||||
From time
to time the Company may grant stock options to consultants. The
Company accounts for consultant stock options in accordance with ASC
505-50. Compensation expense for the grant of stock options to
consultants is determined based on the estimated fair value of the warrants at
the measurement date as defined in ASC 505-50 and is recognized over the vesting
period.
In
connection with private placements of convertible debt, short-term debt, and
common stock, the Company issued warrants to purchase shares of common stock at
an exercise price of between $0.5565 and $1.25 per share. During 2009, 80,000
warrants were issued with private placements of common stock, 180,000 warrants
were issued with the placement of short-term debt and 220,000 warrants were
issued with the placement of convertible notes. In 2008, 1,390,607,
100,000 and 976,288 warrants were issued in connection with convertible debt,
short-term debt and common stock, respectively. The warrants were
exercisable five to seven years from the date of grant. Warrants issued with
common stock were recorded as additional paid in capital at the estimated fair
market value of $13,601 in 2009 and $348,117 in 2008. The warrants
issued with convertible debt and short-term loans were recorded as interest
expense at the estimated fair value of $137,415 in 2009 and $939,545 in 2008
using the following assumptions:
|
March 31, 2010
|
December 31,
2009
|
|||||||
|
Value
of underlying common stock (per share)
|
$ | .80 | $ | .80 | ||||
|
Risk
free rate
|
1.28-1.70 | % | 2.20 | % | ||||
|
Expected
term
|
2.5-5
years
|
2,5-5 | ||||||
|
Dividend
yield
|
0 | % | 0 | % | ||||
|
Volatility
|
71 | % | 44-61 | % | ||||
14
BACTERIN
INTERNATIONAL, INC.
Notes
to Unaudited Financial Statements (continued)
For
the Three Months Ended March 31, 2010 and 2009
|
(14)
|
Commitments
and Contingencies
|
Operating
Leases
The
Company leases office facilities under a non-cancelable operating lease
agreement with an expiration date in 2013. The Company has the option to extend
the lease for another ten year term and has right of first refusal on any
sale. The Company leases additional office facilities under
month-to-month arrangements. Future minimum payments for the next
five years and thereafter as of December 31, 2009, under these
leases, are as follows:
|
2010
|
$ | 120,000 | ||
|
2011
|
$ | 120,000 | ||
|
2012
|
$ | 120,000 | ||
|
2013
|
$ | 72,258 | ||
|
Thereafter
|
$ | - |
Rent
expense was $38,620 and $34,758 for the three months ended March 31,
2010 and 2009, respectively. Rent expense is determined
using the straight-line method of the minimum expected rent paid over the term
of the agreement. The Company has no contingent rent
agreements.
Warranties
and Indemnification
The
Company's arrangements generally include certain provisions for indemnifying
customers against liabilities if its products or services infringe a
third-party's intellectual property rights. To date, the Company has not
incurred any material costs as a result of such indemnifications and has not
accrued any liabilities related to such obligations in the accompanying
financial statements.
The
Company has also agreed to indemnify its directors and executive officers for
costs associated with any fees, expenses, judgments, fines and settlement
amounts incurred by any of these persons in any action or proceeding to which
any of those persons is, or is threatened to be, made a party by reason of the
person's service as a director or officer, including any action by the Company,
arising out of that person's services as the Company's director or officer or
that person's services provided to any other company or enterprise at the
Company's request.
Litigation
From time
to time, the Company is involved in legal proceedings arising in the ordinary
course of business. The Company believes that the resolution of these matters
will not have a material effect on the Company's financial position, results of
operations or liquidity. Legal fees are charged to expense as
incurred, unless the probability of incurring a loss is high and the amount can
be reasonably estimated, in which case the estimated loss is
accrued.
15
BACTERIN
INTERNATIONAL, INC.
Notes
to Unaudited Financial Statements (continued)
For
the Three Months Ended March 31, 2010 and 2009
|
(15)
|
Income
Taxes
|
The
components of income (loss) before provision for income taxes consist of the
following:
|
March 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
United
States
|
$ | (1,643,014 | ) | $ | 16,030 | |||
| $ | (1,643,014 | ) | $ | 16,030 | ||||
The
components of the income tax provision are as follows:
|
Three months Ended March 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Current:
|
||||||||
|
Federal
|
$ | - | $ | - | ||||
|
State
|
- | - | ||||||
|
Total
current
|
- | - | ||||||
|
Deferred:
|
||||||||
|
Federal
|
- | - | ||||||
|
State
|
- | - | ||||||
|
Total
deferred
|
- | - | ||||||
| $ | - | $ | - | |||||
The
reconciliation of income tax attributable to operations computed at the U.S.
Federal statutory income tax rate of 35% to income tax expense is as
follows:
|
Three Months Ended March 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Statutory
Federal tax rate
|
$ | (575,055 | ) | $ | 5,611 | |||
|
Valuation
allowance
|
676,261 | (8,483 | ) | |||||
|
State
income taxes, net of Federal benefit
|
(113,368 | ) | 1,106 | |||||
|
Nondeductible
meals & entertainment expense
|
12,162 | 1,766 | ||||||
| $ | - | $ | - | |||||
16
BACTERIN
INTERNATIONAL, INC.
Notes
to Unaudited Financial Statements (continued)
For
the Three Months Ended March 31, 2010 and 2009
|
(17)
|
Income
Taxes (continued)
|
Deferred
tax components are as follows:
|
March 31,
|
December 31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Accrued
liability for vacation
|
$ | 85,734 | $ | 85,734 | ||||
|
Accrued
commission expense
|
73,684 | 48,318 | ||||||
|
Bad
debt reserve
|
36,941 | 34,275 | ||||||
|
Inventory
reserve
|
29,647 | 25,140 | ||||||
|
Net
operating loss carryovers
|
3,833,439 | 3,654,421 | ||||||
|
Stock
warrant expense
|
843,321 | 843,321 | ||||||
|
Debt
issuance expense
|
1,216,559 | 846,341 | ||||||
|
Stock
compensation
|
700,513 | 661,296 | ||||||
|
Total
deferred tax assets
|
6,819,838 | 6,198,846 | ||||||
|
Valuation
allowance
|
(6,704,404 | ) | (6,057,142 | ) | ||||
|
Net
deferred tax assets
|
115,434 | 141,704 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Depreciation
|
(152,891 | (179,774 | ) | |||||
|
Amortization
|
37,457 | 38,070 | ||||||
|
Total
deferred tax liabilities
|
(115,434 | ) | (141,704 | ) | ||||
|
Net
deferred tax assets
|
$ | - | $ | - | ||||
The
ultimate realization of deferred tax assets is dependent upon the existence, or
generation, of taxable income in the periods when those temporary differences
and net operating loss carryovers are deductible. Management considers the
scheduled reversal of deferred tax liabilities, taxes paid in carryover years,
projected future taxable income, available tax planning strategies, and other
factors in making this assessment. Based on available evidence, management
does not believe it is more likely than not that all of the deferred tax assets
will be realized. Accordingly, the Company has established a valuation allowance
equal to the net realizable deferred tax assets. The valuation allowance
increased by $676,262 and $1,704,002 for the three months ended March 31, 2010
and year ended December 31, 2009, respectively.
At March
31, 2010 and December 31, 2009, the Company had total domestic Federal and state
net operating loss carryovers of approximately $9,149,020 and $8,652,555,
respectively. Federal net operating loss carryovers expire at various dates
between 2027 and 2029, while state net operating loss carryovers expire between
2024 and 2029.
Under the
Tax Reform Act of 1986, as amended, the amounts of and benefits from net
operating loss carryovers and research and development credits may be impaired
or limited in certain circumstances. Events which cause limitations in the
amount of net operating losses that the Company may utilize in any one year
include, but are not limited to, a cumulative ownership change of more than 50%,
as defined, over a three year period. The Company does not believe that such an
ownership change has occurred in 2010 or 2009.
The 2007
through 2009 tax years remain open to examination by the Internal Revenue
Service and the 2005 to 2009 tax years remain open to the Montana Department of
Revenue. These taxing authorities have the authority to examine those tax years
until the applicable statute of limitations expire. As of March 31,
2010 the federal and state 2009 income tax returns were not filed, however
extensions were timely filed.
17
BACTERIN
INTERNATIONAL, INC.
Notes
to Unaudited Financial Statements (continued)
For
the Three Months Ended March 31, 2010 and 2009
|
(18)
|
Employee
Benefit Plans
|
The
Company has a SIMPLE IRA retirement plan established for qualified
employees. Qualified employees may defer their salary and the
deferrals are matched up to 2% for March 31, 2010 and 3% for 2009 of eligible
compensation by the Company. The plan covers substantially all
full-time employees. Under the terms of the plan, participants may contribute up
to the lower of $10,500 of their salary or the statutorily prescribed limit to
the plan. Employees are eligible the first January after their hire
date. The Company made matching contributions during the three
months ended March 31, 2010 and 2009 of $10,956 and $13,970,
respectively.
|
(19)
|
Supplemental
Disclosure of Cash Flow Information
|
Supplemental
cash flow information is as follows:
|
March 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Supplemental
disclosure of cash flow information
|
||||||||
|
Cash
paid during the period for:
|
||||||||
|
Interest
|
$ | 109,022 | $ | 44,675 | ||||
|
Income
taxes
|
- | - | ||||||
|
Non-cash
investing and financing activities:
|
||||||||
|
Acquisition
of property and equipment under capital lease
|
$ | - | $ | - | ||||
|
Acquisition
of treasury stock using notes payable
|
$ | - | $ | - | ||||
|
Conversion
of convertible notes payable into common stock
|
$ | - | $ | - | ||||
|
(20)
|
Subsequent
Events
|
In April
and May 2010, the Company issued an additional $1,425,000 of convertible notes
on the same terms as the $550,000 of convertible notes issued in December
2009. The Company also renegotiated the convertible note agreements
issued in December 2009 to include additional warrants as incentives for
entering into these agreements so that all note agreements issued have the same
terms and incentives.
18
Exhibit 99.3
BACTERIN
INTERNATIONAL, INC.
Balance
Sheet
March
31, 2010
|
Bacterin
International,
Inc.
|
K-Kitz,
Inc.
|
Pro
Forma
Adjustments
|
Footnotes
|
Pro
Forma
Combined
|
|||||||||||||||
| Assets | |||||||||||||||||||
|
Current
Assets
|
|||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 280,103 | $ | 62,434 | $ | 5,697,403 |
a,b
|
$ | 6,039,940 | ||||||||||
|
Accounts
receivable (net)
|
1,558,944 | 5,571 | (5,571 | ) |
a
|
1,558,944 | |||||||||||||
|
Notes
receivable
|
426,565 | - | - | 426,565 | |||||||||||||||
|
Notes
receivable from stockholder
|
22,178 | - | - | 22,178 | |||||||||||||||
|
Inventories,
net
|
5,556,378 | 29,316 | (29,316 | ) |
a
|
5,556,378 | |||||||||||||
|
Prepaid
and other current assets
|
40,000 | 5,194 | (5,194 | ) |
a
|
40,000 | |||||||||||||
|
Total
Current Assets
|
7,884,168 | 102,515 | 5,657,322 | 13,644,005 | |||||||||||||||
|
Property
and Equipment, Net
|
3,136,498 | - | - | 3,136,498 | |||||||||||||||
|
Other
Assets
|
|||||||||||||||||||
|
Intangible
assets, net
|
557,627 | - | - | 557,627 | |||||||||||||||
|
Other
assets
|
13,675 | - | - | 13,675 | |||||||||||||||
| $ | 11,591,968 | $ | 102,515 | $ | 5,657,322 | $ | 17,351,805 | ||||||||||||
|
Liabilities
and Members' Equity
|
|||||||||||||||||||
|
Current
Liabilities
|
|||||||||||||||||||
|
Accounts
payable
|
$ | 1,252,695 | $ | 13,033 | $ | (13,033 | ) |
a
|
$ | 1,252,695 | |||||||||
|
Warrant
derivative liability
|
515,227 | - | - | 515,227 | |||||||||||||||
|
Accrued
liabilities
|
571,750 | - | (82,329 | ) |
a,b
|
489,421 | |||||||||||||
|
Current
deferred tax liability
|
- | 1,834 | (1,834 | ) |
a
|
- | |||||||||||||
|
Notes
payable
|
740,615 | - | - | 740,615 | |||||||||||||||
|
Notes
payable to stockholders
|
183,461 | - | - | 183,461 | |||||||||||||||
|
Current
portion of capital lease obligations
|
69,584 | - | - | 69,584 | |||||||||||||||
|
Current
portion of convertible notes payable
|
3,516,163 | - | (1,666,163 | ) |
a,b
|
1,850,000 | |||||||||||||
|
Current
portion of long-term debt
|
1,193,591 | - | - | 1,193,591 | |||||||||||||||
|
Total
Current Liabilities
|
8,043,086 | 14,867 | (1,763,359 | ) | 6,294,594 | ||||||||||||||
| - | |||||||||||||||||||
|
Long-term
Liabilities
|
|||||||||||||||||||
|
Capital
lease obligations, less current portion
|
17,474 | 17,474 | |||||||||||||||||
|
Long-term
debt, less current portion
|
333,548 | 333,548 | |||||||||||||||||
|
Total
Liabilities
|
8,394,108 | 14,867 | (1,763,359 | ) | 6,645,616 | ||||||||||||||
|
Stockholders'
Equity
|
|||||||||||||||||||
|
Common
stock, $.00001 par value; 100,000,000 shares authorized; issued and
outstanding XXX shares in 2009
|
565 | 6 | 69 |
a,b
|
640 | ||||||||||||||
|
Additional
paid in capital
|
22,394,210 | 96,795 | 7,411,459 |
a,b
|
29,902,464 | ||||||||||||||
|
Treasury
stock, 117,794 shares
|
(76,566 | ) | - | - | (76,566 | ) | |||||||||||||
|
Retained
earnings
|
(19,120,349 | ) | (9,153 | ) | 9,153 |
a
|
(19,120,349 | ) | |||||||||||
|
Total
Stockholders' Equity
|
|
3,197,860 | 87,648 | 7,420,681 | 10,706,189 | ||||||||||||||
| $ | 11,591,968 | $ | 102,515 | $ | 5,657,322 | $ | 17,351,805 | ||||||||||||
|
a
|
Proforma
adjustment to remove all operating revenue, expenses, assets, liabilities
and equity as the transaction assumings the full winding up of the K-Kitz,
Inc. operations.
|
|
b
|
Proforma
adjustments for the completion of the $7,508,329 round of equity
finanicing as part of the proposed stock offering and partial conversion
of convertible notes payable.
|
The
accompanying notes are an integral part of the financial
statements.
BACTERIN
INTERNATIONAL, INC.
Statement
of Income
For
the three months ended March 31, 2010
|
Bacterin
International,
Inc.
|
K-Kitz,
Inc.
|
Pro
Forma
Adjustments
|
Footnotes
|
Pro
Forma
Combined
|
|||||||||||||||
| Revenues | |||||||||||||||||||
|
Revenue
|
$ | 2,707,124 | $ | 16,812 | $ | (16,812 | ) |
a
|
$ | 2,707,124 | |||||||||
|
Royalties
and other
|
29,309 | - | - | 29,309 | |||||||||||||||
|
Total
Revenue
|
2,736,433 | 16,812 | (16,812 | ) | 2,736,433 | ||||||||||||||
|
Cost
of revenue
|
604,622 | 9,657 | (9,657 | ) |
a
|
604,622 | |||||||||||||
|
Gross
Profit
|
2,131,811 | 7,155 | (7,155 | ) | 2,131,811 | ||||||||||||||
|
Operating
Expenses
|
|||||||||||||||||||
|
Selling,
general, and administrative
|
1,671,081 | 16,383 | (16,383 | ) |
a
|
1,671,081 | |||||||||||||
|
Compensation
expense
|
1,483,871 | - | - | 1,483,871 | |||||||||||||||
|
Total
Operating Expenses
|
3,154,952 | 16,383 | (16,383 | ) | 3,154,952 | ||||||||||||||
|
Income
from Operations
|
(1,023,141 | ) | (9,228 | ) | 9,228 | (1,023,141 | ) | ||||||||||||
|
Other
Income (Expense)
|
|||||||||||||||||||
|
Interest
expense
|
(625,797 | ) | - | - | (625,797 | ) | |||||||||||||
|
Other
|
5,924 | - | - | 5,924 | |||||||||||||||
|
Total
Other Income (Expense)
|
|
(619,873 | ) | - | - | (619,873 | ) | ||||||||||||
|
Net
Income Before Benefit (Provision)
|
|||||||||||||||||||
|
for
Income Taxes
|
(1,643,014 | ) | (9,228 | ) | 9,228 | (1,643,014 | ) | ||||||||||||
|
Benefit
(Provision) for Income Taxes
|
|||||||||||||||||||
|
Current
|
- | - | - | - | |||||||||||||||
|
Deferred
|
- | - | - | - | |||||||||||||||
|
Net
Income
|
$ | (1,643,014 | ) | $ | (9,228 | ) | $ | 9,228 | $ | (1,643,014 | ) | ||||||||
|
EPS
Basic for Net Income
|
$ | (0.03 | ) |
XX
|
|||||||||||||||
|
Weighted
Average Shares Outstanding
|
56,461,755 |
XX
|
|||||||||||||||||
|
a
|
Proforma
adjustment to remove all operating revenue, expenses, assets, liabilities
and equity as the transaction assumings the full winding up of the K-Kitz,
Inc. operations.
|
The accompanying notes are an integral part of the financial statements.
Balance
Sheet
December
31, 2009
|
Bacterin
International,
Inc.
|
K-Kitz,
Inc.
|
Pro
Forma
Adjustments
|
Footnotes
|
Pro
Forma
Combined
|
|||||||||||||||
| Assets | |||||||||||||||||||
|
Current
Assets
|
|||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 54,155 | $ | 46,012 | $ | 8,409,201 |
a,b
|
$ | 8,509,368 | ||||||||||
|
Accounts
receivable (net)
|
1,314,418 | 52,202 | (52,202 | ) |
a
|
1,314,418 | |||||||||||||
|
Related
party accounts receivable
|
- | 16,687 | (16,687 | ) |
a
|
- | |||||||||||||
|
Notes
receivable
|
270,565 | - | - | 270,565 | |||||||||||||||
|
Notes
receivable from stockholder
|
- | - | - | - | |||||||||||||||
|
Inventories,
net
|
5,000,713 | 18,978 | (18,978 | ) |
a
|
5,000,713 | |||||||||||||
|
Prepaid
and other current assets
|
30,000 | 3,894 | (3,894 | ) |
a
|
30,000 | |||||||||||||
|
Total
Current Assets
|
6,669,851 | 137,773 | 8,317,440 | 15,125,064 | |||||||||||||||
|
Property
and Equipment, Net
|
3,248,096 | - | - | 3,248,096 | |||||||||||||||
|
Other
Assets
|
|||||||||||||||||||
|
Intangible
assets, net
|
554,268 | - | - | 554,268 | |||||||||||||||
|
Other
assets
|
13,675 | - | - | 13,675 | |||||||||||||||
| $ | 10,485,890 | $ | 137,773 | $ | 8,317,440 | $ | 18,941,103 | ||||||||||||
|
Liabilities
and Members' Equity
|
|||||||||||||||||||
|
Current
Liabilities
|
|||||||||||||||||||
|
Accounts
payable
|
$ | 1,403,950 | $ | 23,460 | $ | (23,460 | ) |
a
|
$ | 1,403,950 | |||||||||
|
Warrant
derivative liability
|
$ | 75,231 | $ | - | $ | - | 75,231 | ||||||||||||
|
Related
party accounts payable
|
- | 15,603 | (15,603 | ) |
a
|
- | |||||||||||||
|
Accrued
liabilities
|
463,633 | - | (82,329 | ) |
a,b
|
381,304 | |||||||||||||
|
Current
deferred tax liability
|
- | 1,834 | (1,834 | ) |
a
|
- | |||||||||||||
|
Notes
payable
|
1,126,690 | - | - | 1,126,690 | |||||||||||||||
|
Notes
payable to stockholders
|
183,461 | - | - | 183,461 | |||||||||||||||
|
Current
portion of capital lease obligations
|
85,071 | - | - | 85,071 | |||||||||||||||
|
Current
portion of convertible notes payable
|
820,787 | - | 1,029,213 |
a,b
|
1,850,000 | ||||||||||||||
|
Current
portion of long-term debt
|
1,202,574 | - | - | 1,202,574 | |||||||||||||||
|
Total
Current Liabilities
|
5,361,397 | 40,897 | 905,987 | 6,308,281 | |||||||||||||||
|
Long-term
Liabilities
|
|||||||||||||||||||
|
Capital
lease obligations, less current portion
|
27,074 | - | - | 27,074 | |||||||||||||||
|
Long-term
debt, less current portion
|
412,545 | - | - | 412,545 | |||||||||||||||
|
Total
Liabilities
|
5,801,016 | 40,897 | 905,987 | 6,747,900 | |||||||||||||||
| - | |||||||||||||||||||
|
Stockholders'
Equity
|
|||||||||||||||||||
|
Common
stock, $.00001 par value; 100,000,000 shares authorized; issued
and outstanding XXX shares in 2009
|
565 | 6 | 69 |
a,b
|
640 | ||||||||||||||
|
Additional
paid in capital
|
22,238,210 | 96,795 | 7,411,459 |
a,b
|
29,746,464 | ||||||||||||||
|
Treasury
stock
|
(76,566 | ) | - | - | (76,566 | ) | |||||||||||||
|
Retained
earnings
|
(17,477,335 | ) | 75 | (75 | ) |
a
|
(17,477,335 | ) | |||||||||||
|
Total
Stockholders' Equity
|
4,684,874 | 96,876 | 7,411,453 | 12,193,203 | |||||||||||||||
| $ | 10,485,890 | $ | 137,773 | $ | 8,317,440 | $ | 18,941,103 | ||||||||||||
|
a
|
Proforma
adjustment to remove all operating revenue, expenses, assets, liabilities
and equity as the transaction assumings the full winding up of the K-Kitz,
Inc. operations.
|
|
b
|
Proforma
adjustments for the completion of the $7,508,329 round of equity
finanicing as part of the proposed stock offering and partial conversion
of convertible notes payable.
|
The
accompanying notes are an integral part of the financial statements.
Statement
of Income
For
the Year Ended December 31, 2009
|
Bacterin
International,
Inc.
|
K-Kitz,
Inc.
|
Pro
Forma
Adjustments
|
Footnotes
|
Pro
Forma
Combined
|
|||||||||||||||
| Revenues | |||||||||||||||||||
|
Revenue
|
$ | 7,101,357 | $ | 295,520 | $ | (295,520 | ) |
a
|
$ | 7,101,357 | |||||||||
|
Royalties
and other
|
292,136 | - | - | 292,136 | |||||||||||||||
|
Total
Revenue
|
|
7,393,493 | 295,520 | (295,520 | ) | 7,393,493 | |||||||||||||
|
Cost
of sales
|
2,318,142 | 213,254 | (213,254 | ) |
a
|
2,318,142 | |||||||||||||
|
Gross
Profit
|
5,075,351 | 82,266 | (82,266 | ) | 5,075,351 | ||||||||||||||
|
Operating
Expenses
|
|||||||||||||||||||
|
Selling,
general, and administrative
|
4,161,941 | 72,301 | (72,301 | ) |
a
|
4,161,941 | |||||||||||||
|
Compensation
expense
|
4,535,964 | - | - | 4,535,964 | |||||||||||||||
|
Total
Operating Expenses
|
|
8,697,905 | 72,301 | (72,301 | ) | 8,697,905 | |||||||||||||
|
Income
from Operations
|
(3,622,554 | ) | 9,965 | (9,965 | ) | (3,622,554 | ) | ||||||||||||
|
Other
Income (Expense)
|
|||||||||||||||||||
|
Interest
expense
|
(513,934 | ) | - | - | (513,934 | ) | |||||||||||||
|
Other
|
10,746 | - | - | 10,746 | |||||||||||||||
|
Total
Other Income (Expense)
|
(503,188 | ) | - | - | (503,188 | ) | |||||||||||||
|
Net
Income Before Benefit (Provision)
|
|||||||||||||||||||
|
for
Income Taxes
|
(4,125,742 | ) | 9,965 | (9,965 | ) | (4,125,742 | ) | ||||||||||||
|
Benefit
(Provision) for Income Taxes
|
|||||||||||||||||||
|
Current
|
- | - | |||||||||||||||||
|
Deferred
|
- | (1,834 | ) | 1,834 |
a
|
- | |||||||||||||
|
Net
Income
|
$ | (4,125,742 | ) | $ | 8,131 | $ | (8,131 | ) | $ | (4,125,742 | ) | ||||||||
|
EPS
Basic for Net Income
|
(.08 | ) |
XX
|
||||||||||||||||
|
Weighted
Average Shares Outstanding
|
52,911,010 |
XX
|
|||||||||||||||||
|
a
|
Proforma
adjustment to remove all operating revenue, expenses, assets, liabilities
and equity as the transaction assumings the full winding up of the K-Kitz,
Inc. operations.
|
The accompanying notes are an integral part of the financial statements.